How to Read Your Credit Report
Studies have shown that purchases made on credit cards have ballooned in
recent years. This means that outstanding credit card balances and the number of
individuals carrying plastic has ballooned too. So it makes sense to review
exactly how this affects your purchasing power and financial future.
This article will define "purchasing power" as the ability
to buy any good or service over time. As you know, when you apply for a mortgage, an automobile loan
or a personal loan your credit is checked.
However, some people may be unaware that potential employers, landlords, and
utility companies may also request your credit report.
With our society relying so much on credit, can you see how your
"purchasing power" may be affected if negative or incorrect
information is on your report?
Below is a basic outline on consumer rights regarding credit,
disputing incorrect information on your credit report, adding comments to your
report and finally, how to read a credit report.
1) Your Consumer Rights
The Fair Credit Reporting Act, enacted in the early 70s outlines credit
rights. A request for your credit report must be used in conjunction with one of
the following reasons:
- In connection with a legitimate business purpose
- In response to a court order
- Your written instruction
- Extension, review or collection of credit
- Underwriting of insurance
- Employment purposes
- To determine eligibility for a license
2) Who Evaluates your Credit Report?
Credit reporting agencies do not evaluate your credit worthiness. These
companies merely gather the information. The creditor, requesting your report
makes the decision to grant or not grant you credit. Their decision to based
upon the information they receive from the agency. (other factors may also a play
role including your income, debt ratio, etc.)
Some of the the larger credit reporting companies are:
- Experian - Purchased the files of TRW
Many smaller credit reporting agencies also exist.
3) How to remove blemishes from your Credit Report
Our society has become credit happy, thus ensuring
all the information on your report is correct is vital to your financial health.
You cannot remove legitimate negative information from your credit
report, but you can clean up your report. Let's take a look at few examples
Example #1: You lose your job and did not have income for 3 months.
Unfortunately, you were delinquent on your bills during that time. Because you cannot
remove legitimate information from your report, the next best thing to do is write a
letter the three major credit reporting agencies. The purpose of this letter is to explain why you were
late for the three month time period.
Request this letter to be added to your report.
creditors request your credit report they will also receive a copy of your
letter of explanation. Potential creditors will know the reason for the late
because you were unemployed and not a deadbeat. Keep the letter between 50-100
Example #2: Upon review of your credit report you find inaccurate or
incorrect information. The way to fix it is to write a letter to each credit
bureau and inform them they have inaccurate or incorrect information in your
You must specify exactly what is incorrect and why you think it is incorrect. Once the
bureau receives your letter they must investigate your claim.
If the information
is incorrect, the credit bureau must fix or delete the mistake. If the bureau
finds the information is correct and you are wrong, you can still dispute the
claim by writing a statement explaining your side.
Again, write a letter explaining the situation and ask the credit agency to
add it to your report. (remember, keep it between 50-100 words)
4) How to get a free credit report
The way to get a free credit report is to ask. However, before you ask you
must meet certain cretria.
- You have been denied credit, because of your credit history, within the
last 30 days.
- You have been denied insurance, because of your credit history, within the
last 30 days.
- You have been denied employment, because of your credit history, within
the last 30 days
5) How to read your credit report (in brief)
At first glance, your credit report may appear to be written in a foreign
language. It contains abbreviations, a bunch of dates, and endless strings of
letters and numbers. Since each reporting agency's report is a little different,
let's just look the one section that is probably the same: definitions of the
Consumer Payment History.
- C means Account is current
- N means Current/zero balance not updated
- 0 means Current/zero balance updated
- 1 means 30 days past due
- 2 means 60 days past due
- 3 means 90 days past due
- 4 means 120 days past due
- 5 means 150 days past due
- 6 means 180 days past due
- 7 means making payments under arrangement (debt consolidation company)
- - (dash) means
no history for that month
The above definitions are from Experian (TRW)
(As mentioned earlier, each reporting agency may have a different definition
for symbols or numbers.)
Also, don' forget to read the other financial tips offered on this website. They
are designed to get your entire entire financial house in order.
We hope this information has helped to clear up some of the mystery
regarding your credit report. Good Luck.
In addition, learn about an online resource that allows you to
learn which credit cards you qualify for based on your credit history and
circumstance. This is accomplished without adding another damaging inquiry to
their credit file.
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