How to Read a Credit Report and Why It Matters

Your credit report is one of the most important financial documents you have. Lenders use a record of your credit history to determine your creditworthiness. A good credit score can mean the difference between getting approved for a loan and being denied. That’s why knowing how to read your credit report is so important.

Most people don’t think about their credit report until they need to apply for a loan or a credit card. Then they realize they have no idea what their credit score or credit report says about them. If you’re in this situation, don’t worry—you’re not alone. Reading a credit report can be confusing, but it’s not impossible. With patience and basic knowledge, you can decipher your credit report and understand what it means for your financial future. Your credit report is a snapshot of your financial history. It includes information on everything from your current debts to your payment history. Lenders use this information to determine whether or not you’re a good candidate for a loan. 

What Is a Credit Report

Your credit report is a snapshot of your financial history. It includes information on everything from your current debts to your payment history. Lenders use this information to determine whether or not you’re a good candidate for a loan. 

Your credit report is divided into four sections: personal information, account information, public records, and inquiries. Let’s take a look at each section in more detail: 

Personal information: This section includes your name, address, Social Security number, and date of birth. This information is used to identify you and ensure that the rest of the information in your report is accurate. This section also includes any aliases or previous names you may have used. 

Account information: This section lists all of the accounts that are currently in your name, including loans, lines of credit, and credit cards. For each account, you’ll see the date it was opened, the current balance, the monthly payment amount, and the account status (open or closed). You’ll also see negative information, such as late payments or collections activity. 

Public records: This section includes any bankruptcies, foreclosures, or liens filed against you. These items can stay on your report for up to 10 years and negatively impact your score. 

Inquiries: This section lists every time someone has accessed your report in the past two years. It could be a lender considering approving you for a loan or a company running a background check as part of a job application process. Too many inquiries in a short period can be seen as a red flag by lenders and will lower your score. 

How Is My Credit Score Calculated? 

Your credit score is calculated based on the information in your credit report. The exact formula varies depending on which scoring model is used. Still, generally, it considers factors like your payment history, debt-to-credit ratio, length of credit history, and more. 

The most common scoring models are FICO and VantageScore. FICO scores range from 300 to 850, with anything above 700 considered excellent, and VantageScore ranges from 501 to 990. Anything above 700 is considered outstanding. You can get free access to your FICO score by signing up for a free trial of Experian Boost™†. With Boost, you’ll also see how adding certain types of accounts—like utility and cell phone bills—can help boost your score even more. 

Now that you know how to read your credit report, you can start taking steps to improve your score. Start by paying all of your bills on time and maintaining low balances on your revolving accounts. You should also avoid opening new lines of credit unless necessary. By taking the time to understand how to read your credit report, you can set yourself up for success when you apply for loans in the future. If you follow these tips and check your credit report regularly, you’ll be well on your way to achieving an excellent score!