Understanding Your Credit Report

Before you begin applying for mortgages, it's a smart move to pull your credit report from each of the three major credit reporting bureaus. While each credit report is laid out a bit differently, there are four main sections in each one: identifying information, credit history, public records and inquiries. Some of this data may look scary at first - but if you take time to learn how to understand your credit report, you can identify the areas that require action in order to improve your credit score.

Identifying Information

This will include your full legal name, your Social Security number, your date of birth, your driver’s license number, your employer and spouse’s name and your previous addresses. This information is compiled from loan applications and account information reported by creditors. Variations of your name are common and aren’t usually cause for concern. Occasionally, you’ll also see additional Social Security numbers on your credit report. If this happens, you should send the credit reporting agency a certified letter noting the inaccuracy. It could be a sign of identity theft, or you may have someone else’s bad credit erroneously attributed to you.

Credit History

Here, you will see a list of your credit accounts, both historical and current. Each entry will include the name of the creditor, the account number, when you opened the account, the type of credit (installment or revolving), other names on the account, high balance, outstanding amount, minimum payment, status of the account and your payment history on the account. This is an important section to pay attention to - if you know you are current on your accounts and always have been, but your credit history says otherwise, then your credit score may be negatively impacted. Correcting these mistakes will improve your credit score.

Public Records

The next section shows financial-related public records, such as bankruptcies, liens, tax debts and judgments. You want this section to be absolutely blank. These are the most damaging elements that can show up on your credit report, which is why its important to avoid bankruptcy or debts to the government or state revenue departments.

Inquiries

Inquiries are when someone other than you pulls your credit report in order to review your creditworthiness. This happens when you apply for a credit card, apply for a mortgage or have your utilities turned on. This also sometimes occurs during a job interview. There are two types of inquiries: hard pulls and soft pulls. Hard pulls are generally those that are initiated by you, where you expressly give the party permission to pull your credit report. Soft inquiries are done by those who have existing relationships with you or those who are pulling credit reports for promotional purposes (i.e. those “pre-approved credit card” offers you get in the mail). Having a large amount of hard pulls may impact your credit score, especially if you’re being repeatedly denied credit. Soft pulls, however, are largely ignored by FICO and should be ignored by you as well. On credit reports, these are usually denoted as “inquiries initiated by you” (hard) or “inquiries initiated by others” (soft) or some other variation.

Using this information, you should be able to identify problem areas on your credit report and take the appropriate action. If you have a legitimately late or missed payment, then take the necessary steps to rectify it. If there are errors, notify the credit reporting bureau as well as the creditor that reported the information.