How To Understand Your Credit Score Report

"People tend to pull one credit score report and think everything is the same on all of them. That's not normally the case," says Howard Dvorkin, president of Consolidated Credit Counseling Services. He recommends reviewing credit reports from TransUnion, Equifax and Experian for the most accurate reading. It's important that you review these files to ensure that all activity is correct. If you're looking at your credit score and scratching your head, then read on for credit scores explained.

The main section to look at in your credit scores report is your "Credit History" or "Trade Lines." Your accounts will fall into 1 of 5 categories: Real Estate (first and second mortgage), Installment (car loan, regular payments), Revolving (credit cards), Collection (seriously past due) and Other. Each account will list the creditor/lender's name and the account number. Sometimes, more than one account will be indicated on your report from the same creditor, especially if it gets sold off into collection, but only one account should be marked "open" at a time. You should be able to see when you first started the account, the type of account, the total amount owed, how much you still owe, the status of the account (open, inactive, closed, paid) and how well you've paid the account. If it's noted "charged off," that means the credit made efforts to collect but gave up. If you see a code like "R1," then this generally indicates how well you've been at paying on a scale of 1 to 9. If you have had any late payments on your account, then you'll see a little square with 30, 60, 90 or 120 in the box, indicating how late you were. If you see a green OK and a 0, you're in good shape with high scores. If you see "charged off," "bad debt" or "placed in collections," then your account went 120 - 180 days past due and was sold off to debt collectors. Charge-offs and Debt Collections are bad since these poor credit scores remain on your report for seven years.

The final section of your credit score report lists third-party inquiries made into your credit scores. "Hard inquiries" are ones you initiate when you fill out a credit application or apply for a loan, while "soft inquiries" are from companies that want to market to you or collect a debt from you. Having a large number of inquiries can start to hurt your good credit scores if you're applying for new lines of credit every few weeks or if there are two or more hard inquiries in the same 14-week period. Of course, inquiries only take away maybe 20 points here and there, so it's not the biggest concern for you, unless you have otherwise perfect credit.

Charge-offs on your credit score report will be the #1 reason you are denied credit. Often, in order to qualify for new loans, you'll be required to pay any unpaid charge-offs. Once you pay the full or partial amount, it will be noted "paid charge-off." This will remain on your credit for seven years and 180 days from the date of your first nonpayment. You can hire legal advisors who may be able to get charge-offs taken off your accounts. A company like Lexington Law Firm (www.LexingtonLaw.com) specializes in legally disputing and removing paid charge-offs to help you improve credit scores, which might be a good bet if you're planning to buy a house or make a big financial investment.

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