“How To Read A Credit Report” written by Mike Marko
Are you checking out a credit report for the first time?
A good property manager should know how to read a credit report as part of the tenant screening process. However, the contents of a credit report are generally made of numbers and statistics which are confusing.
To help you decipher the “code, I decided to post an article to help people on how to read a credit report. This article will include important information that you need to know about reading a credit report.
Simple Tutorial On How To Read A Credit Report
The information included on a credit report can be overwhelming. Understanding what to look for and how to read a credit report can be difficult.
Starting with the basics is the best way to begin to understand the process…
What Is A Credit Report?
A credit report is a report that shows a person’s personal financial history and allows you to see if they have paid their debts consistently over the history of having credit.
A credit report is also a detailed log of an individual’s credit activities. There’s a lot of reason why everyone needs to check their credit report every once in a year. It could affect loan interest rates, and the ability of a person to open financial accounts, get a loan or be qualified to rent a property.
Parts Of A Credit Report
Not all credit reports are the same, though most of them share the same numbers and information. However, usually, a credit report provided by one of the three main credit bureaus is divided into four sections.
The first section contains the individual’s personal information such as name, address, contact numbers and email address. The remaining sections are complicated information such as public records, creditor information, and credit inquiries.
Almost all basic information personal information will be included here such as:
- Name and aliases
- Social security number
- Date of birth
- Employment data
- Current address
- Previous address
Public Record Information
This section includes legal issues that are related to the financial situation of the individual.
- Wage garnishments
Credit information includes regular credit lines that have been opened, closed and the detailed history of these accounts. The most important details are usually included here such as:
- The status of the account: Current/open, closed, charged-off (sent to collections)
- The responsibility of the account: Joint or individual
- Account balance
- Most recent payment
- Past due information, if applicable
- Credit limit
Red Flags On The Account
All the negative items that heavily affect a person’s application to loans, mortgage or tenancy are included here.
According to CreditCards.com, “Even if you are current on your payments for a credit account, it may still be included in this section of your credit report—if you had ever missed or were late on a payment.”
Credit inquiries, it is a section of a credit report that includes the names of individuals or businesses who requested the credit report.
How Is The Credit Score Calculated?
According to MyFico.com, these five categories are the basis of a credit score.
Payment History (35%)
The payment history tells about an individual’s behavior and history in paying bills. If the payments are paid on time, it will have a positive effect on the credit score. However, even if the payments are delayed, its effect still depends on the other categories.
A positive score in payment history can outweigh the negative effects of late payments of credit cards.
Amounts owed (30%)
These are the total amount of an individual’s debt. This allows you to see if the person is using too much credit or if they are stretched to the limit and can not take on any more credit. Basically, a better score can be achieved by having less amount of debt.
Length of credit history (15%)
According to MyFico.com, a high score can be achieved by having a long credit history. Paying bills, loans, and other liabilities on time positively affects this score. Whereas late payments, bad loans, and possible evictions and legal actions could negatively affect this score.
Types of Credit 15%
The mixture of credit cards, installment loans, retail accounts, mortgage loans and finance company accounts could affect the type of credit. To much of anything is not good so this is a good way to see how a person uses their personal credit to live. Too much credit cards could mean they rely on credit too much…
Types Of Accounts In A Credit Report
There are several types of accounts in a credit report.
A credit card is an example of a revolving account. The amount of monthly bills on this account depends on the user’s current balance. Also, a revolving account is not required to be fully paid each month.
Loans are an example of an installment account. Unlike a revolving account, installment accounts have a fixed payment over a fixed period of time. Auto loans, mortgage loans, student loans, home equity loans, and signature loans are good examples of an installment account.
An open account is a combination of installment and revolving credit. The amount of its monthly bill is not always the same. Normally, an open account is not a common item on a credit report. These accounts are required to be paid each month.
A collection account is an account that is transferred to a third party collection agency.
Codes Used in A Credit Report
Here are some key codes (according to Bankitis) that would be useful to understand:
- CURR ACCT – Account is current
- CUR WAS 30-2 – Account is current but it was 30 days late twice
- PAID – Account balance paid off, inactive
- COLLECT – Account is seriously past due and has been sent to collections
- FORECLOS – Property was foreclosed
- BKLIQREQ – Debt forgiven via Chapter 7, 11 or 13
- DELINQ 60 – Account 60 days past due
Final Thoughts on How To Read A Credit Report
I’ve given you the basics on how to read a credit report. I’ll cover more details on the credit report in future articles. Make sure you understand how to read a credit report so that you can properly use credit reports as a tool in your tenant screening process.
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