Your credit reports are important documents. They list your open credit-card accounts, loan balances and financial missteps. Reviewing these reports on a regular basis is a smart financial decision. After all, the information contained in these reports is the same information that banks and lenders use when determining whether you qualify for loans and at what interest rates.
If you're wondering why your application for a mortgage loan was rejected or why you only qualify for credit cards with sky-high interest rates, the answers might lie in your three credit reports.
Fortunately, you can access your credit reports on an annual basis.
Three credit bureaus compile credit reports on you, TransUnion, Experian and Equifax. The reports kept by each of these credit bureaus might vary, so it's a smart idea to review all three reports at least once every year.
The good news is that under federal law you are entitled to one free copy of each of your three credit reports once a year. You can access these free copies at the Web site, www.annualcreditreport.com.
If you want to review your credit reports more than once a year, you'll have to pay each of the credit bureaus for your extra copies, usually at a price around $9.99 for each report.
Reading the report
Once you have your credit reports, it's time to read them. The reports will let you know exactly why lenders consider you either a good or bad lending risk.
Each of your credit reports will start out with basic information about you. This basic identifying information will include your name, Social Security number, previous and current addresses, date of birth, phone numbers, employer's name and spouse's name. Make sure that this information is correct.
Next comes a more critical part of the reports, your credit history. This section of the report lists open lines of credit and loans in your name. If you have a mortgage, it will be listed on the report. So will credit-card accounts, car loans and student loans.
This section will also include the amounts of money that you owe, whether to your mortgage lender or your credit-card companies, how much credit is available to you and how well you've managed your loans and credit.
This last part is important: Your credit report will list whether you often make your payments two weeks late. It will also list whether you've missed payments completely. These financial mistakes will lower your three-digit credit score.
Again, if you find information in this section of your report that seems incorrect, make sure to make a note of it. Fixing these mistakes with the credit bureaus can boost your credit score.
Next comes the public records section of your credit report. Ideally, this part of your report is blank because it lists such negative financial judgments as bankruptcies and foreclosures. These negative judgments can damage your credit score even more severely than will late or missed payments.
The final section of the credit report is the inquiries section. This is a list of everyone who has asked to see your credit report. For instance, if you call TransUnion and ask for a copy of your report, it will show up in the inquiries section. If your local credit union asks for your report before agreeing to provide you with a car loan, that inquiry will be in the report, too.
It's important to quickly correct any errors that you discover in your credit reports. Remember, the information on your credit report is used to compile your three-digit credit score. And if this score is low, banks and lenders either won't lend you money or they'll do so only while charging you higher interest rates.
If you remove errors from your reports -- maybe you closed that open credit-card account three years ago or maybe you never did miss that car payment listed as delinquent four months ago -- it will have a positive impact on your score.
To remove an error, though, you must correct it in writing and send that information directly to the offending credit bureau. You can't remove errors through e-mail or through a phone call.
A credit report might seem like an intimidating document. But once you understand its parts, this report actually provides you with a good roadmap of how lenders and banks see you.