Understanding A 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 next section is the real killer of the credit score report and the part you hope will be blank. It is the public records section. Here you may see a bankruptcy credit report, court judgments, tax liens, divorces, wage garnishment, civil actions, foreclosures and other legal matters that may affect your good credit scores. This section will be on your record for ten years and are the most serious offenses for your credit score. In some cases, these infractions can hack off 300 points from your healthy credit score! So, needless to say, you'll want to make sure you don't get embroiled in legal trouble involving your finances.

To improve your credit score report, you should first pay off all "Collection Accounts," asking for a letter of deletion that will erase all negative information from your credit score if you settle the debt in full. If you have a "Past Due Amount," then be sure to pay that creditor right away, as this is a damaging clause to have on your file. Next, get rid of your "Charge-offs" and "Liens." Paying a charge-off that is more than 24 months old will neither hurt nor help your credit but should be done as a matter of principle. Lastly, negotiate with your creditors to remove your "Late Payments" by asking for a good faith adjustment. Persistence and politeness can work wonders when it comes to improving credit scores.

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