Reading a Credit Report for Beginners

A credit report is a detailed summary of how you have handled your credit accounts. Like a report card on your borrowing and payment habits, credit reports are used by potential lenders and creditors to help them decide whether to provide you with credit or loan options — and at what terms. That’s why it’s so important to periodically check your credit reports and make sure all of the information is accurate and complete.

If you’re new to credit reports and are looking for a no-frills guide, you’re in the right place. Below are steps to walk you through how to read your credit report and what to look (and look out) for as you do.

Getting Your Credit Report 

A credit report displays all your credit accounts, including credit cards, personal loans, auto loans, and mortgages, in one place. It also includes payment activity, balances, and inquiries from lenders and creditors. Credit reports are generated from each of the three personal credit bureaus: Experian®, TransUnion®, and Equifax®.

Typically, you’re entitled to one complimentary credit report from each credit bureau per year. To request copies of your credit reports, simply visit AnnualCreditReport.com. If you want constant access to your credit report, as well as a credit monitoring service, the three credit bureaus offer monthly subscriptions.

Keep in mind that you won’t find your credit scores in your credit reports. While your credit scores are important and are based on information found in a credit report, they aren’t a part of the report. However, you may be able to get your credit scores at no cost from your bank or credit card issuer.

Reading a Credit Report

The three credit bureaus all operate independently, so their reports may look slightly different. However, they generally cover the same information, which typically includes:

• Personal information: This is where you find your name (including former names), your Social Security number, and birth date. Your report also includes current and previous addresses and contact information such as phone numbers and email addresses. Your employment history may also be in this section.

• Personal statements: This section typically includes any statements you’ve submitted to a credit bureau. For example, if you disputed an item on your report and the investigation did not resolve the dispute, your statement might explain how you disagree with reported information.

• Negative items (if any): This area generally includes a list of accounts that haven't been paid as agreed. It may also include any collections and public records (such as bankruptcies). 

• Accounts: This is the meat of your credit report and where you find details on all of your accounts, which could include mortgages, student loans, personal loans, car loans, lines of credit, and other types of credit accounts. This section shows the status of your accounts (e.g., open or closed), your payment history, current account balances, and loan payment status.

• Credit inquiries: This is where you see any times when someone checked your credit. Inquiries typically occur when you apply for a new credit card or loan. They could also occur if you apply to rent a home or for a new job. 

What Should I Check for When I Read My Credit Report? 

Regularly reading your credit reports allows you to check for errors that might be lowering your credit scores. It could also tip you off to potential identity theft. You can use the dispute process to get mistakes removed from your report, which may help you qualify for credit or get better terms.

Here are some key things to look for as you read your credit report:

Personal Information 

Make sure all the information in this section is accurate. A misspelled name, a mistake in your Social, or an address you don’t recognize could mean your credit report has been confused with someone else who happens to share your name.

Soft and Hard Credit Inquiries 

An inquiry happens when you apply for credit or an account such as a cell phone plan or utility service. A soft inquiry, such as seeing if you’re prequalified for a credit card, does not impact your credit score. A hard inquiry, such as applying for a loan, may impact your score for a short period of time.

Make sure that all hard inquiries were authorized by you and that they fall off your report after two years. An inquiry (soft or hard) from a person or company you don’t recognize could be a sign that someone is trying to open accounts in your name.

Credit Amounts 

For revolving credit vs. installment loans, this indicates the current credit limit on the account. If the account is an installment loan, this shows the original amount of the loan. Make sure this information is right. If the credit limit listed is lower than the one you actually have, it may hurt your credit utilization (how much of your available credit you are using), which impacts your credit score. 

Recommended: How a Personal Loan Can Affect Your Credit Score

The Status of Your Accounts 

Some of your accounts listed on your credit report may appear as open, and others closed. Other statuses you may see include transferred, charged off, refinanced, or foreclosed. It’s important to carefully review this section to ensure this information is accurate. Incorrect information on your credit report is, unfortunately, one of the reasons your credit score could drop. 

Opening and Closing Date of Your Accounts 

Look to make sure the dates listed for the opening and closing of each account you have are correct. If you notice an older credit card account you rarely use that is still open, however, don’t feel that you have to rush to close it. Closing a credit card account may negatively affect your scores. That’s because you lose the available credit limit on that account, which could cause your credit utilization to go up. Instead, you may want to keep the account active by making small charges and paying the card off in full each month. 

Creditors’ Information 

Your credit report also lists information about your creditors. This information is usually just the name of the creditor or lender. In some cases, the name may not match the name on your credit card or account statement. If that’s the case, you might use other details, such as the account opening day and original amount or limit, to identify the account.

Payment History 

One of the biggest things that affects your credit score is your payment history. Your credit report may show whether you’ve paid your bills on time or if you have had a few (or more than a few) late payments. Since this is such an important factor in determining your credit score, you may want to spend time carefully checking for any inaccuracies in this section of the report.

Public Records 

There’s a section on your credit report for public records. This includes:

• Bankruptcies

• Foreclosures

• Tax liens

• Civil judgments

Ideally, you want this section to be blank. These negative marks stay on your credit report for seven years, although a Chapter 7 bankruptcy may remain for 10 years. Some creditors won’t lend to someone who has any of these on their report.

While it’s rare for there to be mistakes in this section, it’s still worth scanning. If you do find a mistake, you may want to clear it up as soon as possible.

History of Employment 

Your credit report may display your current and previous employers. Often, employer history is included in the personal information section. This is only listed to help verify your identity and does not have any impact on your credit. However, if you see any information you don’t recognize, you may want to follow up on it right away since this could be a sign of identity theft.

The Meaning of “U” on a Credit Report

If you see a “U” on your credit report, it stands for “unclassified.” This means that the account had not been updated when the credit report was generated. You might see a “U” on an account if it’s newly opened and you haven’t made any payments yet. 

“U” marks are neutral and not looked at as positive or negative by lenders. However, a “U” can also indicate a problem with the account, such as it being past due or sent to collections. If an account is labeled “U” and it isn’t new, you may want to follow up with the creditor to find out why.

Disputing Credit Reports 

If you find information that isn’t correct, you may want to file a dispute claim with the appropriate credit bureau as soon as possible, which can easily be done online. In some cases, you may also need to send documents and any evidence you have to prove there is a mistake via certified mail.

How Credit Reports Are Used

You’re not the only one looking at your credit report. Here are some situations where lenders and other companies may check out your credit reports.

Loans

Whether you apply for a mortgage, auto loan, or personal loan, the lender may access your credit reports to view your financial activity. Lenders typically use information from your credit report to determine how much credit to extend to you and what interest rate to charge.

Renting a Home

If you’re applying to rent an apartment or house, the landlord may access your credit reports in order to determine whether or not you’re a potentially reliable tenant who is likely to pay the rent on time and in full each month.

Other Services

Other services, including utilities, cable and cell phone providers, and insurance companies, may check your credit reports and use the information to determine if you’re likely to be a reliable customer.

The Takeaway

Regularly checking your credit report is one of the smarter ways to manage your financial health. By setting aside time to review your report for errors, you may ensure your borrowing habits are accurately represented to lenders and could also spot potential identity theft. Remember, if you do find mistakes, the dispute process is there to help you set things right. Staying proactive with your credit information is a simple step that can help you feel more confident about your financial future.

If you’re thinking about taking out a personal loan in the near (or distant) future, checking your credit reports (and checking your credit score) is a great first step. This allows you to see exactly what a lender may see when you apply and allows you to correct any errors and, if necessary, work on building your credit profile. 

If you’re curious about what rates and terms you might qualify for right now, Lantern by SoFi can help. With our easy online lending tool, you can review and compare personal loan options from multiple lenders.