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How to Read and Understand Your Credit Report and Credit History – Step by Step Guide

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It’s important to know what credit report and credit history are and as well as understand what they entail. A person starts off building a record of himself by which his reliability, trustworthiness and ability and rate of paying off debt is assessed. This record is known as credit.

A person’s credit is made available to anyone (from potential creditors to employers) inquiring, in form of a report. A credit report entails information that determines your credit score (more on this later). We’ll discuss the aspects of this report in details to enable you to understand it step by step.

How Your Credit Works

A credit report is compiled by three major bureaus Experian, Equifax and TransUnion that gather information from public records and other sources you do business with. The information collected is then used to produce your the report, which comprises of four sections:

  • Personal Information – Your name and address, including previous addresses, date of birth and social security number are added to this section
  • Credit History – This section includes your activity regarding all credit cards ever used by you, including open and closed accounts. The information specifically included in this section is the length of time you’ve had your accounts in good standing, your ability to pay on time, bankruptcies and tax liens
  • Public Records – This section includes your financial records including your property liens/bankruptcies
  • Credit Inquiries – This section maintains a record of everyone who has checked your credit in the past two years, usually landlords, business owners, and employers

An essential feature of your report is the second section, which is the record of the loan or financial payment history. Your credit activity is mostly based on this. This includes bills, mortgages, insurance and various other bills.

Occasionally, you may encounter some errors in this section of your credit reading, which can be attributed to unintentional errors or mistakes perhaps by your doctor or others you’ve made payments to. If this occurs you can first contact the person or company responsible for the error. If they are unresponsive, you can consult the Consumer Financial Protection Bureau to report the issue too.

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What is a Credit Score?

Essentially, a credit score is a grade that is assigned to your credit history. Credit scores are most commonly provided by Fair Isaac Corporation, also known as FICO® scores. FICO scores range from 300 to 850. The lowest range indicates a bad credit score while the highest range indicates an excellent score. A score above 700 is generally considered good.

How Your Credit Score Affects Your Opportunities 

Creditors, employers etc may look at credit reports and credit scores to decide whether to lend money or not. Good credit can set you up for various financial opportunities. This means your chances of receiving loans are higher and you can also qualify for lower interest rates. It is advisable to monitor your credit score and other aspects from time to time. You can request your credit score from your banks if they provide it. Some credit card companies provide it for free, while credit agencies may charge a fee.

Ways to Improve Your Credit

As we know your credit reflects payment patterns especially the amount of time you have used to make payments. It is best to improve your activity in that area. Make payments on time and keep the balance owed on your credit card low. Pay off your debt as much as possible. If you have just started building your credit, do not open up many credit card accounts. If you have many credit cards, manage them responsibly. Maximize your credit card payments over a shorter period of time instead of only managing to pay minimum monthly payments.

Your account reading should include minimal missed payments. In case you do miss a payment, request your credit card company for a waiver as a courtesy. File your taxes on time without missing any payments owed to IRS. Avoid non-payment defaults in all your all dealings. The information collected by Experian, Equifax, and TransUnion summarizes all your public financial records which ultimately determines how many avenues are left open to you to establish yourself with better opportunities.