Credit report on a desk

How to read a credit report

When applying for a home loan, your credit score and the financial information on your credit report can determine the terms of your loan and, ultimately, whether you’re approved. Because mistakes on your credit report could lower your credit score, reviewing your credit reports for accuracy is essential. By learning how to read a credit report, you’ll be better prepared to identify red flags that you can potentially correct before buying a home.

What’s a credit report?

A credit report includes your credit and loan accounts, account balances, payment history, credit inquiries and public record information such as bankruptcies, repossessions and foreclosures. All this information on your borrowing and repayment history shows how you manage credit, which is important when applying for a mortgage. In addition, your credit score is calculated based on the information in your credit report.

The three credit reporting agencies

In the U.S., Experian, TransUnion and Equifax are the three separate credit bureaus that collect data about you and your credit history. Each agency maintains its own credit information, so you may notice that some information may be different when reading your credit reports. That’s why it’s recommended to check all three. You can request a free copy of your credit reports through once every 12 months.

How to read your credit report

Your credit report from each agency may look different; however, they all contain the following basic information:
  • Personal information

    This section includes your name and aliases, phone numbers, current and past addresses and date of birth. Your employer or employment history may also be listed.

  • Public records

    Information from local, state and federal courts or government agencies about legal matters such as bankruptcies, tax liens and monetary judgments appear under this section. Bankruptcies stay on your credit report for up to 10 years.

  • Credit accounts

    The accounts section lists all of your mortgages, installment loans and revolving credit reported to the credit bureaus from your creditors. Other account information such as child support obligations or rental agreements may also appear here. Each account includes specific information such as the type, date opened, status, balance and balance history, credit limit and payment history.

  • Hard inquiries

    Also known as account review inquiries or requested credit files. You’ll see the companies that obtained your information in connection with an account review or business transaction. A hard inquiry on your credit report is necessary when applying for a new line of credit such as a credit card, auto loan or mortgage.

  • Soft inquiries

    Soft inquiries may be listed as promotional inquiries because the companies received only limited information. Examples include employers checking on potential new hires or credit card companies looking for pre-qualified customers. Soft inquiries are only seen by you and don’t affect your score.

  • Collections

    If you have an account with outstanding debt placed by a creditor with a collection agency, it will stay on your report for up to 7 years.

  • Consumer statement

    You can add a 100 word or less note to explain information on your credit report. This statement is included when a lender requests your credit report.

Red flags to look for when reading your credit report

When reading your credit report, make sure to look for inaccurate or incomplete information. Also, check for information that appears to be the result of fraud. Consumer Reports has identified the four most common errors related to accounts and financial information:

  • Unrecognized accounts
  • Unrecognized debt reported to collections
  • Payment wrongly reported as late
  • Payment wrongly reported as missed entirely

Because these types of errors can lower your credit score, identifying if one of these errors appears on your report is the first step to correcting it. The Consumer Financial Protection Bureau (CFPB) recommends checking that your credit report contains only information about you and looking for inaccurate or incomplete information due to incorrect reporting, data management or balance errors.

  • Identity errors can be accounts belonging to another person with the same or similar name or incorrect accounts resulting in identity theft.
  • Incorrect reporting of account status may include closed accounts reported as open, accounts incorrectly reported as late or delinquent and the same debt listed more than once.
  • Data management errors can include the reinsertion of incorrect information after it was corrected or accounts that appear multiple times.
  • Balance errors can include accounts with an incorrect current balance or credit limit.

Steps to fix incorrect information on your credit report

According to a Federal Trade Commission study, one in five people had an error on at least one of their three major credit reports. Errors like these may reduce your credit score unnecessarily and lead to less favorable loan terms. The bottom line—mistakes on your credit report can cost you money. The good news is that you have the right to dispute incomplete or inaccurate information. Once you do, the agency must investigate unless your dispute is frivolous. If you find fraud or false information when reading your credit report, there are five steps to dispute an error.
  • 1. Get a free copy of your credit reports.
  • 2. Once logged into your credit report online, directions about reporting inaccurate information will appear within the report.
  • 3. You can contact the credit bureaus online, by mail or by phone. CFPB recommends explaining in writing what you think is wrong and why. Include copies of your credit report with the disputed items circled and documents that support your dispute. Find contact information and a sample letter template for credit report disputes on the CFPB website. Because they each act independently, follow this process for all agencies.
  • 4. Take the step to also dispute inaccurate information with the organization that provided the inaccurate information. Contact information can often be found on the organization’s website.
  • 5. Monitor your report to confirm that the information is corrected or removed. Inaccurate, incomplete or unverifiable information must be removed or corrected, usually within 30 days.

Find more tips to prepare yourself for homeownership with the Guild Mortgage homebuyers loan guide.

The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.

By |Published On: June 13th, 2022|Categories: Guild Blog, Mortgage 101|Tags: , , , |

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About the Author: Guild Mortgage

Founded in 1960 when the modern U.S. mortgage industry was just forming, Guild Mortgage Company is a nationally recognized independent mortgage lender providing residential mortgage products and local in-house origination and servicing. Guild’s collaborative culture and commitment to diversity and inclusion enable it to deliver a personalized experience for each customer. With more than 4,000 employees and over 250 retail branches, Guild has relationships with credit unions, community banks, and other financial institutions and services loans in 49 states and the District of Columbia. Guild’s highly trained loan professionals are experienced in government-sponsored programs such as FHA, VA, USDA, down payment assistance programs and other specialized loan programs. Guild Mortgage Company is a wholly owned subsidiary of Guild Holdings Company, whose shares of Class A common stock trade on the New York Stock Exchange under the symbol GHLD.