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How to Read a Credit Report

Scholasticus K Feb 6, 2019
In an era, when we carry out many credit related activities in our daily lives, it is important to know how to read a credit report, so we can manage a good credit and enjoy the benefits it provides.
There are several organizations such as credit card companies, lenders, banks, and various financial institutions who provide loans and credit facilities to individuals and businesses. To determine an individual's ability to repay a loan, a system known as credit report has been established.
This system effectively estimates the 'credit worthiness' of a person. Credit reporting agencies maintain records of all individuals and their transactions; they then compile this information in a report.
When a person applies for a loan or a credit card, the lender requests the agency for this report in order to consider the respective person's case. The report then proves to be the deciding factor for the loan's approval and also its interest rate.

Anatomy of a Credit Report

While reading this report, one must always check for accuracy regarding the information contained in it. Any mistakes, misleading facts, or spelling errors must be notified to the agency. If the errors are left unchecked, they can cause a lot of problems in the future. These are the things that you must be careful about while checking your report.
✦ The first category is for personal information. It includes your name, address, employment status, and monthly remuneration from current and previous employers. This part also includes your partnerships, agencies, and joint ventures.
✦ The second category is for credit accounts that are currently in operation. This section will include all revolving accounts (credit cards or accounts that have a monthly requisite fee), mortgage loans, installment accounts, etc.
✦ The third category contains a list of the accounts you have opened till date. Details of every account, its creditor's name, account number, account type, nature of responsibility, monthly payments, opening date, reporting date, balance, credit limits, payment status and history, are listed here. Make sure that all the information in this part is correct.
✦ The fourth category contains information about your public record, where details regarding foreclosure charges, criminal records, and bankruptcy records are listed.
✦ The fifth and concluding part of your report contains information related to inquires made against your report. This is basically a record of lenders inquiring about your report.

It must be noted that one such report can be availed once a year, by every individual for free.

Credit Report Dispute

Your credit rating and score is calculated on the basis of the aforementioned information. It is thus important that all facts in your report are truthful and correct.
A small mistake can end in a disaster, and you might have to suffer negative impacts, such as high interest and charges, or straightforward loan denial. To ensure that the report is perfect, get a report printed every year, and look through it. If you find any false facts, instigate a proper report dispute as specified by the website of the reporting agency.
It is also necessary that you have a look at your reports from all prominent reporting agencies, as there is a chance that you may find the information different in all reports, and may have to initiate proceedings to have it corrected.
Disclaimer: There are three main and several other credit reporting agencies, and they use different mathematical models for calculating credit scores.