How to Read a Credit Report and Understand It

The credit report of an individual contains the complete information about his/her financial actions. Your annual credit report will have complete details of the loan accounts that you have along with your activity in those loan accounts. To understand your creditors’ standing with respect to your credit position, it is important that you review your credit report once every year. Many people are not quite sure about how to read a credit report and understand it properly.

Some guidelines on how do you read a credit report include:

• The annual credit report of an individual contains different types of information. Understanding credit report score and the credit report on the whole requires a breakdown of the information included in the report. The first important piece of information included in the annual credit report is the personal information which includes the name of the person, address and the place of employment of the individual. The personal information is used to identify the individual and relate the credit rating to that person.
• The second section of the annual credit report has the summary of the information from the different accounts that the individual has. This lists the total number of accounts, the balance in the account, the current accounts and the delinquent account details. It will also include the real estate accounts as well as any details of mortgages that the person has. It will include any installment accounts and revolving accounts such as credit cards and also lines of credit. This section also has collection accounts and other account details. The credit summary also lists the total accounts that you have opened and closed and the inquiries that you have made against your credit limit in the last two years.
• Another important section in the annual credit report is the history section. In this section details of the credit accounts are given including the details of payments made. Every account will include the name of the creditor or the institution that conducts the reporting. It will also include the monthly payment, the balance on the account, the credit limit, past dues and other payment history. The term charged off in the credit report indicates that the creditor has made efforts to collect an amount and then has written it off.
• The public records in the annual credit report include such information as bankruptcies, tax liens, and any judgments and overdue child support details among other items. Such public records can remain on the credit report from 7 to 10 years depending on the kind of account.
• The last section of the credit report consists of inquiries which is the list of individuals who demanded a copy of the credit report. The credit account information and inquiry sections use alphanumeric coding which is used to classify and report items. 

Some coding used in account information includes the following details:

• J – Joint account
• I – Individual account
• U – Undesignated
• M – Maker
• C – Co-maker or Co-signor
• T – Terminated
• A – Authorised user
• B – On behalf of another person
• S – Shared

For understanding credit report score and its importance it is crucial to keep in mind the fact that more than 75 percent of the mortgage lenders and more than 80 percent of the financial institutions use the FICO scores for the evaluation and approval of credit applications. The credit report scores or FICO scores as they are called lie between 300 and 850. The higher this credit score the greater is the belief of the lenders that you will make the payments on time. Around 60 percent of the people have credit report scores of more than 700. The credit report score chart is used to determine the FICO score. Around 35 percent of emphasis is placed on payment history. Therefore a long history of payments made on time can help in the reflection of a good FICO score. 30 percent of emphasis is placed on the amount that a person owes in relation to the total credit available. The FICO score is also depended on 15 percent credit history and its length. The score also takes into consideration the oldest account and average age of all the accounts. The person’s mix of retail accounts, credit cards, mortgage loans and finance company loans are also considered in determining the FICO score.