How to read a credit report
If you thought grades ended when you graduated from school, think again. As an adult, you still get graded on your use of credit, but instead of receiving an actual grade, you receive a credit score. Your credit report is easy to read once you understand its components.
Personal, identifying information is on your credit report. This includes all of the following information:
- Your legal name plus any previous names that you have used, including your maiden name, if applicable
- Social Security number
- Date of birth
- Current and previous addresses
- Current and previous phone numbers
- Current and previous employers
Your credit history is essentially a biography of your use of credit. It reflects how much debt you have acquired and how well you have done paying it off. This is shown through the following information:
- Open and closed accounts
- Date accounts were opened
- Credit limits and loan amounts
- Outstanding balances
- Payments and payment patterns
- Whether any co-signers or joint account holders share any of your debts
- Inquiries (a third party requesting your credit score)
Your public record information is also included on your credit report. This includes items like:
- Overdue child support payments
- Tax liens
When a third party makes an inquiry into your credit report, it does not usually receive the entire report. Instead, the credit bureau, who has compiled the data for your credit report, summarizes the information with a three-digit number, referred to as your credit score. Typically, the higher the number, the better the score, but each third party decides its acceptable range of scores for itself. This credit score tells the third party how likely you are to repay the debt.
Know your score
It is a good idea to keep on eye on your credit report. You are legally entitled to one free look at your credit report per year, and it does not adversely affect your credit score. This gives you a chance to have any mistakes corrected so that your credit score remains high
Credit Inquiry: Soft pull vs. hard pull
On a credit report, when a third party looks at your credit score, this is called an inquiry. All inquiries, however, are not created equal. Some hurt your credit score, and some do not. An inquiry known as a soft inquiry does not affect your credit report, but a hard pull does.
A soft inquiry, or soft pull, is a term used to refer to an inquiry into your credit history that does not adversely affect the credit score. Often, you are not even aware that there has been a soft inquiry on your credit report. For example, if you receive a solicitation in the mail offering you a credit card, the credit card company has most likely conducted a soft pull to see if you qualify. When mortgage lenders pre-approve you for a loan, they initially use a soft pull. Potential employers use it as a part of background checks, and your current credit card companies use soft inquiries to check up on you. Banks use them to verify that you are who you say you are when opening an account. If you check your own credit report, which you can do for free once a year, this is done with a soft pull. Most of the time, you do not even know when they occur, and they do not affect your credit report.
A hard pull on a credit report is different. It does affect your credit score. Anytime that you are actually getting a loan or a new credit card, the lender conducts a hard pull on your credit report. This stays on the record. It also lowers your credit score by about five points for six months. For this reason, it is important to guard your credit report from too many hard pulls. If you get a store credit card just to save 10 percent on a single purchase, you have hurt your credit score. That is probably not worth the 10 percent savings. Some banks even use a hard pull if you are opening a savings account, so be sure to check your potential bank’s policy. Additionally, the incentives that credit card companies offer for signing up may not be worth the hit to your credit score.
A good rule of thumb for your credit report is to try to avoid any inquiries that are considered hard pulls. By limiting them your credit will be in good shape and you can qualify for the best interest rate available to you when it comes time for you to apply for a loan that you truly need.