Understanding Your Credit Report

I've always found official documents like W2s and tax return forms to be a bit confusing; credit reports fall into this category. What do all the numbers mean? How can you decipher what means what in that maze of digits and fill-in-the-blank lines? Once outlined, credit reports aren't nearly as difficult to comprehend and once you know how, you'll have a leg up on establishing good credit.

The pivotal part of your whole credit report is your FICO score; the higher your score, the better interest rates and credit deals you receive. If it's too low then you're in jeopardy of being rejected from an apartment contract, turned down from a job, and having your credit card cancelled. Many people (including lenders, landlords, and employers) use your FICO score to get a good idea for what kind of financial person you are.

The exact format of a credit report will vary, depending on which credit reporting agency put together the report for you. The first section of your credit report typically contains all your personal information, including your name, address, employment history, phone number, birthday, and Social Security number, among a few other bits of information. If you use the same information (e.g. your same full name) on all your applications, then that could save a lot of time when figuring out and reconciling your credit report.

The second section of most credit reports contains information that's available to the public like court records (e.g. divorce proceedings), foreclosures, and bankruptcy. The third section is probably what will catch your eye the most because it contains all your credit payment information. It won't reflect your on-time payments, but it does report on your mistakes and delinquencies. If you have a relatively empty credit payment section, then you're probably in pretty good shape.

The fourth section usually contains information on all the people or organizations that have inquired into your credit rating (e.g. credit card companies and banks). This is interesting because it gives others a good idea of who needs to know this information about you. You want this list to be on the shorter side because if you have too many then others could wonder why you're interested in accruing so much debt.

All of this information is compiled to produce your credit score and that is in turn used to determine a lot of your other financial situations (for example,. mortgages and car loans). Now that you know what exactly is in your credit report can you better understand how to make sense of it and do what you can to increase your all-important FICO score.