Credit 101: Part 4 – How to Read Your Credit Report

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Credit History

Reading Your Credit Report

Once you have obtained your credit report, the first section to review is your personal information.  Be sure your name, address (past and present) and social security number are correct.  If there is an error, contact the credit reporting agency that is reporting your information incorrectly.

The next section of your credit report that you should review contains your credit score (if you ordered a report from a credit bureau) and the factors of your credit score.  There are several factors credit reporting agencies consider when determining your score.  Some of the more common factors include:

  • Serious delinquency and Public Records Filed – This would appear if you have collections, charge-offs, bankruptcies or judgments.
  • Ratio of balance to limit on revolving accounts too high – This appears when your credit card balances are close to the limit.  There are not many factors that can affect your score in the short-term other than this one, especially if you have more than one card near the limit.  Keeping your credit card balances at 20% or less of the limit every month is your best bet if you want to ensure this factor doesn’t affect your score.
  • Length of time accounts have been established – This will appear for a short time when you have opened a new line of credit somewhere.  This will only become a problem if you open multiple lines of credit over a short period of time.
  • Too many inquiries last 12 months – Every time you apply for a loan with different lenders, your credit is pulled, which places an inquiry on your credit report.  Having just a few inquiries will lower your score, but it will hardly be noticeable.  Having multiple inquiries will lower your score considerably.  Every inquiry will stay on your credit report for two years, at which point it falls off.  Pulling your own credit no longer counts as an inquiry and does not impact your score.

For more information on understanding your credit report, see our entire series, Credit 101 Part 1, Part 2 and Part 3.

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