Do you understand credit reports? If your answer is “No,” do not worry. You are definitely not alone! Most people cannot read a credit report, much less understand what they are trying to convey. Credit reports, in a nutshell, are a history of your behavior regarding money and how responsible and/or irresponsible you are in managing your money.
Reading a credit report used to be just as hard to read as it was to read your monthly credit card statements, however over the past 5 years or so Congress has passed new laws in order to help consumers understand just exactly what they are looking at. This history is compiled by four major credit reporting agencies that receive your financial information from banks, credit card companies, or other various creditors and is used to generate a credit score for you. I say four, as most people are unaware that there is a fourth credit bureau now by the name of Innovis. You can look this company up on the Internet, however for now it is just nice to know that there are four reporting agencies now.
Creditors, employers and even insurance companies now use these reports, and the credit score associated with them, to determine your “credit worthiness” and what level of risk they are willing to take should they decide to loan you money, hire you for a job or how much to charge you with your insurance premiums. It did not use to be this way, however with more information available to just about anyone who asks for it, and is willing to pay a fee, your information is available to these companies.
To help you become more familiar with the critical elements of your credit report, the first thing you should do is go online and order a free copy of your credit reports. The one and ONLY site you can go to that is truly free is www.annualcreditreport.com. You can order your reports from Experian, Trans Union and Equifax, however with Innovis you have to write to them to get your report.
The other thing you need to know is that these reports will not give you your credit score. You really do not need that right now, although all of these companies sell that information to you as if it were your blood lifeline!
A few things you want to do once you have your reports in hand. The first is to check them thoroughly for discrepancies. Studies show that credit reporting agency usually have about a 35% ratio of mistakes on reports simply because names can be so close to someone else’s, miscues from data entry people who work for these companies, and finally just plain wrong information being reported to them. If you want your report to be accurate, you need to set time aside every year and do this.
There are roughly four sections of a credit report that you need to know about. They are:
1.) Your personal information. Your credit report will report almost every address you have lived at over the last 10-20 years. In addition, it will report every variation of your name you have ever used. What is important here is to ensure the social security number, date of birth, current address and current employer is being reported correctly. Keep in mind that employers have access to these reports and will use them! Therefore, if your information is incorrect, make sure you get it corrected. I once had an employers’ corporate address showing up as a multi-dwelling home that I lived in. Go figure!
2.) What your creditors are saying about you. For example, are they reporting that you made late payments to your creditors or failed to pay them at all? This is where most of the mistakes are made. The important things here are:
- Company name: Person/agency who gave you the credit account.
- Account number: Number that identifies your account.
- Condition: Account status as of the last reported date (open or closed).
- Type: Type of account (common types include real estate, revolving, and installment).
- Responsibility: Is it an individual or joint account?
- Opened: Date the account was opened.
- Limit: Maximum amount of charges allowed on a credit card.
- Last reported: Date the information was last reported to the credit bureau.
- Lastly what is the balance owed: If the account is closed it should reflect a $0.00 balance owed, whether or not you were late or not. A closed account is a closed account and you no longer owe that company anything.
3.) Public Record Information. For example, what are local, state, and federal courts showing, if anything, about you. Do you have any bankruptcies, judgments, liens, or law suits that are outstanding? This is the second area where major mistakes are made.
4.) Finally, your credit score itself. Your credit profile is composed of five basic components. When you understand what goes into a good credit score, you will be better able to control yours in a meaningful way. Understanding this information will help you make decisions.
• Should you close an account?
• Should you apply for more credit?
• Should you pay someone off?
• Or should you continue to make regular payments to demonstrate a good payment history?
The answers to these questions will probably not be the same for everyone. When you review your credit history, you will be able to determine which strategies will work best for your special situation.
Once again, understanding credit reports and credit scores is basically a grade of your credit behavior. Credit scores are frequently referred to as FICO scores — a name derived from Fair Isaac Corporation, the company that invented credit scores. They can range anywhere from 300 as a low all the way to 850 as a high. In addition, probably the best place to “purchase” your credit score is through this company by going to www.myfico.com.
Nationwide Debt Reduction provides a service for you to review and screen your credit reports for you, however only you know for certain if the information that is being reporting is true or not. Once that has been established, “cleaning up” these errors are the next step in the process. That is what knowing things such as what does an I-9 mean or does “FDTXL” spell? (No, you cannot buy a vowel!)
Some of this is pretty straightforward at first. For example: An entry that says “Paid/Was 30” means you paid the account and you were 30 days late once.
Easy, right? Well, maybe not as easy as it looks. Because there are factors that make that entry more or less important. A 30 day late entry that is a month old is a much bigger problem than one that is three years old. And it will change your credit score more drastically as well. When you understand what kind of negative entries affect your score more than others it will be easier to decide which entries to attack first. And more importantly, how to attack them.