How To Better Read, Understand, And Analyze Your Credit Report
A credit report analysis involves corroborating the information mentioned in a credit report, including the client’s personal details, credit summary, any inquiries conducted, foreclosures and repossessions, as well as public records on bankruptcies.
A credit report lets the lender evaluate a potential client’s creditworthiness. They are produced by credit rating agencies that store a borrower’s credit payment history throughout their lifetime.
These agencies also determine a credit score that serves as an outlook on a customer’s creditworthiness and helps lenders determine whether or not they should extend the person a line of credit.
Credit rating agencies store cumulative information about the credit history of each client by merging all the information gathered from banks, credit unions, credit card companies, and other financial institutions.
The Creditworthiness of a Potential Borrower
A substantial chunk of information in a credit report reveals the credit history of an individual or entity, paid and unpaid debts, as well as their payment patterns.
The report also provides a list of all debts previously borrowed, their respective amounts, repayment history, and any prevailing or past defaults. All this credit information is accessible to creditors for seven years for normal credit, while bankruptcies stay on the report for seven to ten years.
A credit score is a rating calculated by a credit bureau. A high credit score implies that the borrower has maintained a clean record of repaying on time, making it convenient for a client to gain credit from creditors.
Borrowers with a history of delayed repayments or non-payment of loans, on the other hand, are awarded a lower credit score, reducing their odds of securing credit approvals from creditors.
Customers with a low credit score also find it expensive to procure credit since creditors attach a high interest rate with loans because of the increased risk of default.
Credit Report Contents
You must be able to read and understand what your credit report says about your financial behaviour. Here are the contents listed in a credit report and what you can expect in it:
1. Basic Information
The first section contains your personal information that could help identify you, such as –
- Contact number
- Government Issued Identity proof
- Date of birth
Everything in this section must refer to you, and no one else as it is exclusively your personal information. It is imperative that you double-check your personal data to avoid issues later when applying for credit.
2. Credit History
The credit history section of your report contains the most significant data –
- Open and paid credit accounts, such as credit cards, mortgages, and loans
- Net loan amounts
- Accounts shared with a third party
- Pending loan balances
- Late payments
- Accounts sent to collections
This section carries the most weight in the credit report, and you must look out for any inconsistencies, suspicious accounts, and take note of any payments that have been misrepresented as being paid late when in fact they were made on time.
If you have closed a credit card account, make sure it shows up as closed on your credit report. Also, ensure that no lines of credit have been opened under your name without your consent, as this could be a possible case of identity theft.
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3. Public Record
The public record of the credit report mentions a record of bankruptcies, judgments, tax liens, and other governmental notices in your financial history. If a borrower has no significant public financial records, this section of the credit report remains blank.
Public records are visible to all parties that request access to your credit report. This information is available for seven to ten years from the time it gets resolved.
For instance, if an individual is declared as bankrupt and successfully challenges this decision, the bankruptcy information only gets deleted from their financial records in seven to ten years.
The public financial records section can often damage a borrower’s credit score. Lenders will be less likely to indulge you if your public record warns about a history of defaults, repossessions, and bankruptcies.
The inquiries section of a credit report contains a record of any requests that are carried out to the credit rating agency for your credit report. These inquiries can either be soft or hard, and they influence the credit score in several ways.
These inquiries are conducted by lenders, and they do not affect your credit score. Lenders often demand credit information from rating agencies every time a borrower applies for credit.
If the credit report contains a record of several inquiries from lenders, it could indicate that an individual has applied for several loans in the past.
However, it might also give away the fact that the applicant’s loan application has been rejected on several occasions if this is the case.
Soft inquiries are initiated by the borrower and do not influence their credit score. Borrowers can make inquiries on their credit reports at least once every year to verify that their records are accurate.
Soft inquiries are also made regularly without your consent. A company might check your credit score if they are willing to mail you a promotional offer. Unlike hard inquiries, these inquiries have no impact on your credit score, u.
This credit report comprises a record of all collections made from the client, such as repossessions, unpaid debts, foreclosures, and a history of enforcement from collection bureaus. The collections segment can damage a borrower’s credit profile.
Lenders often regard such clients as a high-risk proposition because of their history of defaults and delayed payments. The collections category is available upon request, and the records are accessible for seven to ten years from the date of resolving the report.
Check your experian free credit report online, and be sure to go through your credentials and personal data and build a credit report that opens you up to a world of possibilities without hassle.
While analysing your credit report might initially sound complicated, doing so will help you understand the various aspects of a credit report and what to look for when corroborating information.
You must be proactive and ensure that all your particulars and records are correctly listed. By getting your credit report sorted and thoroughly checked, you can safeguard yourself from identity theft and increase your chances of obtaining credit from lenders.