Discover The Terminology You Need to Know to Understand Your Credit Report

Last Update: February 12, 2021 • Credit Report •

Credit reports are a reflection of one’s “consumer character,” and this, in some cases, can have negative consequences with the wrong information. For the most part, our lives are greatly influenced by the decisions we make daily. Poor and unwise decisions, such as extravagance overextending yourself from a credit perspective, can have a long-lasting impact on you and even your ability to keep on making related decisions later on in life, at times, in the case of bankruptcy, it can go up to ten years! So this implies that to an extent, your credit report directly reflects the consumer freedom you will enjoy, or with negative credit, it will be a show of your privation of freedom.

Negative credit can affect you in several ways. Getting a mortgage, a car loan, a job, and sometimes security clearance will be affected by your credit. If you have been denied a mortgage or a job because of your credit report, then you certainly know from personal experience how a bad credit report can painfully change your life for the worse. Unluckily, there is nothing that can promptly solve these problems. Nevertheless, there is a particular law process in effect that can assist you in starting to fix your credit. There are only two ways to make this possible: a) hire an individual to do it for you, or b) do it yourself by spending the time needed to figure it out and prepare the required documents. Remember that it is highly advisable to seek professional guidance when doing it yourself to ensure you did it correctly.

Let’s have a look at what’s right and what’s really bad. Before we start, let’s set the parameters to which we are assessed. The FICO system, a system that reviews your credit risk for lenders, normally produces a score between 300 and 850, and we all undoubtedly fall in that bracket. This score defines the interest rate you will get when servicing your loan. And the worth can run into thousands over the life of that loan.

If you have no negative marks against your credit, and by negative, we are talking about collections activity, delayed payments, tax liens, etc. in the last 2 years and no insolvency in the last five years with a credit score of 700 and above, then you certainly have a decent credit profile.
If your credit score reads below 630 and you are a victim of all or even some of the items mentioned above, you have a less favorable credit profile.
If your score falls in between the scores above and has some of the items mentioned above, then that qualifies to be a mediocre credit profile.

In the business of credit scoring, different scoring corporations apply other scoring models. They do so basically because credit is not just credit – there are mortgages, installment loans, and revolving credit. Scores will at all times vary between the diverse scoring methods, more so relying on the facts. Above all the general negative items linked to your credit report, there are many other variables to consider, and they all weigh differently when it comes to calculating your score.

Payment History – 30%.
Amounts Owed – 35%.
Length of Credit History – 10%.
Types of Credit in Use – 15%.
New Credit – 10%.

How to Read Your Credit Report

Your credit report encloses a wealth of info about all your financial activities. Even though credit reports are one of the hardest reports to understand, the bureaus providing the reports have, from time to time, tried to make them user-friendly.

Personal information

Customarily, the first section of your report will contain basic information such as your name, address, and place(s) of employment. This section identifies you as the owner of the report. Most probably, your previous addresses and places of work will as well be included.

In this section, it’s very common to have errors in spelling your name or variations thereof. Credit reporting agencies usually leave these variations. It’s your duty to confirm your personal information and make sure that they identify you and not someone else.

Account history

Well, this segment of your credit report comprises the majority of the information about your credit. It lists all your accounts and details of how you carried out payments on each of them. No doubt that your account history will be very detailed and will possibly be the hardest section to read; however, it’s of grave importance that you read through all of it to ensure the reported information is accurate.

As far as collection accounts, they may look as if they are part of the account history or in a different section, commonly labeled negative credit. The place it appears will greatly depend on the company giving you that credit report. In the account history, you will find several pieces of sub-information.

Company name of the organization reporting the info.
Account number connected to the account. This number may be scrambled or, in some case,s shortened for privacy reasons.
The type of account, a good example is a revolving account or auto loan.
Terms of repayment. Loan paid in installments includes the number of payments. But when it comes to revolving accounts, this section is normally blank or left as revolving.
Opening date. The day, month, and year the account started functioning.
High credit is the highest amount you can ever get charged on your credit card. For installment loans, high credit stands to be the original amount of loan.
Credit limit.
Balance. The unsettled amount on the account at the time of reporting data.
Account status. Shows the status of the account, i.e., current, charge-off. Even if you have an existing account, it might have information about former delinquencies.
Payment history. Indicates the status of your monthly payment since the time your account started running.
Date reported. The last time a creditor updated data.

Public records

This section will get information such as bankruptcies, tax liens, state and country court records. A public record may stay on your credit report for up to 7 to 10 years, depending on the type of account, but ten years is always reserved for bankruptcies. This section is an assortment of more significant mistakes, convictions, or even criminal arrests but sufficient to damage your credit seriously.

Credit inquiries

This section offers you a detailed list of all parties that have accessed your credit report within the last two years. Even though your version of the credit report indicates numerous credit inquiries, not all will appear on the lenders’ and creditors’ versions. It’s only the “hard” inquiries that are exposed to lenders. These are inquiries made every time a lender goes through your credit report before approving your credit application.

Firstly, if you need any help, consult your loan officer before applying for credit and see whether they will take the time to explain it to you in detail. Most of them will do everything possible to assist you, particularly if you are trying to mend your credit. In the long run, the loan officer will benefit when initiating a loan. If you did not engage a loan officer and try the DIY credit repair process, you might want to consider visiting a credit repair company for a free consultation to learn the basics. They will help you understand your credit report and should also go to the extent of telling you some of the merits and demerits of doing credit repair through a credit repair company or even on your own.

Regardless of your location or occupation, you can see advertisements and promotions on the subject of consumer financing. Credit scores play a major role in all aspects of our financial lives – from employment opportunities to qualifying for loans and even getting insurance premiums. Today, a consumer’s credit score arguably becomes one of the most significant measurements of an individual reviewed and considered by lenders. The reported information by credit bureaus about you influences nearly every part of your financial life and can either save you or cost you thousands if not hundreds of thousands of dollars.