How to Read and Understand Your Credit Report

Why does nearly everything related to finance have to be so complicated?

We have all asked ourselves that dreadful existential question—but nothing is complicated when you know how it works. Luckily, credit reports aren’t that hard to figure out.

Knowing the basics will enable you to understand everything in your report, but why is that important? Well, credit reports determine credit scores, and credit scores determine how much money you need to spend on loan interests, utility bills, credit cards, etc.—sometimes they also affect job interviews.

It goes without saying that paying 6 times less in interest and crushing a job interview is a good thing. So, how can reading some report increase your credit score?

Credit reports are managed by 3 huge national credit bureaus and these bureaus make mistakes by the thousands. Recently, some “coding errors” have messed up some 5 million student loan debtors’ scores, and this is nothing new. Essentially, if your report contains debt that’s not yours or credit delinquencies that you haven’t committed—you’re not alone.

These reporting errors creep up on all of us, ruining our credit scores and financial options. As fate would have it, it falls upon you to find and fix these errors before they make a mess, so we will explain how you can do it. 👇 

Reading/Understanding a Credit Report 📋

This guide will tell you what credit reports contain, where you should look for potential errors, and how you can fix them—easy peasy. Hopefully, in a few minutes, you’ll be able to clear your credit report and get your score to a new high.

What is a Credit Report? 📑

Whenever you apply for a loan, open a credit card, make an on-time payment, or miss one—it gets recorded. All of this information is put on your credit reports at the 3 major credit bureaus—Experian, Equifax, and TransUnion.

These huge bureaus each make independent credit reports where they “neatly” put your personal data and all credit-related information. We say “neatly” with quotation marks because these bureaus make tons of mistakes every day. 

Basically, your report might say you still owe some debt that you paid off years ago or even that you owe 10 times more for a loan than you actually do. This is not an exaggeration—a single typo can ruin your report, making it seem like you’re neck-deep in debt when you’re actually not. Now, let’s see why having a clean, accurate credit report can potentially save you a ton of money.

Credit Score vs Credit Report 🆚

Everyone talks about how your credit score is super-important—but how is your report different from your credit score (a.k.a credit rating)? Simply put, a credit score is a number between 350 and 850 that tells creditors if you’re a good potential customer. This number is based on your credit report.

If your report shows you’ve been paying everything properly and on time, your score will be nice and high. Consequently, missed payments and delinquencies in a report are red flags for creditors, which is why they will drop your rating. We’ll explain how you can raise your score and keep it from dropping in the later sections of this article.

Why is a Credit Score Important? 🛎️

Why is spending less on everything important? Because it saves you money, of course. Not unlike your high-school report card, a credit score essentially tells the whole financial sector if you’re able to pay off debt on time—meaning, whether you’re creditworthy or not.

Having a great score means you’ll have to spend less on utility bills and credit card purchases—it will also mean you will be looked upon favorably by financial institutions and companies, as well as potential employers. 

If we’re talking about getting a loan, then a credit rating is even more important. Instead of paying a 30%+ interest rate for a loan, you will likely be able to get the same loan with a 6% interest rate if your credit is excellent. Even if your score is somewhere between 650 and 750, the best loans for good credit are miles ahead of those you can get with a bad rating—that’s one of the reasons why it literally pays to understand your credit report and get that rating up.

How do I Obtain My Credit Score for Free? 🆓

Usually, you would be able to get a free yearly report from each of the 3 major credit bureaus. In this case, the common practice was to spread them out evenly and get a different report every 4 months so that you can monitor your credit as frequently as possible.

Now, it’s even more simple. As you probably know, the COVID-19 pandemic has dealt a heavy blow to our country’s economy. Naturally, millions of Americans have been missing their credit payments because of this—so much so that the government has had to step in and help, at least a little bit.

All adult citizens can now get their free reports every week! To get your report, just go to the aptly named Annualcreditreport.com, fill in the required forms, and you’ll get your report in digital form right away. With weekly reports from each of the 3 bureaus, it’s easier than ever to keep a finger on your credit’s pulse.

Which Credit Report is Best? 🔝

So, if I can choose from 3 credit reports, which one should I get? The 3 bureaus make reports independently which means there will be some discrepancies between them. 

If you want a rough estimate of your credit score, all 3 agencies will do—this number is always very similar for all 3 reports, so you’re good whichever you decide to get. However, if you’re looking for reporting errors, then all 3 are necessary. All bureaus make mistakes, so you have to take a look at all 3 reports if you’re looking to find and remove all negative items.

What Appears on Your Credit Report?

A credit report is essentially your personal info, plus a list of all credit-credit related stuff you’ve done in the past several years. Let’s see what sections there are in a credit report and what you should watch out for in each one.

Personal Data—Make Sure You Are Really You ✔️

Nothing special here, just the basic stuff. Every report begins with your name, social security number, address, phone number, and employer info. This section will also show all past addresses and employers, as well as your unique credit report number.

Public Records—Top Priority ✔️

Creditors want to know if you’ve had any bankruptcies, foreclosures, or lawsuits that might mark you as an unreliable customer. These major financial red flags will be right there at the top, and they are the biggest danger to your credit score. 

For most people, this section is either very short or empty—but should not be overlooked if you’re searching for reporting errors. A negative item like bankruptcy will usually sit on your report for 10 years before it’s automatically removed—it’s best to get it removed earlier if possible.

Potentially Negative Items—Question Everything 😒

If you’re looking for mistakes and negative items that can be removed from your report, this is the section you want to study the most. All your debt, credit accounts, student loans, etc. will be here.

Along with some basic info about the creditor and the type of credit, this section will show how much you owe—this is where most errors happen due to typos and sloppy bureaucracy. Sometimes the bureaus will fail to update the data here, making it seem like you still owe the debt you’ve paid off months or even years ago. 

If you don’t spot these errors yourself, they will likely sit there for a long time, dragging down your credit score. However, all negative items in this section automatically disappear after 7 years—the estimated date of removal is written below each item.

Be especially wary of accounts that you can’t remember opening—someone with your credit information might have opened a line of credit in your name. Identity theft through cyber attacks is a very real possibility, so don’t underestimate this threat. 

Also, if you’ve closed an account, make sure it’s marked as closed. A closed credit account can linger on your report as if it was still open.

Good Accounts 👍

The title of this section explains everything. This is the debt you’ve been paying off on time, as dictated by your credit contract. If you’ve got time, it’s also good to check this section for errors. For instance, maybe you’ve paid your debt for 6 months upfront, but here it says you’re only one month ahead of schedule.

Credit History Requests 🏢

This section is just the list of companies and institutions that have inquired about your credit report. Therefore, it is the least important section when it comes to clearing your report from errors. Not everyone can legally look at your report, but certain companies, lenders, and institutions can. 

Personal Statement 📩

At the bottom of the report, there is just a personal statement with your message to anyone who reads it. For example, this message can say something like:

“My personal data may have been stolen. Do not approve credit applications without my direct consent. You can reach me by calling 555-XXXXXX”. A message of this sort is always a good thing to have as a measure of defense against identity theft.

How Do I “Fix” a Credit Report? 🛠️

First, make sure there is something to fix. You can do this by reading and checking every single line and sentence. Once this is done, and you’ve found mistakes, you have to tell the bureaus to fix them ASAP. This can be done by disputing the errors.

How do I Dispute a Credit Report? ✉️

The financial sector hasn’t been modernized much in this area. The only way you can dispute an error on your report is by sending a dispute letter directly to the bureau that made the error. 

First, you need to gather evidence, like receipts or other documents that prove you’ve settled the debt in question. Then, write a message and say where the error in your report is located. The bureaus only have 30 days to respond to a letter like this, so you’ll probably resolve the issue sooner rather than later. If nothing happens after that time, send the letter again—repetition is common practice because it can actually get the bureaus to fix your problem.

Very important—make sure you send the letter by certified mail, and get a return receipt! You need to make sure that your dispute letter got to the credit people and is getting looked at.

This process is not difficult if your report is relatively clean, but can be quite a handful if there are dozens of items that need fixing. If you want to give this responsibility to an expert, you can check out our list of the leading credit repair companies today and see if you want them to take care of your report.

Alternatively, if you want to save yourself from the monthly subscription fees, there are a few handy programs that can help with professional letter templates and other tools. Check out what the top credit repair software looks like if you want to optimize your DIY credit-clearing experience.

What is a Goodwill Letter? 📨

A goodwill letter is not something you sent to the bureaus, but directly to your creditors. Essentially, if you miss a payment, you can kindly ask the creditors to remove this stain from your credit report.

Since the negative item is rightfully on your report, you can’t dispute it. But if your creditors like you as a customer, they can remove it. This seems like a long-shot but actually works fairly often. A well-placed goodwill letter can potentially get thousands of dollars in loans off of your report and increase your credit rating overnight.

How do I Get a Paid Collection off My Credit Report? 🤔

Getting an agency to do it for you is one of the ways to go about this. However, if you want to get rid of a collection yourself, here’s what you need to do. If the collection isn’t yours, you need to send a dispute letter to the bureau plus some document that proves it doesn’t belong to you.

If it does belong to you, the process is different. You can request the debt collector for debt validation if they have contacted you 30 days ago or more recently. Then, they will have to prove that this debt is yours. If the collector can’t provide evidence that the debt in question is yours, then it must be removed.

Types of Credit Scores—FICO and VantageScore

If you’ve been looking at loans and credit card offers, you might’ve seen the terms FICO Score and VantageScore pop up quite often. These are two main kinds of credit scores—most lenders and companies use the FICO, while some others use the Vantage Score. So, what’s the difference?

Essentially, these are ways of rating your credit report using two slightly different methodologies. This means that FICO will prioritize certain aspects of your report, while Vantage will favor others more. 

This shouldn’t worry you much, if at all. Regardless of which score you’re looking to improve, they’re both based on the same credit report and the same credit factors—improving your credit will improve both scores simultaneously. Here are a few tips you can use to raise your score.

How to Improve Your Credit Score

You can clear your credit report of errors all you want, but if the foundation isn’t there, your score will never rise. Some of these methods might seem quite obvious, but it pays to be aware of what factors impact your rating the most.

Paying on Time ✅

There are a few bigger red flags to creditors than missed payments. If you don’t take care of your bills on time, that tells lenders you’re not a good potential customer. This will consequently drop your score, so make sure to treat paying everything on time as your top priority.

Do Not Take Out too Many Loans ✅

Taking on too much debt and too many credit accounts can make things hard on your pocket, as well as your peace of mind. Simply put, many credit accounts are hard to keep track of, so you should limit them as much as possible. Also, a bunch of different debt obligations on your report will make creditors reluctant to give you a loan, causing your score to drop as well.

Keep Away From Your Credit Limit ✅

You might think it’s OK to use the full potential of your credit limit, but you shouldn’t. Credit card companies don’t tell you this but having high credit utilization will actually damage your credit score. If you want to improve the health of your credit, try to keep your credit utilization under 25% of your credit limit—this might result in a quick jump in your rating.

Protect Yourself From Identity Theft ✅

A new age comes with new technology, as well as new avenues hackers can explore to steal your money. If someone gets a hold of your personal information, they can open a credit account in your name without your knowledge. What naturally follows is that they can then borrow and spend the money you’ll have to pay back—not good.

Aside from costing you money, this can drag your score through the dirt. If you’re not aware that this is happening, you’ll soon end up with a pile of missed payments that can obliterate the FICO you’ve been building up for a long time. 

Keeping your personal data secret and browsing safely will surely keep you protected to a certain extent, but not always. The credit bureaus are hackers’ favorite targets because they have the credit information of all citizens. Two of the three main bureaus have had major data leaks in 2017 and 2019—meaning clients’ data had been stolen and used for nefarious purposes without anyone’s knowledge.

This is why you should check your credit report as often as possible. If you fall victim to identity theft like this, you should react immediately and tell the bureaus that there are open lines of credit in your report you didn’t approve. An even safer option is to get a credit freeze from the 3 bureaus, which means no one will be able to open a credit account without your direct permission.

If you want someone else to check your reports regularly and tell you as soon as something suspicious happens, you can get one of the top credit monitoring services to watch your back. These companies can keep vigil over your credit, track your personal data on the dark web, and give you up to $1 million in insurance in case you fall victim to a cyberattack.