Editorial Policy

Now that you have your credit report, what do you do?

Dawn Papandrea

November 12, 2014

In the remote recesses of your mind, you may remember hearing that you should check your credit reports periodically.

And perhaps, you even know that you can check them annually for free at AnnualCreditReport.com.

But, here's the question: Once you have the report in hand, do you know what to look for?

Happily, credit reports are no longer the rune-filled tomes of past decades. They are fairly straight-forward, and you have recourse if there's a problem.

“Historically, credit reports were done for lenders, and they were really complex; you had to know how to interpret the various codes,” says Mike Sullivan, director of education for Take Charge America, a national nonprofit credit counseling agency. “Now, it's all written in English. There are no codes, and it's quite easy to understand.”

But to protect your identity, and to make sure that lenders are seeing information that puts you in the best — and most accurate — light, you need to read those reports at least once a year.

Been putting it off? We've made it easy for you. Here is what you need to know about credit reports, how to read them and what to do if something is wrong.

Why should you care?

First off… why does it matter?

The reports, compiled by credit bureaus Equifax, Experian and TransUnion, are checked by lenders, insurance companies, employers and landlords to make sure you are a good risk for whatever service or product you are asking for. That's why it's important to check one of your reports from one of the three bureaus every four months for inaccuracies.

Problems can range from inaccurate addresses or misspellings to worse — accounts you don't own. By checking your reports regularly, you ensure that lenders are seeing the hard work you have done on building your credit.

What's in a credit report?

A credit report is basically divided into four parts: personal information, credit history, inquiries and public record information, says Howard Dvorkin, consumer advocate and credit expert for Debt.com.

  • Part 1: Your name, address, date of birth, Social Security number and employers.
  • Part 2: A list of installment and revolving debt accounts (credit cards, loans, mortgage, etc.), along with the amounts borrowed, balances owed on accounts, and repayment history.
  • Part 3: Shows who's been inquiring about your credit. Banks, credit card companies, employers, even potential landlords can inquire to see if you pay your bills on time.
  • Part 4: Reveals if you filed for bankruptcy, defaulted on any loans or have legal judgments.

One thing to note is that although the formatting is similar on each bureau's report, it could vary slightly if you decide to request your credit report through a vendor other than AnnualCreditReport.com. For instance, sections might include accounts, credit score, inquiries, legal records and a summary.

What's not in a credit report

Although your credit report is a snapshot of how you manage your credit and financial accounts, not everything about you is revealed, says Kevin Murphy, senior financial services consultant with McGraw-Hill Federal Credit Union. “Your income level will not be on there, nor will your race or ethnicity. Those criteria have no bearing on the scoring process,” he says.

Lenders also will not know about your investments, assets or savings. Additionally, utilities will not be listed, but it could be reported if you don't make those payments and the accounts are sent to collections, says Murphy.

What to look for

It's not enough to do your due diligence and request your credit report. You'll need to scan the document carefully for errors, says Sullivan. “If you pull your report each year, I wouldn't be surprised if you didn't find an error approximately 50 percent of the time,” he says.

“If you pull your report each year, I wouldn't be surprised if you didn't find an error approximately 50 percent of the time.”
Mike Sullivan, Take Charge America

Sullivan says that when you check a different report every four months,  “you will always find one or two differences in terms of new entries because it might take the other bureaus time to catch up, but you don't have to worry about minor differences unless there are errors.”

Errors could include simple typos in your personal information. Or perhaps items on your credit report that are attributed to you really belong to someone else, as was the case for Sullivan. Since he and his son have the same name, some of their information was erroneously swapped.

A more impactful error is when financial institutions report incorrect negative information. “A payment could be credited to the wrong account,” says Murphy. Or you might have paid a bill on time, but there's a late payment listed on your credit report. These erroneous items can lower your credit score and affect your eligibility for credit or lower interest rates.

Perhaps the most serious issue, however, is if you spot accounts on the report that you never opened, as those can be signs of fraudulent activity or identity theft.

How to dispute items

While you have the option to dispute errors online, and legally the bureaus have 30 days to investigate and respond to your request, it's wise to contact the bureaus via regular mail. That's because you could be waiving your right to a jury when you agree to dispute online.

Dvorkin recommends that every negative item you're disputing be put into letter form. “Write the credit bureaus and the creditor that provided the negative information,” he says. “Include copies — never originals — of documents that confirm your position along with the letter. State the facts in your letter and why you are disputing the information.” Then, send the letter by certified mail, with a “return receipt requested” so you can verify that the credit bureau received it.

Doing so will give you some legal ground to stand on should it come down to having to take further steps. “If you anticipate having to take legal action, you'd better have a paper trail to show you did everything you could to correct the errors,” says Sullivan.

Keep in mind that you only have to make corrections with one of the bureaus since changes will ultimately be reflected on all of your reports. Just be sure that the changes are in fact applied within a couple of months.

To dispute errors on your reports by mail, go to Equifax, Experian and TransUnion.

Whether you're buying a home, applying for a personal loan or interviewing for a job, how your financial history is reported on your credit report can have an impact on many aspects of your life. “Be an advocate for your own financial future,” says Murphy. You're entitled to view your credit reports, so take the time to do so.