How to read and Understand your Credit Report

The lender told you to get a copy of your credit report as part of the pre-qualifying process for a mortgage. The purpose, he said, was to see how your credit looked and to clear up any errors that might be in the report.

But now that you've got it, there are an awful lot of numbers, abbreviations and terms you've never seen before. Trade lines, charge-offs, account review inquiries -- how do you read this thing?

First off, there are three major credit-reporting agencies in the United States: Experian, TransUnion and Equifax.Order a copy of your credit report to review.

Thanks to a federal law you'll now be entitled to one free credit report from each of the main credit reporting agencies per year. The program rolled out across the nation region by region with all Americans eligible on Sept. 1, 2005.

The reports will not automatically be sent out. Each consumer must request their reports one of these three ways. Go to www.annualcreditreport.com, which is the only authorized source for consumers to access their annual credit report online for free; call (877) 322-8228 or you may complete the form on the back of the Annual Credit Report Request brochure, and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA, 30348-5281. One more caveat: You'll be able to order all three credit reports at one time or at different times throughout the year. It's your choice. But, be sure to order from the centralized agency. If you go directly to the credit reporting agencies, you will be charged unless you fit another criteria for a free report.

If you want to review your credit reports more frequently, you can order directly from the credit reporting agencies via their Web sites, by phone or mail. Costs vary from state to state, but in most states, it can cost up to $18.00 to get your report. TransUnion, Equifax and Experian all allow you to review your report online.

"Looking at one is a useless endeavor; you need to look at all three," says Howard Dvorkin, president of Consolidated Credit Counseling Services in Fort Lauderdale, Fla. "People tend to pull one and think everything is the same on all of them. That's not normally the case."

The reports will have different information because it's a voluntary system, and creditors subscribe to whichever agency they want -- if any at all.