Interpreting Information on your Credit Report
Credit reports contain a certain amount of personal information. This is called identifying information and, among other things, allows the credit-reporting agency to distinguish between two people with the same name. Typically, identifying information includes your name, address, Social Security number, previous addresses, employers (past and present), phone number, spouse, and date of birth. This information usually appears at the very beginning or the very end of your report.
When you apply for a loan, normally a credit check will occur. You need to make sure the data in your file are accurate and current. One mistake can result in getting denied. If any of it is wrong, it should be corrected. Under the law (FRCA and FACTA), you can request the credit bureaus to truncate your Social Security number on disclosures they send to you, including your credit reports. This step may help prevent identity theft.
How Does Your Credit Score Compare to the National Average?
Taking note of average credit scores and debt obligations can serve as sort of a barometer for your own financial health. The average credit score in America today is 697.5. The average credit report features 13 accounts. Four of those are loans being paid in installments, like a home mortgage or a car loan, and the other 9 are usually credit cards. Just over 40 percent of Americans have carried a balance during the past 12 months. According to recent statistics, the average per credit card balance is $1,157, with the average individual carrying about $2,258 in total credit card debt.
In terms of national totals, student loan debt recently surpassed credit card debt. The total amount of student loan debt in the nation is about $1 trillion, with the total credit card debt hovering at approximately $793 billion. The average U. S. household is currently carrying about $117,951 in debt, with approximately $95,000 of that, for homeowners, being what they owe on their home mortgages. The states in the northern Plains, the Northwest, and New England tend towards the highest average credit scores; Texas and Utah have the lowest.
Putting That Knowledge To Productive Use
Now that you know how your credit score and amount of debt compares to the national averages, you can put that knowledge to practical use. Use that data as the foundation of your financial planning and goals. You can improve your credit score by working towards paying down debt. Remember, credit reports contain positive information, as well as the sort of information that can hurt your credit score. Keep working towards making positive, productive financial moves, and you'll steadily lessen the proportion of negative information while improving your overall financial well-being. Credit reports are a valuable financial planning tool.
What Does Your Credit Report Reveal About You?
Your credit report provides information about how you have handled your past and present credit accounts. Credit accounts generally fall into three categories. Installment loans, credit cards, and mortgages are the primary account types that you'll find on your credit report. Your credit report will also contain the complete, detailed repayment record for each account. The duration for which any information that is typically deemed to be "negative" is limited in most cases. For example, late payments, Chapter 7 Bankruptcy, collections, foreclosures, certain public records, and paid tax liens remain on the file for about seven years (unpaid tax liens can remain indefinitely; paid liens remain for seven years after it is paid). Chapter 13 bankruptcies can remain for ten years. Formal (hard) inquiries, such as those performed when a lender reviews your application for credit, can remain on the file for up to 2 years. Informal (soft) inquiries, such as those times that you requested your credit report, do not appear. Most of the positive information in your credit file, including accounts that have been paid off entirely, tend to remain indefinitely.
Your account information usually composes the largest part of a credit report.
The lender's name, the account number, a description of the account, when it was opened, what the high balance was, what the outstanding balance is, the loan terms, your payment history, and the current status of the account are typically included.
Tip: Under FACTA, when reporting information furnished by a medical provider, the credit bureaus can only include financial information on your credit report--they are prohibited from disclosing the identity of the medical provider or the nature of the services.
Experian provides the most user-friendly presentation, using plain English and full sentences. Trans Union also uses plain English, but not full sentences.
Equifax presents information in columns and rows. Each column is identified at the top. The information that appears in each column is largely self-explanatory, except the column labeled "Status." Typically, in this column, you will see a letter and a number for each account. The numbers are the first thing a creditor looks at when evaluating your report. The letters merely describe the account.
Example(s): Consider the following:
- O=Open account with balance due in full each month (like a travel card account)
- R=Revolving account with monthly payment (like a credit card account or a home equity line of credit)
- I=Installment account with fixed monthly payments (like a student loan, auto loan, or mortgage payment)
Example(s): The numbers describe your payment history, such as:
- 0=New account, not used yet
- 1=Paid as agreed
- 2=30+ days late
- 3=60+ days late
- 4=90+ days late
- 5=120+ days late
- 6=180+ days late
- 7=Making regular payments under wage earner plan or similar arrangement
- 9=Charged off to bad debt
These numbers were formerly used by all the major credit bureaus. It used to be common to hear a loan officer say that a person was all aces, which meant that the person's credit report had nothing but 1s in the "Status" column. Both the rating system and the numbers are slowly fading away, however. Most find that the easy-to-read format serves everyone better and takes the mystique out of credit reporting.
Tip: If you have trouble reading any part of your Equifax credit report, an instruction sheet entitled "How to Read Your Credit File" is included with each mailing. It is easy to use and very helpful.
Public record information
Credit bureaus collect information from courthouse records and registries. Thus, you may find bankruptcies, tax liens, judgments, and even criminal proceedings listed in your credit file.
Credit report inquiries
Whenever someone requests a copy of your credit history, it is recorded as an inquiry in your report. Typically, these appear at the end of the report. They remain on your report for 24 months. Among other things, these entries allow you to see who has been checking up on you and whether any unauthorized persons have obtained your credit file.
Tip: Occasionally, you will see an inquiry identified as being made pursuant to a prescreen program. Typically, this is a credit card company that has contacted the credit-reporting agency and asked for a list of consumers who meet a certain credit criteria. The credit card company hasn't actually seen your credit report, but they have received a list of names and addresses from the credit bureau with your name on it. Don't be alarmed. This only means that you are likely to receive an offer in the mail for a pre-approved credit card.
Tip: Under the Fair Credit Reporting Act (FCRA) and FACTA, you have the right to opt out of prescreen programs and block unwanted solicitations for a period of five years.
Do Credit Inquiries Hurt My Credit?
We all have them. Many of us aren't sure where they came from, or how long they are staying. No, we're not talking about the in-laws! We're talking about inquiries on our credit reports. Inquiries are one of the most confusing and least understood aspects of the credit reporting system. Here's the skinny on inquiries and how you can manage them:
What are inquiries?
An inquiry is a record of someone checking your credit information. Inquiries come in two distinct categories: "hard inquiries" that occur when a business views your credit report for the purpose of an application for credit and "soft inquiries" that occur when your credit is checked for other reasons or when you check your credit. If you apply for a new credit card, a hard inquiry record will appear on your credit report and may cause a temporary drop in your credit score. When you check your own credit report, or when it is checked for a pre-approved marketing purpose or for account management, it is considered a soft inquiry and will not harm your credit score.
Will checking my own credit harm my score?
Checking your own credit data will not harm your credit score. You can check your credit and review your data without worrying about causing any damage to your score.
Why are inquiries recorded?
Hard inquiries are recorded so that potential creditors and lenders can view how often you have applied for new credit. Potential creditors may think you are trying to spend beyond your means if there are too many hard inquiries on your credit report. You can still shop around for a loan; multiple inquiries for the same purpose in a short amount of time are commonly grouped into one less harmful inquiry session. Inquiries are also helpful for consumers because they can notify you of a potential identity thief applying for accounts in your name.
How long do they last?
Most hard inquiries remain on your credit report for two years from the original placement. All inquiries must stay on your credit report for at least a year. You are allowed to dispute inquiries on your credit report, but it can be difficult to prove that the inquiry is indeed inaccurate. If you are unsure of where an inquiry came from, try contacting the financial institution listed before sending off a letter of dispute.
This information is for educational purposes only and does not constitute legal or financial advice. You should always seek the advice of a legal or financial professional before making any legal or financial decisions.
If you have requested that a consumer statement be included in your credit file, then an abbreviated version of your statement will appear on your report.
What does the credit information mean?
Each creditor uses its own credit evaluation standards
If you are looking at your credit report now, you may be trying to determine why you just got turned down for that loan for which you recently applied. Alternatively, you may intend to apply for a loan and want to see how your credit looks. In either case, you have the report and you can read the information, but you probably want to know what it means. You want to know whether you are credit-worthy or not.
Each creditor has its own system. Some use credit scoring, and some don't. Some have severe credit standards, whereas others are more flexible. Some even make loans to consumers who have recently filed for bankruptcy. It is difficult to know what any one creditor looks for or what they see when they look at your credit report. Your credit-reporting agency doesn't even know. However, there are some general rules of thumb.
A history of late payments and bad debts means you are a high-risk borrower
The three major credit-reporting agencies provide information about payment performance over the last 12 to 24 months. Charge-offs and judgments up to seven years old may appear on your credit report. Generally, this is bad.
If you have a history of late payments and/or bad debts, it means you are a high credit risk. The lender figures that it will have to wait for its money, work hard to get its money, or not get its money at all. Therefore, the lender is unlikely to give you the benefit of the doubt or the loan.
Alternatively, the lender may offer you credit, but at terms less favorable than those offered to most of the consumers it serves.
Too many inquiries mean you are shopping around too much
When you apply for credit, the lender will request a copy of your credit history. The lender's request appears as an inquiry on your report. Too many inquiries in a short period of time make loan officers nervous. They assume that you are shopping around for one of two reasons:
- You were turned down everywhere you went but keep trying, or
- You are up to something
In the first case, you appear desperate, but the loan officer doesn't want to take a risk if none of the other banks in town will. In the second case, the loan officer sees someone who is on a credit spree, shopping for all the credit he or she can get. He or she may be financing a bad habit, borrowing to pay off another debt, or just foolish about the amount of credit he or she needs. In any case, the loan officer is unlikely to take the risk by giving you a loan.
Tip: Under FACTA, the credit bureaus must notify you if too many inquiries are having a negative impact on your credit report.
A brief credit file means you have insufficient experience with credit
You may have good credit but not enough. Suppose you have five local department store charge cards with a credit limit of $500 on each. You have always paid as agreed, but the highest balance you have ever carried on any particular card is $100. You have had no other credit accounts. Now you are applying for a $16,000 loan to buy a car with only $1,000 down, but there is nothing on your credit report that indicates you have the experience or ability to handle a $450 per month car payment for four years. Your lender knows that everyone must start somewhere, but it doesn't want to be at risk if you make mistakes. You need to build up more credit credentials before you will be credit-worthy enough to take on this kind of debt.
Tip: In these situations, the bank may lend you less money for a less expensive car, agree to lend you a lesser amount if you agree to put more money down, or make you the loan if a someone cosigns the loan with you.
Errors mean that the lender really cannot evaluate your credit history
Errors on your credit report are bad, even if they are not particularly derogatory when viewed in isolation. Loan officers often compare your loan application to your credit report. If inconsistencies exist, they may become suspicious. They may wonder if you are hiding something. Alternatively, they may become skeptical, operating on the assumption that if there is one error, then there are likely to be more. If there are more errors, then there is no way to really evaluate your application. Rather than take the time to call you up and sort it all out, a typical loan officer may simply reject the application and avoid the risk. If the errors indicate that you have bad credit, you are in even more of a pickle.
Credit Monitoring - It's worth it!
You simply don't have the time to monitor your credit, at all three credit bureaus, on a day to day basis. There are legitimate companies who will monitor your file daily, and notify you of changes as they occur. These will alert you to possible fraudulent activity. This service is very inexpensive and very valuable. For more information on improving your credit, look here.