Reading a Credit Report

Learn what to look for when reading a credit report, and you will be able to understand your credit report and take steps to improve your credit.

While everyone knows that the key to good financing options is having great credit, very few people really know what to look for when reading a credit report. This is a shame, as it does not have to be difficult. It is really pretty straight forward, and once you learn how to read a credit report once, you will have a valuable life long skill.

Today we are going to look at the basics of reading a credit report. The personal information section and the credit scores.

The personal information section is usually the first section you will see when reading a credit report. It will give your name, address, social security number, employer and more information. All of this information seems pretty basic, and many people may simply skip over this section of their credit report, but that is a mistake.

This section is very important, as this is the basis for where the bureaus draw all of your information that makes up your credit report. You want to make sure this is accurate. Check the addresses listed, if it has a residence listed that you don't recognize, you should look into that. Also, be sure your name is correct, as well as the social security number. If you are a Junior or a Senior, or perhaps you have family members with similar names as you, it is important to ensure that your information is being reported on your credit report and not theirs!

The next section we will look at when learning how to read a credit report is the credit scores section. This is where you see your actual credit score (if you have a credit report that gives your scores as well). Many free reports do not include the credit score, just the report. Knowing your score is important, as this is what most lenders will be basing their lending decisions on.

In addition, this section also gives you the top 3-4 negative influences on your score. These can range from public records such as bankruptcies or judgements, to having too many inquiries on your credit.

By managing your credit score, you can put yourself in a position to take advantage of better rates and terms on loans, saving money in the long run.

As a hard money lender in California, I work with all types of credit. I see first hand what the cost top people who do not maintain their credit is every day. Depending on your situation and goals, you could save tens of thousands of dollars by having good credit.

Most people I work with today are financing for business purposes. They have various reasons for using private money, and not all of the reasons are tied to credit. Consumer borrower, however, typically do not take out private loans unless their credit is a problem.

These days through the banks, a borrower can secure rates down around 4%. By contrast, most of my loans go out anywhere between 10-12%. That's three times the rate people with excellent credit are paying. In addition to the rate, most people are also paying anywhere between 3-5 points on their loan. With bank financing, people are paying no points on a regular basis. Based on a $350,000 loan, just the points alone could cost you over $17,000!

The bottom line is you must manage your credit. When it is time to put your credit to use, it will be too late to start managing it. This is an ongoing process that is important!