Home Buddies – Home Ownership Coach – Houston, Texas

Understanding Your Credit Report

Understanding your credit report gives you the knowledge you’ll need to start improving your credit score, and continue managing a good score.

Each section of your credit report has details about different important aspects of your credit and credit score. You need to be able to understand all sections of your credit report. Remember, studies have shown that 80% of credit reports have some type of wrong information in them. This wrong information may be affecting your credit score negatively.

I have broken up the sections in a credit report and given their details as follows:

Personal information
This section has information that identifies you and employment information, which can include your name, your spouse’s name, current and former addresses, date of birth, current and former employers, and any aliases you go by. Totally inaccurate information on your report is even worse than incomplete information. This part of the report contains only information considered public, not private.

Make sure that all of the information is complete and accurate. Fathers and sons with the same name will sometimes get information reported on each other’s reports. Look at the previous addresses section. Check your marital status and employment history.

Summary information
A summary of your accounts, usually by account type: revolving (such as credit cards), mortgages, and installment loans (like car loans). This gives a brief look at your total balances owed and how many credit inquiries you’ve had recently.

Consumer statement
If you’ve asked for a comment to be put in your file for any reason, it will appear here. Some people do this to try to explain why they messed up on their credit. Most creditors don’t consider this information.

Account history information
This is one of the more important sections in your credit report. It contains everything about your current credit accounts, including mortgages, home equity loans, credit cards, personal loans, student loans, etc. Each creditor can be reporting any of the following information on you, though not all of these are applicable for all accounts:

Company: The name of the company reporting the information about you. Make sure you know who they are. You may have a listing for a company you’ve never done business with.

Account number: Make sure that your account numbers match up with what’s being reported. The first few digits may be replaced with Xs for security reasons.

Responsibility: This indicates whether the account is an individual account, joint account, or shared account. For joint and shared accounts, the information reported on your credit report is usually reported exactly the same way for the other person named on the account.

Date opened: The date the account was first opened with the creditor, not the date the account was first reported by the creditor. They may be different, depending on how long it takes the creditor to start reporting your new account to the credit bureaus.

Date reported (DOLA): This will be the last date any action was taken on the account. For all accounts in good standing, the date of last activity indicates the last month in which the creditor reported something about you. Usually this is the last month in which you made payments before the loan was paid off. The account is typically closed on this date for installment loans, such as car, mortgage, or personal loans.

For revolving debt, like a credit card, the last activity will usually be the current month, unless either you or the credit card issuer has closed the account. Revolving debt does not have a set number of fixed payments, because the payments “revolve” around your use of the credit available to you.

SPECIAL NOTE: Accounts with no negative remarks can stay on your credit report indefinitely. If an account has any negative remarks — even if you ended up paying responsibly — the negative remarks must drop off after seven years.
For accounts not in good standing where you have stopped making payments, even though you still owe money, the date of last activity is particularly important in determining when that account will fall off your credit report. Most negative marks on your report are no longer reported, or counted toward your score, seven years after the date of initial delinquency. This is very important when it comes to dealing with some collection agencies.

Type of account: Lists whether the account is a mortgage, installment debt, or revolving debt.

Account status: This is a very important line that shows whether you are paying on time, whether you are paying late, or whether some other negative action (such as a charged-off account) has taken place. The notation on the account usually shows the situation as of the date of last activity. For example, if you had a few late payments that got marked on your report six months ago, but you are currently paying on time, it will be marked “Current.” If you are 30, 60, 90 days or more behind on your payments, it may show this as well on this line. If an account has been charged off by a creditor, this line will be marked “Charged off as bad debt.”
(A “charge-off” is an account that you stopped paying on, even though you still owed on it. The creditor is allowed to charge the debt off on its financial statements as “bad debt” after a certain amount of time was spent trying to collect the debt from you. This is a very negative remark)

High balance: This is the highest amount that you’ve ever had as a balance on the account. Example: The current limit on your Visa card is $5,000, but your high balance is listed as $5,837. This generally means one of two things. Either you went way over the limit and had trouble bringing it below the limit, or the credit card lowered your limit for some reason. Neither scenario is good.

Limit: This is the amount of the original installment loan, or your maximum credit line on a credit card. In the case of credit cards or store charge cards, the high credit numbers can be added up to see the total amount of credit available to you.

Payment: This line shows your current obligations, which is usually monthly obligations, unless otherwise stated on the report. For installment loans, it will show what you currently pay each month. For credit cards and other revolving debt, it will show the minimum monthly payment. Creditors will add up all of your minimum monthly payments and installment payments to get an idea of how much you pay out each month. In order to get approved for some loans, like a mortgage, your typical debt-to-income ratio has to be below a certain percentage. You want to make sure that these numbers are being accurately reported on your credit report at all times.

Terms: If it’s in reference to an installment loan, the “terms” line will show how long the loan will be outstanding. In the case of a 30-year mortgage, this line will show “360 months.”

Balance: This is the amount of your total outstanding balance. Part of the credit score is based on the percentage of your available credit. Your total balances are divided by your total available credit (high credit) and the report will show this as your debt-to-income ratio. As a general rule, the lower your ratio, the better. You want to try to have this ratio between 10%-30%.

Past due: This shows how much your account is currently past due, if you are past due at all. If not, it will read $0.

Payment history: Some reports use a graphical chart to show your recent payment history. Your on-time and late payments are shown in different ways, depending on what format the report uses.

Condition: This tells whether the account is open, closed, closed by consumer, closed (transferred), or derogatory. For accounts you close, especially credit cards, you’ll want the “closed by consumer” notation here.

Credit inquiries
This part of the report lists all credit inquiries made about you in the past two years. An inquiry is any request by someone to see information in your credit report. There are two types of inquiries: hard inquiries and soft inquiries.

Hard inquiries are made when you apply for credit with a lender. All other lenders who review your credit report can see the hard inquiry. A hard inquiry can lower your credit score, because it shows that you are looking for more credit. The more hard inquiries you have, the more credit you’re looking for, and the less desirable you look to other lenders who might want to lend you money.

Soft inquiries usually fall into three categories: promotional, account review, and consumer. They do not show up to anyone but you on the credit report. They also do not hurt your score in any way. Some credit reports include soft inquiries, but others don’t. So if you don’t see them on your report, don’t worry about it. But here’s a quick look at those:
Promotional: This is an inquiry made by a lender who wants to pre-approve you for a loan or credit card that you haven’t even applied for. Most of us has gotten hundreds or thousands of these over the years, where a credit card company or mortgage broker is sending you a flyer telling you that you’re pre-approved for a platinum this or home equity that.
Account review: Some of your current creditors may occasionally review your credit file to see whether your situation has changed. They cannot raise your rates or take any adverse action as a result of this kind of inquiry without telling you in writing first.
Consumer review: This happens when you request your credit report. This does not affect your score, and only you can see the inquiry.

Collection accounts
This section of the report will detail any accounts that have been sent to a collection agency because the original creditor could not collect the money from you. Accounts listed in this section really harm your credit score.

Public records
This section of the report contains any information related to creditworthiness that is found available to the public, like from county courthouses. Here you’ll find things such as bankruptcy information if you’ve ever filed for protection, liens against you, your marital status, judgments against you, etc. All of these things can speak to your reputation and creditworthiness.

Other information
Most reports will include a space for the person reporting about you, to provide contact information or ways to obtain more information about your credit.

We continue to recommend that you see a professional credit analyst at least once a year. It is important to be able to understand your credit and be able to improve it, and manage it at all times.

Good Luck.
Barbara Partaka
Home Buddies