Credit Education

03. Aug, 2016

Understanding Your Credit Report

Credit reports provide an in-depth analysis of a person’s recent credit history. Credit bureaus compile these documents based on data that banks, credit card companies, and other lenders supply. Credit reports help financial institutions decide if loan seekers are good risks. Some employers use this information to measure a potential employee’s reliability and trustworthiness.

Studying Credit Reports is Highly Recommended
The fact that lenders and employers ask to see credit reports makes it important to find out what these reports tell them. A look through a credit report might explain why loan requests and job applications are rejected. When the report paints a bad credit picture, the customer realizes their chance of getting a loan on easy terms is low. He or she needs to adjust expectations accordingly.

A careful check through the credit report also assists with personal financial planning. For example, it could focus the reader’s attention on certain credit cards that cost more than others. Armed with this information, they may be able to negotiate a better deal with the credit card company or pay off and close their expensive accounts. Now and again, careful readings of a credit report reveals incorrect information or other errors. If the credit bureau receives proof of their mistake, they correct it and adjust the credit score. Better credit reports and scores help gain additional credit and improve terms lenders offer.  

An Obstacle to Getting the Most out of a Credit Report
Since American law gives citizens the right to annually request credit reports free of charge, nobody is put off by the cost of obtaining a copy. It is also easy to order a credit report through the phone or online. Even though credit reports are readily available, their format is confusing to some readers. Typically, these documents use abbreviations that many readers find off-putting. Because of this, credit bureaus try to send more “user friendly” credit reports to consumers. In comparison with reports they send to lenders, the consumer versions are much easier to understand, although it helps to understand their format.        

Navigating through the Credit Report
A typical credit report has four divisions. The first is also the simplest; it contains the customer’s personal information such as their name, address, and place of employment. Mistakes in spelling might appear here, because credit bureaus use the exact spellings the credit institutions supply. One company may spell the customer’s name “John MacDonald” while another uses “John McDonald”. The credit bureaus place no significance on these misspellings, so it is safe to ignore them.  

The second credit report division contains credit history and records of payments. It notes each credit type, the original debt, the amount still owed, payments missed, and other details. The customer should check this information very carefully, and report any errors to the credit bureau.

The third credit report division is best left empty. It contains details of bankruptcies, judgments won by creditors, and actions taken by tax authorities (public records). This information can seriously damage credit status.

The fourth credit report division records all companies and individuals who have asked to see the credit report. Some divisions categorize these entries into soft and hard credit inquires. A new loan application leads to a soft inquiry from the bank. The hard inquires come from prospective employers or existing creditors who want a credit risk rating.   

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