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Credit Reports – How To Read Them

What's the worst thing that can appear on my credit report?

There are basically ten things that look the worst on your credit report. Here they are, listed from the best to the worst: (1 is best – 10 is the worst)

1. Credit inquiries

2. Credit rejections

3. Late payments

4. Past due and unpaid payments

5. Court judgments

6. Collections

7. Loan defaults

8. Repossession

9. Foreclosure

10. Bankruptcy.

Your credit score is based on the final number of individual ratings in five categories: (these are approximate and can vary)

Payment history (35% of the rating)

Length of credit history (15%)

New credit (10%)

Types of credit used (10%)

Debt (30%)

Believe it or not, your income is not a factor. Although the debt to income ratio  is used by some creditors as a guide.

How to read and interpret your credit report

Each of the three major bureaus uses a different reporting form and format. The descriptions below correspond to most of any bureau reporting methods. Read the description while reviewing your report directly. Reading your credit report without the description is confusing and may cause you to not fully understand the depth of the data about you in your credit file. We don’t provide copies since they often change the format, but the information below normally stays constant.

What is an inquiry?

An inquiry occurs when an entity requests a copy of your credit report. These inquiries can be made by credit-granting organizations, such as banks and retail stores, when you are applying for credit. Other inquiries, from requestors such as insurance companies, potential employers, or rental housing agencies, can be made after you have given the requestor your consent. The entity's name will appear on your credit report, allowing you to monitor who accessed your credit history. When you personally check your credit report, the inquiry that is recorded will NOT adversely affect your credit standing. 

What is a Public Record?

Not all personal information is private — including Public Records. All federal, state, and county courts make certain information public. This includes information about legal matters affecting your credit. It works like this: the courts record legal information, make it public, put it on your credit report, and it becomes a "Public Record." The most common types of Public Records include:

• Judgments against you in civil actions

• State or federal tax liens

• Bankruptcies

Public Records stay on your credit report for seven years. If the Public Record is a Chapter 7 Bankruptcy, it will stay on your credit report for ten years. If you have a Public Record on your credit report, you can take steps to ensure that you receive credit under the best possible terms. The most important step is to make timely payments on your Public Records.

Set a goal for yourself: Aim to have your Public Records paid-in-full by a

certain number of months or years. By sticking to your payment plan,

you’ll prove to potential creditors that you are a creditworthy consumer.

What is a Revolving Account?

Revolving Accounts have open terms and varying payments. This means that your monthly payments will vary depending on the balance of the account. Examples of revolving accounts include all major credit cards and credit cards from department stores.

Facts about Revolving Accounts:

• When you open a revolving account, such as a credit card account, you are given a maximum amount that you can charge--a limit.

• It’s up to you how much of your limit you will spend.

• The amount that you owe will change each month, depending on how much of your limit you have charged.

What is an Installment Account?

Installment Accounts have fixed terms with regular payments. If you’ve ever had a car loan, student loan, home loan, or personal loan, you know what we’re talking about. Let’s say your car payment is $300 per month—this means that each month you pay the $300 installment.

Facts about Installment Accounts:

• You owe a certain amount of money.

• You have to pay back a set amount of that money each month and this set amount does not change.

• You also have a certain amount of time to pay off the loan.

What are the notations on my credit report supposed to mean to me?

The codes and statements on any credit report are supposed to be clearly defined and explained by the credit bureau issuing the report. As you have probably already determined, the credit reports are almost impossible to read and even more difficult to decipher.

Following list is intended to explain what most of the credit bureau definitions actually mean. As with most definitions regarding competing products, there will inevitably be some variation.

Late Pay/Delinquency - An indication that payments to an account were not made on a timely basis. For installment loans, it indicates that payments were not paid by the contractually stated date. For revolving accounts, it indicates that the minimum payment was not made by the date required by the creditor.

Paid Was Late - This notation indicates that an account was in a late pay/delinquency status but was brought up to date.

Paid Was Delinquent - This notation indicates that an account was in a late pay or delinquency status but was brought up to date.

Charge Off - This notation provides that the account has been taken off the creditor's books and is considered un-collectible. A charge-off is considered a loss and is deducted from a creditor's profits.

Paid Charge Off - This references an account that has been taken off the creditor's books but has been subsequently paid by the consumer. The notation indicates that the debt has been satisfied and does no longer apply.

Collection (paid/unpaid) - This indicates that an account was placed either to an in-house department or outside third party for the purpose of collecting past due amounts of the debt.

Judgment - The binding opinion of a court entered on behalf of a party involved in a lawsuit. In credit reports a judgment normally shows against the consumer. A judgment means that a consumer is liable to another party for the amount of the judgment. A judgment is the official and authentic decision of a court of justice upon the respective rights and claims of the parties to an action or suit therein litigated and submitted to its determination.

Satisfied Judgment - Where a judgment has been ordered, this reference indicates that the consumer has paid/extinguished the obligation imposed by the court through the judgment issued.

Closed Account - Reported by Subscriber- This notation reads that the account is no longer in existence and the consumer is unable to use that account to incur debt. It also indicates that the creditor closed the account because the creditor chose to no longer do business with the consumer. This line indicates a negative connotation regarding the data.

Tax Lien - This refers to a tax obligation that has not been paid and has had a lien placed against the assets or holdings of the consumer.

Paid Tax Lien - This shows that a tax obligation resulting in a lien has been satisfied and that the consumer is no longer liable for the tax obligation.

Bankruptcy - Indicates that the account was involved in a bankruptcy proceeding. This does not necessarily state that the account was discharged, only that the account was included in some form of action.

Discharged in Bankruptcy - This notation states that the account was included in bankruptcy and that the debt was extinguished by virtue of the bankruptcy court discharging the consumer from further liability on the debt.

Foreclosure Process Started - This means that the consumer is in default of the mortgage and the creditor is in the process of seizing the property.

Foreclosure - Indicates that due to default, the creditor had to seize and sell the property to satisfy the mortgage debt. Deed in lieu - The consumer has defaulted on a mortgage and the creditor has accepted the deed to the property in lieu (or exchange) of seizing the property and selling it at auction to satisfy the debt.

Subscriber Cannot Locate - A notation normally indicating a defaulted or delinquent obligation in which the creditor retains a collection interest but is unable to locate the consumer to enforce the collection.

C or Current - The account is current as of the date reported.

1 - The account is or was 30 days past due.

2 - The account is or was 60 days past due.

3 - The account is or was 90 days past due.

4 - The account is or was 120 days past due.

6 - The account is or was 180 days past due.

7 - Making regular payments under wage earner plan or similar arrangement.

8 - Repossession. This account indicates a debt held with a security interest. Where repossession is shown, it means that the creditor took the property securing the debt back. If the trade line indicates Voluntary Repossession it means that the consumer returned the security interest to the creditor before it had to be taken back by the creditor.

9 - Seriously delinquent/bad debt. This notation shows that the account loan has not been repaid in a long time or that the debt is considered un-collectible and is a bad debt.

R - Revolving Account. This notes that the account has or had a variable balance and payment structure. Most Visa and MasterCard are open-end credit cards, which allow one to pay a minimum or any amount above that level without a fixed dollar amount each month.

I - Installment Account. This means that the account has a contractually fixed payment structure with a specific fixed dollar amount due (usually each month) and a particular due date. Examples of common installment accounts are mortgages, auto loans, furniture, appliances, boats, etc...

Joint Account - Account made with two contractual parties. Both parties assume ultimate liability for the repayment of the obligation.

Authorized User - Indicates that the consumer is entitled to use the credit card of another person. An authorized user does not incur any obligation to repay the debt nor assume any contractual obligation to make payments on the account.

Always check for a legend on each of your credit reports, some changes might be made or updated in terminology.

Go to Next Page - Traditional Methods - Clean It Up

Table of Contents

Introduction • Credit Bureaus–What You Need To Know 
Your Credit Score–What It Is • Credit Reports–How To Read Them
Traditional Methods–Clean It Up • Quick Fixes – How You Can Get Faster Results
Monitoring Services–Are They Worth It • The Future–You Can Establish New Credit
Sample Disputer Letter • Other Resources & Sponsors • Supplement Reading • Summary
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