- It's important to read your credit reports often to check for mistakes.
- Credit reports are broken down into sections including personal information, open and closed accounts, and collections.
- You're allowed a free credit report from each of the three major credit bureaus every week.
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.
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.
Key sections of 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 (a consumer disclosure).
1. Personal information
The first part of your credit report is usually the personal information section. It contains details like:
- Name
- Present and former addresses
- Date of birth
- Social Security number
- Present 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.
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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) closed
- Your payment history each month (on-time, 30 days late, 60 days late, etc.)
- Current balance
- Credit limit
- Original loan amount
- Current 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 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.
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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 agency
- The original creditor's name
- The 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.
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What to look for when reviewing your credit report
Errors or inaccuracies
Review your report and ensure that everything that is on there is accurate. Make sure all of your personal information is accurate, that all of the accounts listed are yours, and that the accounts are reflecting the correct payments and balances.
Signs of fraud
Also, look for any signs of potential fraud. Signs of fraud can be an account that you did not open or inquiries from unfamiliar companies, or at a time that you know that you did not apply for credit
Areas for improvement
You can review your report and see where you can improve your credit profile and score. You can also examine your payment history and utilization up close and determine the next steps.
How to dispute errors on your credit report
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 you're wondering how to recover from identity theft, 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.
How to maintain a healthy credit report
In addition to monitoring your credit report to ensure accuracy and to prevent fraud, there are steps you need to take to maintain a healthy credit report.
Pay your bills on time
Your payment history is the most important factor in a good credit score. One missed payment can drop your credit score by as much as 60 points! So be sure to pay your bills on time, every time.
Keep credit utilization low
Your credit utilization ratio (how much of your credit limits are in use) is also important, and if you can, aim to have your credit utilization below 30%.
Limit new credit applications
Do not apply for credit unless necessary. Applying for credit generates a hard inquiry, and too many of them can negatively impact your credit score.
Monitor your reports regularly
Check your reports at least annually. By doing this, you can correct mistakes that may be reported and act on any signs of identity theft or fraud. You can get your free credit reports once a week at AnnualCreditReport.com. You may also be interested in one of the best credit monitoring services.
Frequently asked questions about how to read your credit report
You should check your credit report from each bureau at least once a year for accuracy and to protect against identity theft and fraud. You can get your free annual credit report weekly at AnnualCreditReport.com.
If you find an error on your credit report, dispute it with the three credit bureaus (Equifax, TransUnion, and Experian) immediately. Errors can negatively impact your credit score.
Improving your credit score will take time, but it consists of forming good credit habits such as paying your bills on time, every time, and keeping your credit utilization low. If you need help, you may also want to use a credit counseling service.
