Understanding your Credit Report and Scores

Looking at your credit report for the first time can be a daunting affair. However, it is important to understand what all that information means. Understanding your credit report, once you get the hang of it, will help you to protect your credit.

Understanding your Credit Report - Identifying Information

Your credit report can be looked at as having four parts. The first section, identifying information, is pretty much what it sounds like, information about you. You will see your name, social security number and other information such as your address, date of birth, driver's license number, and previous addresses where you have lived.

Understanding your Credit Report - Credit History

The credit history section of your credit report will list companies to which you owe money and your account numbers with them, although the account numbers may be scrambled for your protection. The individual accounts, or trade lines, will include information about your payment history, such as when you opened the account, the total amount of the loan, and how much you still owe on the loan. If the trade line is a credit card account, your credit limit or the most that you have charged against your card will be listed. All of your trade accounts will list your monthly minimum payments, if the account is open or closed, and how timely your payments are or were.

"How well you pay" may be written out, such as "never pays late" or "default," or may be shown in code such as "R1" for good payment on a revolving loan.

Negative information on your payment record can remain in this section for up to ten years.

Understanding your Credit Report - Public Records

The public records section is the major "cringe" section of your credit report. This is the section where any difficult financial problems that you may have had will be listed, such as bankruptcies or tax liens. Optimally, the public records section of your credit report will be blank.

Understanding your Credit Report - Inquiries

The inquiries section covers companies that have inquired about your credit, including "hard" inquiries, or those which you initiated when you filled out an application for credit, and "soft" inquiries, or inquiries from companies such as those that might be sending you pre-approved credit cards.

Inquiries can stay on your credit report for up to two years.

Understanding your Credit Report - FICO Scores

Your credit report is used to determine your FICO score, which is used to help determine your credit worthiness. Your FICO score can range from 300 to 850. The higher your FICO score, the more likely you are to get credit.

Understanding your Credit Report - Maintaining your Credit Report

There are three major credit reporting companies in the United States, Experian, TransUnion, and Equifax. You are entitled to receive a free credit report from each of these agencies every twelve months. It is wise to request copies of your credit report from each company to check for errors. Fixing errors on your credit reports might improve your FICO score.

You can also get a free copy of your credit report from the reporting credit bureau if you have been turned down for credit. You have up to thirty days to request your report after you have been turned down.

Improving your FICO Score

Other ways of improving your FICO score include:

• Paying your bills on time.
• Closing out credit cards that you are not currently using.
• Reducing your debt level by keeping your total debt at 49% in relationship to the total credit that you have available.

Laura Evans, Staff Editor

More On This Subject

How Much Credit is Too Much
Clamping Down on Credit Card Debt
FICO Scores:  Your Credit Score Defined