Credit reports are an essential part of your financial picture. As nice as it would be to opt out of credit scores, good debt, bad debt and collections—it’s impossible—especially if you want to rent, buy a house or get one of many types of loans. In fact, credit is necessary for many everyday things, including the purchase of a car. Before you apply for a car loan, it’s important to know your what your credit report looks like, and how to interpret the information.
Credit Report 101: How to Order and Read
Ordering a credit report can be done in several ways. Each year, you are able to get one free copy of your credit report from each of the three agencies: Experian, Equifax and TransUnion. The easiest way to get your reports is to visit the only official site, Annual Credit Report. Set up an account and use it each year to get your free copies. You can choose to have them mailed, or, if you have a printer, simply print them out then and there. Other ways to order if you’ve already used your free copies are:
- Go to the credit agency you want your report from and order it for a fee
- Use Annual Credit Report and pay a fee, and opt for a 3-in-1 report if you want to see all of your credit reports
- Use one of the many third-party websites, but make sure to check whether the one you choose is valid and secure
Once you have your copies, it’s time to look at the information. It’s crucial to understand what it means. Your credit report is broken down into several sections:
Your Information – To start, you’ll want to make sure the credit report you received is actually you. Does the SSN match? How about the name, address and other personal information?
Credit Accounts and History – There will be a section on your report that has all your loans, credit cards and any other credit accounts, both past and current. You’ll see months for every month they were used, and if you pay late, you will see numbers like 30, 60, 90 (number of days behind on payment you were). This section is vital for people looking at giving you a loan. It will let them know how much you may still owe on accounts, if you pay regularly and on time, and offer notes from creditors.
Negative/Adverse Items – This section is where you’ll see the information that’s impacting your credit score/financial picture in a negative way. You may find bankruptcies, collections, judgements, liens and repossessions. It’s important to keep this section clear, or down to a minimum. Every item in this section will affect your score and ability to get basic services.
Inquiries – Inquiries are exactly what they sound like, people who have looked up your credit report. Authorized inquiries—like those you give permission for when applying for a loan or credit card—will impact your score. Others are just companies without authorization, yourself or employers, and will not have any negative effects.
Your Credit Score and What It Means
Your credit score is the number lenders and other people use to assess your financial stability. The number ranges from 350 to 800, and it’s broken down like this:
- Poor credit is a score under 630
- An Average or Fair credit rating is between 630 and 690
- Good Credit is 690 to 720
- Excellent credit is anything above 720
Your score (also known as your FICO score), is calculated using all your information; good, bad, and even things that may seem neutral. It will come from the length of your credit history, inquiries, amount of debt owed, payment history and types of credit. Your score will affect your interest rates, your ability to get a loan, card or service, and the amount you can finance.
What to do About Inaccurate Information
One of the most important aspects of getting your credit report is looking for false or inaccurate information, especially if it’s impacting your score. Go through carefully and make sure everything is yours, and that it shows the current picture. If you find issues, you’ll want to dispute them. You can dispute through the credit companies showing the information. You can find the dispute process and links at myFICO.com. The internet also has several examples of letters of dispute you can mimic and what information you’ll need to support your claim.
Buying a Car
Your credit report is here to stay—meaning you should work to have the best credit possible. Before you apply for any loan, you should know where you stand. That way you have the option to improve your credit and overall financial picture before applying to guarantee approval and get the best rates.
