We’ve all heard people preaching the importance of building your credit from a young age. We may all know the importance of a good credit score, but I’m sure many of us are confused about what a credit report even refers to.
While credit may sound like a confusing myth, good credit paints a picture of financial health to lenders and credit card companies. Good credit can help you get the loan for your dream house, move you into your luxury apartment, help you pay for that cool car you’ve always wanted, and more. These days, even employers look into credit scores of candidates to assess risk. However, on the other hand, bad credit can indicate you’re irresponsible with your finances and prevent you from being able to borrow money from your bank, for example. In addition, poor credit can make life difficult by making it all the more difficult to get approved for a home loan or apartment.
Our credit comprises financial scores to come up with your overall credit score. By maintaining and paying close attention to your credit report, you can flag any mistakes and help you maintain your image of financial security. We’re breaking down each section in a credit report so you can better understand your financial picture.
Double-check your personal information
When you look at your credit report, you’ll notice a section of your credit report referred to as Personal Identifiable Information or PII. Your PII includes your name (the one on your birth certificate, not your nickname), social security number, home address, date of birth, and place of employment.
When reviewing this section of your report, you should ensure that all your personal information is correct. Ensuring your name is spelled correctly, your social security number is accurate, and your most recent place home address is listed can save you quite a headache if you see something suspicious on your credit report. If anything looks wrong or incorrect, contact your credit bureau immediately.
Track your accounts
Every time you take out a loan or work with a lender, lenders report on each account you have. In these reports, lenders list the type of account, whether it be mortgage loans, personal loans, auto loans, and credit cards. In addition to listing each account, lenders report on the amount of your loan or credit limit.
It’s essential to review the credit accounts section of your report because the credit account information has a massive impact on determining your overall credit score, so you’ll want to ensure all of your accounts are in good standing. When reviewing this section of the report, ensure that you’ve been making all of your payments on time. You’ll also want to cross-reference these accounts with your information to ensure the report includes the correct accounts and that nothing was opened under your name or social security number. When reviewing your credit accounts in your credit report, review any accounts in good or bad standing and double-check that the information associated with each account is correct.
Credit check inquiries
When you apply for a new loan or credit card, you authorize the lender to acquire a copy of your report, often for a fee. This is known as a credit inquiry. Each inquiry is listed on your credit report under the credit inquiries section.
In the credit inquiries section of your credit report, you’ll find a list of everyone who’s inquired about your credit in the last two years. You’ll notice two different types of inquiries: hard and soft. Hard inquiries occur when you apply for a loan or credit from a lender, and they look into your credit to decide whether to approve a loan. On the other hand, soft inquiries are when lenders look into your credit to send you a -preapproved offer. Different lenders can view your hard credit inquiries but are unable to view any soft inquiries.
Soft credit inquiries do not impact your overall FICO credit score, but hard inquiries can indicate that the applicant may be more of a high risk. Hard inquiries unfortunately can negatively impact your credit score, and lenders may not approve your credit or loan if they see you’ve tried to apply for credit many times in the past. This can indicate that you don’t make your payments like you should, or don’t have the funds to keep up with loans, all spelling trouble for lenders.
Just like the other sections of your credit report, you want to make sure you’re carefully reviewing this section as well. Review each person or company that has inquired into your credit to ensure that all the information is correct. If you find a name you don’t recognize or a valid reason for the inquiry, you’ll want to check with the credit bureau to ensure it’s legit.
Public records section
When creating your credit report, credit bureaus collect information that is public record from states across the country and their judicial systems, as well as any bankruptcies you’ve applied. In addition to public records information, this section will also include any overdue debts sent to collections agencies, meaning there isn’t anywhere for you to hide information that impacts your credit score and financial health.
However, bankruptcy or debt doesn’t have to spell death for your credit. Even if you’re worried that the public records section will forever mean your doom, there are ways you can improve your FICO score despite any debts or bankruptcies on your record. Remember a chapter 7 bankruptcy will be listed in your record for ten years, while a chapter 13 bankruptcy is listed for seven.
Like all of the other sections of your credit report, ensure you’re carefully reviewing the public records section of your report so you can rest assured everything is accurate and correct. You want lenders to have your most accurate and up-to-date report for future applications. If you find an error in your public records section, you can contact your credit bureau to verify the information and correct any mistakes.
It’s all about the credit score
Your credit can have a huge impact on your life. You could be the richest person in the world, but if you have bad credit what good will it do? With what you’ve just learned, you’re on your way to better understanding your credit and being able to review your credit report accurately.
About the Author
Ashley Nielsen earned a B.S. degree in Business Administration Marketing at Point Loma Nazarene University. She is a freelance writer who loves to share knowledge about general business, marketing, lifestyle, wellness, and financial tips. During her free time, she enjoys being outside, staying active, reading a book, or diving deep into her favorite music.
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