Why Are Credit Reports So Hard to Understand?

Does trying to read your credit report feel like you are reading another language entirely?

This is a perfectly normal reaction when reading one of your reports for the first time or if you are not in the habit of reviewing your credit reports regularly.

“While your credit reports may be hard to read at first, once you get familiar with them, you learn how to read the reports, what the different sections and markings mean and what is normal for your reports,” said Barry Paperno, a credit expert who blogs at Speaking of Credit.

Here are some reasons credit reports can be hard to understand, as well as how you can learn to read them like a pro.

Credit Reports Are Industry Reports With Many Codes & Abbreviations

Paperno explained that credit reports were originally created for credit industry use, which could be a large part of what makes them intimidating and confusing.

“The reports are coded and abbreviated so lenders — and credit score models — can gloss through the reports looking for credit red flags,” he said.

Even with so many codes and abbreviations originally intended to be used by credit industry experts, it is possible — and fairly easy — to discover what they mean. Credit reports come with their own abbreviation and code key charts you can easily reference to help you define a code you don’t understand.

You Have a Different Credit Report With Each Credit Bureau

There are several different credit bureaus, each reviewed for different purposes. However, there are three main ones that will give you the best idea of where your credit stands. Not only are there several to look at, but each of the three main credit bureaus — Experian, Equifax and TransUnion — has a different way of displaying the information on their reports.

For example, when describing payment history for accounts, one report may use green squares to denote current payments while another bureau might simply mark them with a “C” and still another report might mark each account current with a “1.”

“Not only are the codes and the formats different across the credit bureaus and within their different credit products, but they can also differ with outside credit monitoring and credit score service providers,” Paperno said.

To help you get a better understanding of your reports, Paperno advised getting familiar with the three free reports offered yearly at AnnualCreditReport.com first. Then, choose one and get to know how it works before moving on to the next one. It’s always a good idea to review each of them, as they don’t all contain the same information. While you only get one free copy of these three reports each year, you can get a free credit report summary, updated every 30 days, on Credit.com.

Give Yourself Time (& the Right Conditions) to Read Your Reports

Because these reports allow lenders to analyze your creditworthiness, there is a lot of information in them about how you handle your credit accounts. In fact, the information reported on them typically spans at least the last seven years — maybe even longer, as the age of any older accounts you currently use is also included. (Note: The age of your credit accounts makes up 15% of your overall credit scores.)

With so much information packed into each report, reading your credit report on the fly on your smaller smartphone screen can be difficult and problematic.

“You’d have to do a lot of scrolling back and forth and you might miss something important when reviewing credit reports on your phone even though many service providers offer a mobile app,” Paperno said.

Instead, he advises giving yourself time to read the report thoroughly, especially if you’ve had credit problems, are trying to rebuild your credit or you’ve disputed errors on the report.

“If you have a low credit score, you really want to sit down, print the reports out if possible and go through them with a fine-tooth comb,” he said. “You want to identify and highlight what is hurting your credit and make sure there are no errors that could be causing a low credit score.”

Even if you are familiar with your credit reports and you have good credit scores which have not changed much, it’s still a good idea to review each of them for errors, like new accounts reported which aren’t yours, as this is a common signal of identity theft. In this case, an app like Credit.com’s free mobile app for iOS and Android can help you keep track of any errors and updates to your credit report.

Image: Catherine Yeulet