debt

How to Read Your Credit Report

7 Minute Read

Most people think they need a FICO score just to get through life, but that’s not true! As Dave always says, a credit score is just a measure of how much you love debt. It doesn’t factor in your income, net worth, savings, or anything else related to how much money you actually have. Your FICO is based only on how much debt you have and your track record for paying it back.

While you don’t need to live and breathe your FICO score, it’s still important to know how to read your credit score and to check each year for red flags. Those little inaccuracies could be minor reporting errors for you to dispute or something worse that needs immediate attention—like identity theft.

We know you might not want to check a credit report because all those numbers and terms can be confusing. It’s a lot to take in! But don’t worry—we’ve done the heavy lifting so you don’t have to. Let’s walk through everything you need to know about reading your credit report.

How to Get a Credit Score

You’re allowed one free copy of your credit report every year from each of the major credit-reporting agencies: Experian, TransUnion and Equifax. However, the reports aren’t automatically mailed to you—you have to ask! Because each agency keeps slightly different information on file, it’s worth checking with all three.

Check out annualcreditreport.com or call 877.322.8228 to order your free annual credit report.

Once you have your credit report, you should see your credit score somewhere near the top. But what does that number even mean?

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How to Read a Credit Report

Your credit score is calculated based on the following information:

  • How much debt you have.
  • How long you’ve been in debt.
  • Debt you’ve obtained recently.
  • The types of debt you have.(1)

Your score will be a number between 300 and 850 (or just 0 if you have no credit), which we’ll talk about in a minute. A “good” credit score is anywhere from 670–850.(2) Anything below that is either fair or poor.

It is possible to have a credit score of 0, which is what Dave recommends. But this doesn’t mean trashing your credit to lower it as fast as possible! You get your credit score down to 0 by paying off all your debt and closing all open accounts. If you don’t add any new debt—and you shouldn’t if you’re following the Baby Steps—you should have a score of 0 within a few months to two years.

Remember: no credit is not the same as having a low credit score. As long as you have one, you want it to be high.

Now that you know how to read your credit report, we’ll walk you through the four major areas you need to check for red flags. These could help you identify potential identity theft situations!

What to Look For in Your Credit Report

Identifying Information

This section lists your name, address, Social Security number, date of birth, and other information creditors use to identify you. Read everything carefully.

Red Flags: The information in this section needs to refer to you and not someone else who happens to share your name. Double-check the Social Security number just in case. And make sure you verify that all of the addresses listed are places you’ve lived. We’ll share later what steps to follow if you find inaccuracies on any part of your report.

Credit History

The bulk of the report is in this section. It’s a list of your open and paid credit accounts, including credit cards, mortgages, and loans. It also shows any late payments on your part and whether an account has been sent to collections. Things like total loan amounts, high credit limits, and how well you’ve paid on your debt are included as well.

Red Flags: Read and re-read this section to make sure all the information is correct. Check for payments being incorrectly noted as late. If you’ve closed a credit card account, confirm it’s showing up as closed on your credit report. Also, make absolutely sure no lines of credit have been opened in your name without your consent—this is crucial in monitoring for possible identity theft.

Public Records

You want this part to be blank. The financial activity listed here—like bankruptcy, tax liens, and judgments—are obtained from public records, and some of them can stay on your credit report for 7–10 years.

Red Flags: It’s rare to find an error in this part of the report, but it’s worth checking. Mistakes in this section should be cleared up immediately, as they can be damaging to your credit.

Inquiries

Here you’ll see detailed listings of every business that has requested your credit report. There are two types of credit inquiries: soft and hard. Soft inquiries are from companies wanting to send you promotional materials or current creditors checking your account. Hard inquiries are made when you apply for a credit card, loan or mortgage.

Red Flags: Hard inquiries cause your credit score to drop a few points, so be sure you’ve authorized all the hard inquiries listed. They should disappear from your report after two years.

What does an “open account” mean on my credit report?

An open account is any line of credit you’ve opened and not formally closed. Even if you haven’t used a particular credit card for a few years, it will show up as an open account on your credit report until you contact the company to close the account.

What does a “U” stand for on a credit report?

A “U” is one of the many status codes that can appear next to an account on your credit report. These codes usually indicate a problem with the account like it being past due or sent to collections.

It simply means “unclassified,” or that the account hadn’t been updated at the time the report was pulled. You might also see this if the account is new and you haven’t made any payments on it yet. It doesn’t have a negative impact on your credit score and isn’t anything to worry about.

Who can see my credit report?

Most people can’t legally use your personal information to access your credit report. However, there are several types of organizations who are allowed to pull your credit: banks, creditors, lenders, insurance companies, potential landlords, collections agencies, the government, and potential employers.

The laws about who can access your credit score vary from state to state. If you’re concerned, do some research and find out what the law is where you live.

Can someone run a credit report without me knowing?

Yes and no. As mentioned earlier, there are soft inquiries and hard inquiries. Soft inquiries happen all the time without your knowledge—a company might check your credit score if they’re planning on mailing you a promotional offer. However, these inquiries don’t affect your credit score in any way.

But hard inquiries require your consent. These affect your credit score and can’t legally be done without your knowledge. If you notice a hard inquiry that you didn’t authorize, you’ll need to dispute it with the credit agency.

How to Dispute Inaccuracies

Any inaccuracies or mistakes on your credit report must be taken up with the agency that shows the error. Write a letter that lists each incorrect item you found and why you’re disputing it.

For example, you might list a credit card you’ve closed but still shows up as an open account on your credit report. Gather documentation and any evidence you might have that prove it’s a mistake. Then, send all of this by certified mail—and don’t forget a return receipt! The agency has only 30 days to respond, so you should see some movement fairly quickly.

While your credit report might seem complicated at first, you can easily find mistakes or make sure the information is correct now that you know what to look for. It’s never a bad idea to be proactive!

Staying vigilant about your credit report is a great way to protect yourself from identity theft and keep track of your credit, so make sure you’re protected today!

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