Tips for Understanding Your Credit Report

It's common for folks to get credit scores and credit reports confused. These are two separate things. Your credit score is not a part of your report. But your score is calculated based on the information in your credit report.

For example, a lender might request your Equifax report if you apply for credit. The lender will also likely ask Equifax for your score based on the information in your Equifax credit report. Your income also plays a part, especially when the creditor is setting your credit limit for a credit card or determining your debt-to-income ratio.

FICO scores can be purchased at myFICO.com. Insider tip: On myFICO.com, skip the credit and identity monitoring services so you don't get tied up with a monthly fee. There are options to buy a single score from the bureau of your choice. Or you can view free educational scores online. Here at LendingTree, it's super simple to get your free score.

Okay, so that's the connection between your report and your score. As you can see, it's vital that the information in your reports is accurate. Otherwise, it can have a negative impact on your score. Fortunately, getting your free reports is a piece of cake!

How to Get Your Free Credit Report

Every 12 months, you're entitled to one free credit report from each of the three major credit bureaus: Equifax, TransUnion, and Experian. You can order the reports at AnnualCreditReport.com. Be sure you're on the official site that is authorized by Federal law and not on one of the many imposter sites. You can order them all at one time or spread them out over the course of a year.

What to Review in Your Credit Report

It can feel overwhelming when you first look at your credit report because there is so much information. But it's easier when you look at your report by section. Let's take a quick look at a few of the major categories that you want to review for accuracy.

Personal information. In this section, you'll find your Social Security number, your current and past addresses, your name, birthdate, and things like that. It might not seem like a big deal if your birthdate, for example, is incorrect, but mistakes in your personal data can lead to mixed files (another person's data can get mixed up with your data) and other issues. So take the time to look at each item and make sure everything is correct.

Inquiries. Here, you'll see who has made inquiries about your credit history. Hard inquiries show up on your report and can have a negative impact on your score. An example of a hard inquiry is when a credit card issuer requests your credit report because you've applied for a credit card.

Soft inquiries, on the other hand, have no impact at all on your score. If you get your free score on LendingTree, that's an example of a soft inquiry. Another example is the promotional credit card offer you get in the mail. The lender does a soft inquiry to determine if you qualify to be pre-approved for the credit card.

Credit history. This section is very important because your payment history is 35 percent of your FICO score. If you miss a payment and it gets reported to the bureaus, it will damage your score. So check – and double check – this section and look for errors.

This is also a place where you might see an item that suggests fraud. For instance, if you see a new credit card account on your report and you didn't open that account, then follow the Federal Trade Commission's steps to report fraud.

This section also contains information about your mortgage, auto loans, student loans, and any other type of credit you've had.

Public records. Here, you'll find judgments, liens, delinquent accounts, bankruptcies, and so on. If you have accounts that have gone to collection agencies, that will appear here, too. Negative items can really impact your score so you need to be diligent and examine each item listed here.

Also, pay attention to the dates since most of these items have a limited life span in terms of how long they can be reported. For example, per myFICO.com, late payments remain on your report for seven years. It can be tricky to nail down the exact start date, but do your best to keep track so the item gets removed when the time limit is up. If it you makes you feel any better, as time goes by, your score will improve each year. So if a late payment was reported in 2010, then it has much less impact on your score now than it did it back in 2011.

What If You Find a Mistake?

As mentioned above, you can report fraud to the FTC and follow the steps outlined on their website. But sometimes errors occur because the lender reported incorrect information to the bureaus. So it's an error, but not fraud. For instance, the lender might report that you made a late payment when this isn't the case. In a case like this, you can file a dispute to correct errors.

It's important to take action as soon as possible. You can find the FTC's procedures for reporting errors right here. On the FTC's site, you'll find a sample dispute letter to help you get the ball rolling.

Check Your Credit Reports Regularly

According to a survey from the National Foundation of Credit Counseling, about 65 percent of adults haven't checked their credit report within the last 12 months. And the adults within that 65 percent said they didn't know any reason why they should check their reports.

Well, checking your annual credit reports regularly can help you spot fraud quickly. This is important so you can protect your credit history as well as your score. And finding significant errors as soon as possible helps you contain the damage to your score.

Unless you suspect you have been (or might soon be if you've experienced, for example, a messy divorce) a fraud victim, request a free credit report from one of the bureaus every four months. This can help you spot fraud over the course of a year. You might get your Equifax report in January, your TransUnion report in May, and so on. This approach doesn't make you invincible against fraud, of course, but it improves your chances of catching fraud and mistakes sooner rather than later.

Also, start checking your credit and debit card accounts online a few times a week. If you do this and stay on top of your credit reports, then you are truly being proactive and protecting your credit.

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