6 Main Accounts On Your Credit Report
When was the last time you checked your credit report? Like many people, I guess that it’s been quite a while.
According to a new report by consumer financial protection bureau (CFPB), very few people bother to check their credit reports annually as it is required.
Some people have a misconception that by regularly checking their credit reports, their credit scores will drop drastically.
Others are afraid of what they may find while a majority waits until that crucial moment when they are shopping for a mortgage loan or an auto loan.
Well, your credit report is an important document, and regularly checking it is something you cannot afford to ignore.
In this article, you’ll learn what credit reports are, and why they are essential, why it’s crucial that you check them annually, how to decode the information on your files, and the various accounts on your report.
What is a credit report and why is it important?
Your credit report contains all your personal and financial information.
It is a statement that compiles all the information about your credit usage and payment history as reported by lenders or companies you do business with to the credit bureaus.
The three credit reporting agencies Equifax, Experian, and Transunion then use the data presented to them to calculate your credit scores.
Some of the information contained in your credit reports include:
- Your full name
- Social security number (SSN)
- Your physical address (both current and former)
- Place of work.
- Your credit history
- Inquiries made on your reports
- The amount of credit you owe and names of the lenders
- Your payment history
- Your credit utilization rate and credit history
- Type of account and credit limit
- Public accounts like bankruptcy or foreclosure
When making a lending decision, many lenders will make an inquiry on your credit.
The information from your credit reports will give lenders a quick glimpse of the kind of borrower you are.
Your credit score which is the sole determinant of whether you’ll be approved for a loan or not is calculated using the data from your credit reports.
So, if you have a high credit score, the information on your reports is undoubtedly accurate and positive. A high score shows that you are a responsible borrower and your delinquency rate is low.
Low scores, on the other hand, show that the information on your report is negative and gives lenders an implication that you are a high-risk borrower.
Landlords will also check your credit reports before allowing you to rent their apartments. Your job applications could also be rejected if your reports contain negative information.
You credit report, therefore, has a direct impact on many areas of your life.
Why you need to check your credit reports every year
Checking your credit reports regularly will help you ensure that the information in it is both accurate and positive.
You can get your free credit report from www.annualreports.com , or from the three major credit bureaus.
Here are five major reasons why you need to check your credit reports:
- You’ll be sure that the information is accurate
If you check your credit reports regularly, you’ll easily notice when something is amiss.
Since there are so many people using their services, sometimes the credit reporting agencies make errors and mistakes when giving you a credit rating.
By checking your credit reports, you can dispute such negative and inaccurate information to get your actual rating.
- Helps you avoid surprises
Imagine applying for a quick loan from a bank, and getting rejected. Chances are, the rejection was because your credit sucks and you didn’t know.
You can avoid such surprises by monitoring your credit annually.
The good news is that if your credit is below par, you can work on improving your credit scores.
- Helps you know what hurts your credit and how to maintain a good score
Checking your credit reports helps you identify those activities that hurt your credit.
If for example, you are always late in paying your bills and credit balances, you’ll quickly change that behavior.
It’ll also help you develop personal finance management skills that’ll help you build and maintain a high credit score.
- Keeps you from being a victim of identity theft
With the high rise of fraud and identity theft, it’s easy for your account to fall into the hands of such criminals.
By regularly monitoring your reports, you’ll quickly identify when someone is using your name to take loans that you hardly know about.
Such knowledge will help you take measures against such vice and enables you to protect your accounts.
- It’s usually the first step in repairing your credit
Credit repair takes time. And you’ll have to check your credit reports regularly during the process.
If you notice the information in your credit reports is inaccurate, you have a right to dispute it with the credit bureaus and have the negative information removed from your reports.
You’ll have to produce documents that support your claims before the credit bureaus act on your inquiry.
Accounts on your credit report and what they indicate
All your accounts will appear on the credit information part of your credit report.
Usually, your credit report contains four sections: public record information, personal information, credit inquiries, and credit information.
The credit information section will detail all accounts in good standing. It contains details of the type of account, your account status whether it’s an open account or a closed account, your last payment, your credit limit, account balance, and whether it was an individual or a co-signed loan. Verify all these information and make sure it’s accurate and indeed yours.
Here are some accounts you’ll likely find in the credit information section:
- Adverse/negative accounts
If you were late in paying your bills, defaulted on payments, had your details forwarded to collection agencies or have large outstanding balances, it’ll show on your reports.
You may be consistent in paying your credit and bills, but even one late payment could still cause you to have an adverse account in your reports.
If you are sure and can support your claims that these accounts are inaccurate, you can dispute it with the three credit reporting bureaus.
However, if the information is indeed correct, they’ll be removed from your credit reports after 7 years.
- Accounts in good standing
It shows all the accounts fully paid on time
In this section you’ll likely come across terms like charge off, payment after charge off.
Charge-off means the lender forwarded your details to collections agencies and gave up on trying to get you to pay your debts. They, therefore, decided to treat your debt as a loss.
If you pay after the charge off, it’ll indicate as payment after charge off, and this remark will stay in your reports for 7 years.
- Collection accounts
If your lender contracted a third party company to get you to pay your loan, it will show on your credit report, and is likely to stay there for 7 years.
- Open accounts
These are accounts that you are expected to pay their balances in full each month. A good example would be a utility company. You’ll rarely see these kinds of accounts on your credit reports.
- Installment accounts
These are loan accounts with a fixed monthly installment paid over a set period.
Examples are student loans, personal loans, and mortgages.
- Revolving accounts
These are accounts that you don’t have to pay in full each month. You can choose to revolve payment and pay interest on the revolved amount.
They are like credit cards or home equity lines of credit.
Your credit report is an important element that affects all areas of your life.
You don’t have to wait until that critical moment when you are shopping for a mortgage to check your credit reports.
To avoid the high interest loans, and get better credit deals, make sure your credit scores are above par.
By checking your credit reports regularly, you’ll quickly know which accounts on your credit report are accurate and which ones need repair.