How to... Read a Credit Report

In my last post I had gone over the IMPORTANCE (which can't be stressed enough) of understanding your credit score and how it's calculated. Today I will go over how to read a credit report. This is almost as important as knowing WHAT makes up your credit so that you can make sure it's accurate.

A couple things to note prior to getting into detail:

1. Each reporting company (CBCInnovis, Interactive Data, HSBC) can format their credit reports differently.
2. This will not cover everything that may appear on a credit report.

Parts Of a Credit Report

• Summary Page which has:
• The reporting company's name, number, address and fax
• WHO the report was prepared for: Equitable Mortgage, White Allen Honda, etc
• You/Your spouses basic secure information such as Full Name, Date of Birth, SSN, Recent Addresses
• Summary of Credit
• Type of Credit (revolving, installment, real estate, other)
• Monthly Payments, Balances, Limits
• Trades - # of Each type of Credit
• 30/60/90 - # of Lates in Each Category for that many days
• # of inquiries, Public Records, Bankruptcies, Past Dues
• Credit Scores

As you'll see, this individual has revolving, installment and real estate, THREE DIFFERENT types of credit. As you'll recall from last week, the different types of credit is 10% of your score, so they get a B in that department. 

Next I notice that their balance on revolving credit (usually credit cards or Home Equity Lines) is only 1.3% ($179/$13,500). Last week I stated that the goal was to keep that below 25% ideally, but it is reasonable to go up to 35% if need be. They got an A+ in that department which is 30% of their score.

As we move further right, there is all 0's in the 30, 60, 90 columns. This means they have made 0 late payments of at least 30 days. This is 35% of their payment history. Another A+.

The last thing I notice prior to their scores is that their oldest date of established credit is over 20 years ago. The average length of credit history is 15% of their score. It is safe to say their average length is pretty good if they have 20 years of history with one credit. A+.

As you'll see the scores reflect what I mentioned above, with 802, 807 and 821. Those scores are roughly in the top 10% in the nation. Scores range from 300 to 850 (Equifax), 309 to 839 (TransUnion) and 320 to 844 (Experian).

• Detailed Credit Information which has:
• Who the credit line belongs to (ECOA 0-9)
• Creditor (Who you make your payments to)
• When the data was last reported
• When the account was last used
• When the account was opened
• Limit or highest balance
• For a credit card this would be your limit
• For an installment loan (like a car) this would be the amount financed
• Balanced owed
• Amount Past Due
• Terms
• Written as "Months M Monthly Amount" 
• 30 Years at $855/Month would be 360 M 855
• Type of Credit (MTG - Mortgage, REV - Usually A Credit Card)
• Historical Status
• Number of months making payments
• If you have had any 30, 60 or 90 day late payments
• The dates of those late payments

These are the most important things so let's take a look at these pieces on an actual credit report:

(Moving Left to Right)

ECOA - Stands for Equal Credit Opportunity Act - This states how the account is owned:
     1 - Borrower (Not shared with anyone)
     2 , 4 - Joint (Shared with someone else)
     3 - Authorized User (BE VERY CAREFUL, THIS CAN AFFECT CREDIT)
     The other numbers are less prevalent, but feel free to reach out to me for an explanation.

RPTD - Shows the information was last reported in December 2012.

LAST ACT - Shows there was last action on the account in December 2012. This is updated every time credit is used or payment is made.

OPND - Shows the account was opened in August 2012. This is updated only 1 time, at opening.

The limit and balance owing are pretty self-explanatory, what your initial credit limit was and what you owed at the reporting date. REMEMBER, even if you pay it off each month, if the BALANCE OWED is high relative to the credit amount, it negatively affects your credit.

Terms Payment - As you will see on the second credit line, this person is expected to pay for 36 months the amount of $248 (36M248). Most credit cards show as V ##. This means the payment is variable (because you spend a different amount each month on your credit card).

Type - This will state either MTG  (Mortgage), INS (Installment), REV (Revolving), OPN (Open) 
FOLLOWED BY:
Real Estate, Lease, Auto, Credit Card, Unsecured, Educational Ln
FOLLOWED BY:
What bureaus it is reported to (not all credit items are reported to all bureaus).

HISTORICAL STATUS - This is what makes up 35% of your credit score. This shows HOW MANY payments you've made on this account as well as any lates you may have made. All those 1's show that this borrower has made all of his payments on time. 
If you saw: 1 - On Time, 2 - 30 Days Late, 3 - 60 Days Late, 4 - 90 Days Late, 5 - 120 Days Late, 6 - 180 Days Late, 9 - Bad Debt Placed for Collection, X - Payment Deferred/No Activity 

YOU NOW KNOW MORE THAN 95% OF AMERICANS IN REGARDS TO YOUR CREDIT REPORT, TUITION FREE. YOU'RE WELCOME!

To receive a FREE and CONFIDENTIAL personal financial assessment, email me at davids@eqfin.com.

Next week: Monthly Savings!