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Understanding Your Credit Report

Understanding Your Credit Report

If you have ever applied for a loan or opened a credit card account, you have a credit report. This report acts like a summary of many of your financial decisions, especially in relation to debt. The report can determine how much you pay when you buy a car or a home and may even affect whether you can get a loan in the first place. Here’s what to expect from your credit report, and how you can manage it.

How Credit Reports Work

Credit reports include a lot of action behind the scenes. When you apply for a loan, the lender usually brings up a copy of your credit report. If they approve your loan, the way that you make payments gets reported by the lender to a reporting bureau. Your report keeps a record of each debt for future lenders to consider. There are three major credit reporting bureaus: Experian, Equifax and TransUnion. Not every creditor reports to all three agencies, so each report might be different.

What’s Included in a Credit Report

When you look at your credit report, you’ll find several important aspects:

  • Personal identifying information
  • Number of inquiries, especially recent ones
  • Credit accounts, current and past
  • Public records, such as a bankruptcy or foreclosure

Every aspect of your management of debt can be put into your credit history, including on-time or late payments, early payoffs, debts that go to collections, and more. When you review the report, you’ll notice that most records go back two years. Certain things, such as bankruptcy, last longer.

Credit Reports vs. Credit Scores

A credit score ranges from 300 to 850, showing the credit reporting bureau’s assessment of your risk as a borrower. High numbers, especially those over 700, indicate good use of credit and lower risk. Low numbers, especially those below 600, indicate possible problems with credit use and a higher risk. Lenders often set minimum scores for access to loan programs. High credit scores are associated with lower interest rates and better terms on loans.

How to Check a Credit Report

To get a copy of your credit report, you should go to the website for each of the reporting bureaus and request one. Generally, you can get one free copy per year from each bureau, but some may allow you to request more. Although access to a credit report can be free, you will usually need to pay to get a copy of your credit scores. Once you receive your report, read through it carefully and make sure each account has an accurate report.

What to Do About Inaccuracies on a Credit Report

Inaccuracies on a credit report are not uncommon. If you find a problem — such as a paid-off debt that shows as unpaid or a new account that you did not apply for — you should file a dispute. Go to the reporting bureau and describe the inaccuracy in detail. After you submit, you must wait up to 30 days for the bureau to verify the situation with the creditor. You should receive a notification of the results. If you resolve a problem successfully, you should request a new copy in about three months to verify it.

Keeping track of your credit is important for various financial aspects of your life. To do this, you must understand how credit reports work and how to fix them. By following these tips, you can maintain better knowledge about your credit report and work to improve it when you need it.

This infographic was created by Stein Saks, a TCPA law firm

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