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Knowing how to read a credit report is an important part of your financial life.
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It’s important to review your credit reports often to check for mistakes, and to do that you need to know how to read a credit report.
Credit reports are typically broken down into sections that make them easier to understand, including personal information, open and closed accounts, and collections.
You’re normally allowed a free credit report from each of the three major credit bureaus annually, but you can get them weekly until the end of 2023.
Your credit reports play an important role in your financial life. Whether you are applying for a loan, a credit card, or a new apartment, the condition of your credit could either make your life significantly easier or a lot more difficult.
Because your credit matters so much, it’s important to keep a close eye on your credit reports from all three major credit bureaus — Equifax, TransUnion, and Experian — and learn how to read a credit report.
Normally, you can claim a free copy of all three of your reports once every 12 months from AnnualCreditReport.com. However, you can get a free copy of your credit report every week from each credit bureau up until December 31, 2023 as a result of the COVID-19 pandemic.
By checking your credit often, you’ll be better equipped with the knowledge you need to earn and keep a good credit rating. You’ll also be in a position to respond quickly if any fraud or mistakes appear on your reports.
How to read a credit report
Most credit reports are broken down into sections that make your information easier to understand and digest. Different reports might display the following sections in different sequences, but as long as you know what to look for in each, you should be able to understand your report regardless of the order in which the sections appear.
Here’s a look at what you might expect to see if you access a standard copy of your own credit report online (aka a consumer disclosure).
1. Personal information
The first part of your credit report is usually the personal information section. It contains details like:
NamePresent and former addressesDate of birthSocial Security numberPresent and former employers
The information above won’t have an impact on your credit scores, but you still want to make sure it’s accurate. A wrong address, for example, might be a minor mistake. But it could also indicate a bigger problem, like identity theft or a mixed credit file.
2. Accounts
The second section of your credit report typically lists your accounts — both open and closed. This is actually one of the most important sections of your credit report. The information contained here can have a big impact on your credit scores in several ways.
In addition to listing your accounts themselves, this section of your report contains details about how you’ve managed those accounts over time. Those details may include:
The date an account was opened and (if applicable) closedYour payment history each month (on-time, 30 days late, 60 days late, etc.)Current balanceCredit limitOriginal loan amountCurrent status (current, past due, etc.)
Let’s say your report shows a credit card that’s five years old. You’ve never paid late and your debt-to-credit ratio (aka credit utilization rate) is low. That account is likely helping your credit scores. On the other hand, if your report shows a card with habitual late payments and a high credit utilization ratio, your scores are probably taking a hit as a result.
3. Collections and public records
Hopefully, this section of the credit report will be empty. However, if you’ve had accounts that have been sold or turned over to a collection agency for non-payment, this is the section where they will appear on your report.
A collection account on a credit report should contain the following information:
The name of the collection agencyThe original creditor’s nameThe balance on the account
Currently, the only public records included on credit reports are bankruptcies.
If you do have collection accounts or bankruptcies on your reports, they’re likely having a negative impact on your credit scores. Thankfully, as negative items grow older, any impact on scores lessens over time. Best of all, after seven to 10 years, federal law requires most negative information to be deleted from your credit reports entirely.
4. Inquiries
The final part of your credit report, known as the inquiry section, contains a list of who has accessed your credit report in the last 24 months. These inquiries come in two types: soft inquiries and hard inquiries.
Soft inquiries are checks on your credit in situations where you aren’t applying for a new line of credit. For example, checking your own credit will result in a soft inquiry. You might also incur soft inquiries when a current creditor checks your credit or if a creditor checks your credit for preapproved offers. Soft inquiries are only visible to you, so they do not show up when a lender checks your credit report.
On the other hand, hard inquiries are visible to anyone who pulls a credit check on you. These occur when a lender pulls your credit as part of an application for a new line of credit and have the potential to damage your credit score, albeit slightly. These inquiries remain on your credit report for 24 months, though they’re only factored into your credit score for the first 12.
Disputing incorrect information
Unfortunately, errors and fraud wind up on credit reports all the time. This is the primary reason why checking your reports frequently is so important. Remember, if you discover information on a credit report that isn’t correct, you have the right to dispute it.
Common inaccuracies include blemishes on your credit report that are older than seven years or remedied delinquencies that haven’t been removed yet. You may also find lines of credit on your report that you didn’t personally open. This might be a sign that your identity has been stolen. If that’s the case, you need to file an identity theft report with the Federal Trade Commission and notify one of the three credit bureaus, which will notify the other two.
Being able to decode your credit history is an important asset in your financial life. You can contextualize your credit score, giving you helpful information on how to raise it. It will also protect you from inaccuracies and potential bad actors looking to take advantage of your credit.