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In this issue of “Knowledge is Power!” You will learn about charge-offs, inquiries, R1s -- what's it all mean? Here's how to understand this increasingly crucial document “your credit report”
Now, you have your credit report and wow – what’s all the numbers, abbreviations and terms you never seen before. There are trade lines, charge-offs, account review inquires – how do you read this thing?
First off, there are three major credit – reporting agencies: Experian, TransUnion and Equifax.
Everyone is entitled to a free copy of their credit report – one from each of the major credit-reporting agencies ANNUALLY under federal law. For more details on how to obtain your free credit reports see our newsletter dated August 2005.
When reviewing your credit report make sure you look at all three. The reports will have different information because it’s a voluntary system, and creditors subscribe to whichever agency they want – if any at all. Just because one looks good doesn’t mean the other two are as well.
Always order your credit report directly from the credit bureau. Don’t have someone you know at your local bank pull one for you because the one you get from the credit bureau is designed for consumers.
A credit report is basically divided into four sections: identifying information, credit history, public records, and inquiries.
Identifying information. Is the information to identify you. Check the information carefully to make sure it’s accurate. If you notice that you have more than one spelling of your name or more than one social security number it’s not unusual. It just means that someone reported the information that way and if you attempt to make a correct it could cause problems.
Credit History. Sometimes, the individual accounts are called trade lines. Trade lines will include: creditor name; account number; date you open the account; kind of credit (installment, such as a mortgage or car loan, or revolving, such as a department store credit card); whether the account is just in your name or with another person; total amount of the loan; high credit limit or highest balance on the card; how much you still owe; fixed monthly payment or minimum monthly amount; status of account (open, inactive, closed, paid etc.) and how well you’ve paid the account.
On Experian’s report, your payment history is written in plain English – never pays late, typically pays 30 days late, etc. Other comments might include internal collection and charged off or default.
If the account indicates it has been charged-off that means the creditor has given up. He’s made every effort to collect but has been unable. It’s important to remember that it doesn’t mean you no longer owe that creditor the money. The creditor could very well continue to attempt to collect the balance by assigning or selling it to a collection company or attorneys firm.
Some reports use payment codes ranging from 1 to 9; an R1 or I1 on a report is an indication of a good payment history on a revolving or installment account.
Public records. This part you want to be absolutely blank. If you have a public record you had a problem. This area list just financial-related data, like bankruptcies, judgments and tax liens. It doesn’t list items like arrests or criminal activities.
Inquiries. Is a list of everyone who has requested to see your credit report. Inquiries are classified as either: “Hard” inquiries which are initiated when you fill out a credit application or “Soft” inquiries that are from companies that want to send out promotional information to a pre-qualified group or current creditors who are monitoring your account. The soft inquiries only appear on reports that are given to consumers.
You may have heard that a large number of inquiries can have a negative impact on your credit score, but you’re probably OK. The majority of inquires are ignored by the FICO scoring models.
For instance, the FICO scores have at least a 30 day buffer period where auto and mortgage inquires are initially bypassed and not counted. It also counts two or more “hard” inquires in the same 14-day period as just one inquiry. You could have 30 in one week that only counts as one.