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["Toni Hawryluk" <tonihawr AT msn.com>]

http://moneycentral.msn.com/content/Banking/Yourcreditrating/P88401.asp?GT1=5848<http://moneycentral.msn.com/content/Banking/Yourcreditrating/P88401.asp?GT1=5848>
 

How to read your credit report

 

Charge-offs, inquiries, R1s -- what's it all mean? Here's how to understand 
this increasingly crucial document.

So, you've decided to get your free credit report (click 
here<http://moneycentral.msn.com/content/Banking/Yourcreditrating/%20/content/Banking/P71745.asp>
 to learn how, and to see if the new service has been rolled out in your 
state).

But now that you've got it, there are an awful lot of numbers, abbreviations 
and terms you've never seen before. Trade lines, charge-offs, account review 
inquiries -- how do you read this thing?

First off, there are three major credit-reporting agencies in the United 
States: Experian<http://www.experian.com/>, 
TransUnion<http://www.transunion.com/> and Equifax<http://www.equifax.com/>. 
Every 12 months, you can print a copy of your credit file from all three 
agencies by going to a single Web site, 
www.annualcreditreport.com<http://www.annualcreditreport.com/>. 

"Looking at one is a useless endeavor; you need to look at all three," says 
Howard Dvorkin, president of Consolidated Credit Counseling Services in Fort 
Lauderdale, Fla. "People tend to pull one and think everything is the same on 
all of them. That's not normally the case." 


The reports will have different information because it's a voluntary system, 
and creditors subscribe to whichever agency they want -- if any at all. 

Maxine Sweet, vice president of consumer education at Experian, stresses the 
importance of ordering the report directly from the credit bureau -- or 
through www.annualcreditreport.com -- instead of asking a buddy who works at 
a bank to pull one for you. Those are written for people who work in the 
credit industry. The one you get from the credit bureau is designed for 
consumers.

"The information is the same, but it's much more consumer friendly," she 
says. 

Well, not quite the same. The report sent to a lender will list the credit 
bureau member numbers of your creditors and it won't have the complete list 
of every company that's pulled your credit information for promotional 
purposes, like pre-approved credit card offers.

"If you compared the two reports side by side, the consumer one will have a 
couple more pages of information," says John Ulzheimer, client support 
specialist for credit bureau products at Fair, Isaac and Co. Fair, Isaac is 
the creator of the FICO score, the widely used credit scoring model that is 
used to determine a person's credit risk.

Anatomy of a credit report
A credit report is basically divided into four sections: identifying 
information, credit history, public records and inquiries.

Identifying information is just that -- information to identify you. Look at 
it closely to make sure it's accurate. It's not unusual, Sweet says, for 
there to be two or three spellings of your name or more than one Social 
Security number. That's usually because someone reported the information that 
way. The variations will stay on your credit report; "If it's reported wrong, 
we leave it because it might mess up the link. Don't be concerned about 
variations." 

Other information might include your current and previous addresses, your 
date of birth, telephone numbers, driver's license numbers, your employer and 
your spouse's name. 

The next section is your credit history. Sometimes, the individual accounts 
are called trade lines.

Each account will include the name of the creditor and the account number, 
which may be scrambled for security purposes. You may have more than one 
account from a creditor. Many creditors have more than one kind of account, 
or if you move, they transfer your account to a new location and assign a new 
number. The entry will also include: 

  a.. When you opened the account 
  b.. The kind of credit (installment, such as a mortgage or car loan, or 
revolving, such as a department store credit card) 
  c.. Whether the account is in your name alone or with another person 
  d.. Total amount of the loan, high credit limit or highest balance on the 
card 
  e.. How much you still owe 
  f.. Fixed monthly payments or minimum monthly amount 
  g.. Status of the account (open, inactive, closed, paid, etc.) 
  h.. How well you've paid the account 
On Experian's report, your payment history is written in plain English -- 
never pays late, typically pays 30 days late, etc. Other comments might 
include internal collection and charged off or default. 

"Charged off means the creditor has given up, thrown in the towel," Ulzheimer 
says. "He's made efforts to collect and written it off." 

Other reports use payment codes ranging from 1 to 9; an R1 or I1 on a report 
is an indication of a good payment history on a revolving or installment 
account.

Better off blank
The next section is the part you want to be absolutely blank. The public 
records section "is never a good story," Sweet says. "If you have a public 
record on there, you've had a problem." 

It doesn't list arrests and criminal activities; just financial-related data, 
such as bankruptcies, judgments and tax liens. Those are the monsters that 
will trash your credit faster than anything else.

The final section is the inquiries. That's a list of everyone who asked to 
see your credit report. 

"Any time anyone gets into the report, it'll post an inquiry," Ulzheimer 
says. "If you call the credit bureau and ask for a copy, it will be on there. 
It's a very detailed entry record. It's great for the consumer." 

Inquiries are divided into two sections. "Hard" inquiries are ones you 
initiate by filling out a credit application or taking your child to the 
orthodontist. "Soft" inquiries are from companies that want to send out 
promotional information to a pre-qualified group or current creditors who are 
monitoring your account. 

You may have heard that a large number of inquiries can have a negative 
impact on your credit score, but you're probably OK. 

"The vast majority of inquiries are ignored by the FICO scoring models," 
Ulzheimer says. "They're not the steak in the steak dinner." 

For instance, the model has a buffer period that ignores inquiries within 30 
days of getting a mortgage or a car loan. It also counts two or more "hard" 
inquiries in the same 14-day period as just one inquiry.

"You could have 30 in two weeks and it only counts as one," Ulzheimer says.

If you find a mistake on your credit report -- an account that isn't yours or 
a disputed amount -- you'll need to fill out the form that comes with the 
report, or follow the instructions on the explanatory sheet. 

The process takes time because the creditors have 30 days to respond to a 
charge of a discrepancy. As long as a charge is in dispute, that dispute will 
show up on your report. Long-time lenders say it's common for reports to have 
errors. Some estimate that as many as 80 percent of all credit reports have 
some kind of misinformation.