So far in The Definitive Guide to a Debt Free Life, you have learned exactly what debt is, why people commonly fall into debt, and how to use a credit card correctly.
It is now time to learn how to read your credit report.
Reading your credit report is an essential step to monitoring your financial health. But you do not want to read it without being able to interpret the information that it holds. That is where understanding your credit report comes in handy.
The information discussed in this chapter will teach you how to get your credit report, read your credit report, and then understand the information that you read. The chapter ends with a brief summary of why knowing your credit report is so essential to staying out of debt.
Getting Your Credit Report
It is recommended by the United States Federal Trade Commission (FTC) that every citizen check their credit report at least once per year.
It goes without saying that you need to get your credit report before you can check it. Luckily, you are legally entitled to three FREE credit reports each year. These free reports come in the form of separate reports from each of the three major U.S. credit reporting agencies. These are Equifax, Experian, and TransUnion.
It is also possible to get your credit report for a small fee. However, most people do not need to do this if they space their three free reports out over the course of the year.
A few of the easiest ways to get your free credit report include:
- AnnualCreditReport.com – Perhaps the absolute easiest way to obtain your annual free credit report is through AnnualCreditReport.com. All three of the major credit reporting agencies co-sponsor this website, thus making it by far the most pain-free route to take. Before you receive your report, you must enter in basic information about yourself as well as answer a few security questions.
- By Phone – Annual Credit Report allows consumers the option to order their reports via the phone. To do so you can call 1-877-322-8228. You will be required to answer a few simple security questions. Your report will arrive in the mail in two to three weeks.
- By Mail – It is also possible to order your free annual credit report by mail. To do this you must download and print a Request Form from Annual Credit Report, fill it out, and send it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. As with ordering by phone, your report should arrive in two to three weeks.
- Directly from Agency – Sometimes it is necessary to order your credit report from one of the reporting agencies. This can be the case for your free report but is more often the case if you need more than three reports in one year. Visit the Equifax, Experian, or TransUnion websites for more information.
*It is important to note that while your free annual credit report contains all of the information that you need to monitor your financial health, it does not display your credit score. MyFICO.com is an excellent place to inquire about viewing your credit score. (WikiHow.com)
Reading Your Credit Report
Knowing how to get your credit report is next to meaningless if you do not know how to read it.
Your credit report can be confusing at first glance. It might look like a mess of numbers, abbreviations, and terms that do not seem to have any real meaning. Luckily, these numbers, abbreviations, and terms are easy to sort out once you know what to look for.
Each credit report is divided into four primary sections. These are identifying information, credit history, public records, and inquiries.
The identifying information section is the easiest to read. It consists of information that identifies you. It is still important to look over this section to make sure that everything is accurate and up-to-date. This will help prevent reporting errors and ensure that the information is accurate.
Credit history is the next section of your credit report. This section is divided up into separate “accounts,” each of which consists of a record of an individual creditor and your account number with them. These are sometimes referred to as “trade lines.”
Each account has information regarding when it was opened, the kind of credit it consists of, if there is another person on the account, the total amount of your loan or your credit limit, how much you still owe, the monthly minimum payment amount, the status of the account, and how much of the account you have already paid off.
The third section of your credit report consists of public records. This is the one section of your report that you ideally want to be completely blank.
A blank public record shows creditors that you have never had a major credit problem. A note in this section implies that you have had a bankruptcy, judgment, or tax lien (or a combination of the three).
Finally, we come to the inquiries section. This section records every time someone, including you, asks for a copy of your report. There are two different types of inquiries, hard and soft.
Hard inquiries are from when you sign up for a new credit card or when a third-party company otherwise need to access your report. Soft inquiries are from companies sending promotional material to you. (CreditCards.com)
Understanding Your Credit Report
Reading and understanding your credit report are slightly different.
Being able to read it means you know what the information is saying. Being able to understand your report means you know how the information applies to you.
The most important thing you can do to understand your credit report is to compare it to your records. This is essential because it could help you pick out any errors or inaccurate information that is affecting your score.
It also means getting an idea for how your credit history will affect your current and future relationships with creditors. You can look at your credit report much like an essay for school. The report is what the teacher might write on the back while your actual score (not visible on your free report) is the grade they give you.
It is easy to get a solid feel for how well you are doing credit-wise solely from your credit report.
If you are denied credit because of something on your report, then you are entitled to another free credit report. Accessing this will help you understand why you were denied and will enable you to check for errors.
Finally, it is essential to understand that your credit report is not set in stone. Any negative information that is over seven years old is automatically deleted and does not affect your credit history any longer. Bankruptcies are the exception and stay on credit reports for up to ten years. At that point, they are taken off your record. (BankRate.com)
Importance of Understanding Your Credit Report
Understanding and frequently viewing your credit report is important for many reasons.
As mentioned several times above, it can help you ensure that all of the information is accurate and up-to-date. It can help you pick out errors. Along these same lines, viewing your credit report can help you prevent credit fraud or identity theft.
Knowing where you stand as far as credit goes is also essential if you hope to take out a mortgage, a new loan, or apply for a new credit card.
A credit report is simply the way that lenders, banks, and credit card companies assess the risk of loaning you money. Because it is what they use to decide if they should lend to yo, it is important for you to keep your eye on.
Having a good grasp of your credit report can also help you improve your overall credit score.
You are now an expert on credit reports. You know how to get, read, and understand your report. You can use this information to monitor your financial health and keep yourself out of debt.
Stay tuned for Chapter 5: How Debt Affects Credit.
As its title suggests, this chapter looks at how debt hurts your credit score. It also discusses how some types of debt can actually help your credit score. You are well on your way to the debt free life that you deserve.