Lesson 2: Read And Understand Your Credit Report

Lesson 2: Read & Understand Your Credit Report

Summary:

Learn how to read your credit report, then decide what you want it to say about you
Your credit report is basically your history of repaying debt (but it could be inaccurate)
Your credit report consists of:
- Personal Information
- Personal Statement
- Potentially Negative Information
- Accounts In Good Standing
- Inquiries
- Disclosures
Your credit report does not include race, gender, employment status or income
The three main credit bureaus (Experian, TransUnion & Equifax) all keep their own credit report on you (so you have three different credit reports)
When you apply for a loan, a lender can look at any one of the bureaus’ reports or all three
When you apply for a loan and a lender “pulls” that bureau’s credit report on you, that bureau records it as a “Hard Inquiry”
Most mortgage companies look at all three of your credit reports (from each bureau)
It is YOUR RESPONSIBILITY to review and monitor your credit report for inaccuracies (I know it shouldn’t be, but we live in the real world and must pay attention to what people say about us)
You can access and monitor your credit reports through several methods, including setting up a free account with each bureau

Wise Credit Management is a free Bible-based class that teaches how credit really works by showing factual information directly from the Credit Bureaus and FICO, and simplifies the subject to show everyone how to build good credit or handle bad credit. The class is fairly comprehensive and focused on getting good credit to qualify for a good mortgage rate and terms. WiseCreditManagement.com is a free community for members to take the class, join local groups (online or in person) for mutual support, and to find local professionals who volunteer to use their skills to assist members to success.

I am not a lawyer or Credit Repair Organization.

Home ownership is the way most Americans build wealth and a lack of education about credit is a huge contributor to the growing “Wealth Gap” in our country. Wise Credit Management is focused on teaching how to get good credit and qualify for a good mortgage rate and terms.

My work is protected by the “fair use” section of U.S. Copyright Act.

Proverbs 22:1 ~ A good name is to be chosen rather than great riches; favor is better than silver or gold. ~

A Good Name

If someone doesn’t know you, what would you want them to know? Your resume shows your work history, and your credit report shows your history of repaying debt and other financial obligations.

The Fair Trade Commission (FTC) says, “A credit report is a summary of your personal credit history.” (consumer.ftc.gov/articles/free-credit-reports)

The FTC also says, “A credit score is a number that represents a rating of how likely you are to repay a loan and make the payments on time.” (https://consumer.ftc.gov/articles/credit-scores)

The Consumer Credit Bureau, Experian says, “Specifically, a credit score is designed to predict your likelihood of falling at least 90 days behind on a bill within the next two years.” (Experian.com/blogs/ask-experian/how-long-does-it-take-to-build-credit/)

Experian also says, “Employment status and income will not play a factor, though you will list them on a loan application. Also absent from your scores: Your age, race, gender, where you live and other personal identifying information.”

I want to emphasize that race/ethnicity is not a factor in your score. However, I do recognize that there is a significant difference in the average credit score among different races. That is a socioeconomic problem, however the algorithm itself is designed to be objective and does not take these factors into account.

Review A Sample Credit Report

In this lesson, we use a sample credit report from Experian (Experian.com/assets/consumer-products/credit-educator/eperian-samle-report.pdf) to show all the aspects of what makes a credit report.

Personal Information: This section includes your name, aliases (if any), current and past addresses, Social Security number, date of birth, and any co-applicants associated with your accounts.
Personal Statement: This section allows you to explain extenuating circumstances related to past credit issues or report identity theft. It’s important to note that while creditors may consider your statement, automated credit scoring systems do not use it as a factor.
Potentially Negative Information: This section details accounts with late payments, collection actions, charge-offs (written-off debt), and any public records related to your credit history, such as bankruptcies, tax liens, or civil judgments. It’s crucial to review this section carefully for errors and dispute any inaccurate information you find.
Accounts in Good Standing: This section lists your current credit accounts, including the type of account (credit card, loan, etc.), the creditor, the account opening date, your last payment date, the minimum payment due, and the current balance.
Inquiries: This section shows companies that have accessed your credit report in the past two years. “Hard inquiries” happen when you apply for new credit or sometimes for credit line increases. “Soft inquiries” occur when a creditor monitors your credit health for existing accounts or when you pre-qualify for credit without a formal application.
Disclosures: This section provides information about how your credit report was compiled, your rights under the Fair Credit Reporting Act (FCRA), and the process for disputing errors with the credit bureau.

By understanding the different sections of your credit report, you have the knowledge to effectively monitor your credit health and take steps to improve it. The next lesson will explore how these factors affect your credit score and you will begin to understand how to improve it.

3 Main Credit Bureaus

There are three main credit bureaus: Experian, TransUnion and Equifax. They each have a “Credit File” on you, also known as a “Credit Report”.

How do credit bureaus get your information? They get your information when you submit an application for new credit (name, address, DOB, employer, etc.). Your lender reports your account information (usually monthly) to one, two or all three of them.

When you apply for new credit, a lender will typically perform a credit check, which is known as a “Hard Inquiry” or a “Credit Pull”.

When a credit card application is processed, the issuer usually does a “Hard Inquiry” on one of the main bureaus at random. However, in my experience more issuers tend to use your Experian credit report.

When you apply for an auto loan, a lender will usually check all three. A bank will usually run one credit check but a dealer or car lot might run many credit reports looking for the best financing for you.

When you apply for a mortgage, your lender will almost always check all three credit reports and might check multiple times during the process to ensure your credit doesn’t change substantially after the initial application. Mortgage companies use a different scoring model than the one you get for free. See Lesson 4.

Review and Monitor Your Credit Reports

You need to get your credit report from each bureau. They might have different information on you and one might have something negative that the others don’t.

You can use the following resources to check and/or monitor your credit:

AnnualCreditReport.com – A free service maintained by the bureaus which should be a convenient way to get your credit reports in one place. But it doesn’t always work.

Each bureau (Experian.com, TransUnion.com and Equifax.com) has its own web site that you can create an account with to review, monitor and dispute items that are on your credit report.

The Experian App is handy for providing real time monitoring of your credit report, new inquiries and a monthly FICO® 8 score (see Lesson 4).

CreditKarma.com is a good way to monitor your Equifax and TransUnion credit reports, new inquiries and it provides your VantageScore those bureaus (see Lesson 4).

The Fair Credit Reporting Act (FCRA) grants you the right to dispute any errors or inaccurate information on your credit report. You should follow the disputing procedure described later in Lesson 7, and send all disputes in a written letter by certified mail. It is not advisable to dispute through either App because it becomes more difficult to sue the bureaus. You can, however, use the account you create on each credit bureaus’ website to dispute simple things like addresses or phone numbers that are over two years old or incorrect.

Do you sign away your right to sue when you sign up for online accounts with credit bureaus? I AM NOT A LAWYER, but I can read and so can you. In the Terms of Service for each bureau they specifically state that you can use small claims court to handle disputes.

(https://www.experian.com/help/terms-and-conditions.html)

(https://www.transunion.com/legal/terms-of-use)

(https://www.equifax.com/terms/)

myFICO.com

myFICO.com shows your actual FICO® Scores from each bureau, including your Mortgage FICO® Scores. I strongly suggest you use this service to monitor your mortgage scores if you are considering buying a home in the next 6 months. You should at least know what your FICO® Mortgage Scores (from the FICO® Models 2, 4 and 5) are before you apply because your interest rate will likely be affected by those scores. It’s like paying a $30 pre-application fee.

As a former mortgage professional, I am trying to help you get into the best position possible to get approved for a mortgage at the lowest rate you can. Wise Credit Management focuses on the FICO® Mortgage Middle Score because it is the most widely used model to determine your eligibility for a mortgage and the interest rate you will pay.

Next: Complete the Lesson 2 Quiz (first make sure you completed the Lesson 1 Quiz)