How to Read a Credit Report

If you are planning to apply for a loan, it is important to read a credit report for finding out any irregularities that might affect your chances of getting the loan approved. The top three credit reporting agencies more or less follow the same report format, but use different methods of calculating credit score. This can make it difficult to understand the impact of credit scores on your credit worthiness from the point of view of potential lenders. For understanding the information, you need to read a credit report for becoming aware of the various sections and sub-sections.

When you read a credit report, you will notice that the first part identifies who you are and contains information such as your name, past and present address, date of birth, social security number, driving license number, telephone number, name of your spouse, your current employer and duration of employment. You need to properly check this section as credit report agencies source the above data from different sources and can make errors while updating the information or by including information about you that is obsolete.

On a credit report, the second part contains information about your credit history. This part is usually the longest as it contains information about the various financial transactions you have conducted in the past. It contains information about your credit card transactions, departmental store accounts, multiple bank accounts, institutional loans, mortgages, car loans, home equity loans and other transactions involving credit. It contains information about the exact date when you applied for a loan, the total amount of loan sanctioned and your credit card limit. It shows the amount you currently owe to creditors and the monthly installments you are currently paying. The current status of different credit accounts is also included in the second part of a credit report. The second section is technically known as the ‘soft inquiry’ section, which is used by your current creditors for monitoring your account.

On a credit report, the third part is usually called the Public Inquiries or Public Records. This section contains information about foreclosures, bankruptcies, court judgments, and tax liens. If this section does not contain any entries, it means that you have a clear credit report and you have high chances of getting a loan with a low interest rate. Any entry in this section will put a red flag on your credit report, which can seriously affect your credit worthiness.

The fourth part is referred to as the ‘hard inquiry’ section and contains information about all those entities that have made inquiries regarding your existing credit situation.

It is important to read a credit report because some credit report agencies may also include a fifth part called the ‘remarks’ section, containing remarks about the various credit accounts you have with your banks or other creditors. It is important to read this, as you never know what type of remarks might be inserted by any of the agencies that you might have dealt with.