If you are in debt, you are probably thinking the last thing you want to do is look at your credit report. You are dead wrong. It should be the first thing you do.
A credit report is the best way to get a complete and accurate description of your financial reality.
They are free and you can review them from the privacy of your own home without any disapproving looks from a banker.
Here is what to look for:
1. Report number.
The report number is always at the top. It is only important if you need to contact the credit bureau with a question or dispute an error, but mistakes are common. Make a note when you see something wrong.
2. Personal information.
Recent addresses, employers, phone numbers and alias (such as maiden names) are usually grouped together. It may be at the top or bottom of the report.
Errors here could be a sign your credit report is mixed up with someone else’s report. These errors could be dragging down your report.
History summaries generally include a list of public records, collections and negative trade accounts.
The summary on an Equifax credit report is probably the hardest to read because it is filled with abbreviations and codes, but some people like the format.
TransUnion includes a simple history summary of revolving loans, installment loans and mortgages. You will see your total credit limits, balances and payments, so it is an easy place to calculate your credit utilization ratio.
If you are not afraid of ripping off the Band-Aid too quickly, use Experian for a summary of potentially negative items on the very first page.
“Every American gets a free report
from the three major reporting bureaus.”
The biggest section will likely be the list of creditors. Each one is listed separately with your balance on the day the report was run. It also lists your credit limit and payment history for 24 months.
- Experian will write how long the account is past due.
- TransUnion uses colored squares for every payment month: green squares for on-time payments, orange for past due and red and black for defaults.
- Equifax uses numbered codes from zero to nine. Anything more than a one means the payments are past due.
5. Black marks.
Every month you are late on a payment, it shows up on your credit report. Delinquencies are also noted every month along with the last date you made a payment.
Accounts that have been turned over to a collection agency are marked with a nine or a black box. They stay on your report for seven years, so make sure any disputes are indicated even, if they are still in negotiation.
Foreclosures, court judgements, liens and bankruptcies are also listed for seven to 10 years.
Bankruptcies list every creditor that was part of the settlement. If you have to set up a payment plan with a creditor, make sure it is listed on the report.
All the reports list the names of companies that request your credit information. These include soft inquiries, which only you can see, and do not affect your credit score.
Soft inquiries might come from new creditors who want to offer you pre-approved credit or employer credit checks.
Hard inquiries are initiated by you for things like credit card applications or a car loan. These will be shared with anyone doing a credit check.
Make sure you recognize everything on the hard inquiry list. Fraudulent inquiries could indicate identity theft.
Both TransUnion and Equifax list possible fraud indicators near the top of the report. They alert you to potential risks, like inconsistent addresses and social security numbers.
All three credit reports can help you spot identity theft and catch errors that may be reducing your ability to get credit.
This can also help motivate you to take control of your finances. Since credit reports are updated every month, you can see immediate improvement.
Every American gets a free report from annualcreditreport.com from each of the three major reporting bureaus.
They are formatted differently but contain the same information, so space them out and get one for free every four months.