Understanding Your Credit Report
Credit reports. They’re something we’ve all heard of, but do we know what they are or why they’re important? Credit in general is a subject that’s often misunderstood, if not totally avoided whenever possible. However, your credit report is a huge player in your overall financial health—and if you start your credit journey off on the right foot, you have control of what that report looks like!
Think about your high school report card or college transcripts—a detailed summary of the classes you completed and grades received. These documents were a comprehensive report of your academic accomplishments. Your credit report can be viewed in a similar way. The financial decisions you make throughout the course of your lifetime are collected and included on your credit report to prove your ability to handle future debt should you need to take out a loan, request a line of credit or buy a home.
Whether you’re applying for your first credit card, or trying to get a mortgage, an understanding of what’s on your credit report is important. Your credit report includes personal and identifiable information such as your name, address, social security number, and details about your borrowing history like balances, loan applications and payment transactions. Every financial account you have open is included in your credit report. Accounts fall into three categories:
- Revolving accounts—Credit cards are the most common type of revolving account; varying minimum payments due each month based on how much you borrow from the line of credit.
- Installment accounts—These are fixed accounts where you pay the same amount each month as established by a payment plan. Things like mortgages and auto loans, student loans, as well as business and personal loans are all installment accounts listed on your credit report. Your credit report will show information like the name of the bank, loan amount, when the loan was opened, monthly payment amount and payment history.
- Open accounts—These are basic everyday accounts that must be paid in full each month. Open accounts include things like internet and phone bills, as well as other home utilities like electric and gas. Since these aren’t personal loans or lines of credit, some companies will only report open accounts to creditors if you miss a payment or hit delinquent status. Either way, paying open accounts on-time and in full is always the best way to maintain these lines on your credit report.
Accounts are only a portion of your credit report
These three categories of accounts–also referred to as trade lines–make up the bulk of the information, but there’s more that goes on your credit report. Every time you make a credit inquiry, regardless if you’re approved, a new line is added on your report. Closed accounts remain present for up to seven years. Delinquent accounts and bills that have been sold to collections are included as well as public records like tax liens, foreclosures, court judgments and bankruptcy filings.
Financial institutions like banks and credit card companies aren’t the only people who see value in checking your credit. If you’re renting an apartment the landlord can do a credit check to see if you’re financially responsible to handle the rent payments. When being considered for a job, especially a position related to finance or data security, your future employer can inquire about your credit history. Even if you go to request an insurance quote—the company may run your credit.
Check your credit report today!
Surprised by all that’s included in your credit report? See for yourself! If you haven’t viewed your report recently (or ever!) there is no better time than now to see how you look on paper. By law you are entitled to a free credit report every year from each of the three major consumer reporting agencies (Equifax, Experian and TransUnion). You can pull all three at once, or stagger them to check your report periodically. Visit Annual Credit Report now to request your free copies.
To learn more about setting yourself up for financial success, or for tips on how to establish good credit, contact RiverTrace today at (804) 266-2767.