How to Read Your Credit Report

An agency credit report contains four sections: identifying information, credit history, public records, and inquiries.

The identifying information is just what it says: Your personal information by which the credit bureaus identify you. You want to verify that everything in this section is correct.

The credit history section is supposed to list your credit accounts and how much you owe on each one, as well as your record for keeping up with payments. Experian's reports will state whether you have a record of paying on time, as well as whether a creditor has ever "charged off" the account; that is, given up on collecting. You will also see payment codes that are the credit industry's long-used method of grading your payment patterns for credit card accounts, installment loans, mortgages, and lines of credit.

The public records section is a place you want to keep blank. It lists finance-related matters such as bankruptcies, judgments, and tax liens. Most of these problems, however, do not stay on the report forever as long as you take care of them.

For example, a Chapter 7 bankruptcy, in which all of your debts are wiped out but your assets are sold and the proceeds distributed among your creditors, is supposed to be cleaned off your record 10 years after the filing date. A bankruptcy filed under Chapter 13, also known as "wage earner's bankruptcy," in which you set up a repayment plan, is usually deleted seven years after the filing date. Less onerous reports, such as late payments or non-payments, settlements, and tax liens, should be deleted seven years after you make good on the problem. An unpaid tax lien can be reported forever, but reporting agencies often delete them 15 years after the filing date.
However, recent changes in the law have made it more difficult to file for bankruptcy.

The final section, inquiries, is a list of everyone who has asked to see your credit report. These are divided into two sections: "hard" inquiries, which you initiate by filling out a credit application, and "soft" inquiries, which come from companies that want to send out promotional information to a pre-qualified group or current creditors who are monitoring your account.

Having a large number of hard inquiries as a result of your applying for credit can affect your rating, because lenders perceive consumers who are seeking several new credit accounts as riskier than those who aren't seeking additional credit. The good news about this, though, is that contrary to a widely held belief, the impact is not that large unless the rest of your credit history is problematic.

Dolan Straight Talk Tip: If you have been "rate shopping" for a mortgage or auto loan, this action should be counted as a single inquiry. Contact the credit-rating bureau if you've been penalized for your thoroughness with a list of multiple inquiries. Typically, inquiries are purged from the credit bureau files after two years.
Also, you can call Opt Out (888-5OPT-OUT or 888-567-8688), which tells the credit-reporting agencies that you don't want them to sell or rent your name to marketers. Here's one more great reason, as if you need one, to throw out–after shredding!–all of those unsolicited credit card offers that clog your mailbox and nowadays your e-mail box, too. Americans get bombarded with more than 3.5 billion credit card offers a year. Don't succumb to temptation.

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