Your credit reports are a reflection of your spending patterns as well as your ability to manage and pay back debt. Whenever you apply for a new loan or credit line, prospective lenders defer to credit reports to make sure that you don't pose a high risk. Before you apply for that big loan for a car or a home, it's important to understand your credit reports--and see where your credit history needs to be improved.
Step 1
Your three credit reports--from Equifax, Experian and TransUnion--may contain different records. Lenders are not required to report to all three agencies; in fact, their participation in the reporting process is strictly voluntary, and this is why a creditor that reports to Experian may not report the same information about you to TransUnion. Examining all of your credit reports is important to make sure that you get the most comprehensive picture of your credit history. The best way to access your credit reports is to obtain them through the official website authorized to provide them to you free of charge once a year: AnnualCreditReport.com.
Step 2
Each of your reports is divided into four different sections. You'll see the information that identifies you: your name, Social Security Number and address(es). There's a section that reflects public records, such as tax liens and bankruptcies, as well as an inquiries section that denotes who has accessed your credit report.
You'll also see your credit history, which is composed of all of your accounts. Your credit report will indicate when the account was opened, the nature of the account (such as an installment loan or credit card account); if the account is only in your name or if it is a shared account; the total amount of the loan or maximum amount of credit allowed, as well as how much you owe; the amount of your monthly payments; the account status (for example, "open," "closed," or "inactive"); and your history of making payments.
Step 3
Keep in mind that certain actions and inactions on your part can have a devastating effect on your credit report and your credit score. There are any number of ways that you can cause a black mark to show up on your credit reports, such as getting behind in payments or letting an account go to a collections agency. The surefire credit report "killers" are using the maximum amount of credit available on your credit cards, making payments 30 days late, debt settlement records and records indicating foreclosure and/or bankruptcy.
Step 4
Make a checklist of simple things that you can do to improve your credit reports. Paying your bills on time each month goes a long way to improving your credit history, states the Federal Citizen Information Center. Keep account balances on your credit card accounts low, and pay off individual credit card debts rather than consolidating them to a new credit card. Finally, make sure that you inspect your credit reports to make sure that all of the information contained in them is accurate.
Step 5
Be aware that your credit reports can contain errors--and that if you find an error, you are entitled to dispute the record with the CRA so that it can be removed from your credit history. The federal Fair Credit Reporting Act establishes a process by which information in your credit reports that is inaccurate or outdated may be removed. This requires you to contact the CRA directly, preferably in writing. Most disputes are resolved by the CRA within 30 days, after which you will be sent a written report of the CRA's findings.
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