How to Understand Credit Report

The relevance of the credit score and credit report isn't unknown to anyone keen to apply for loans or credit cards.  A credit score is calculated based on several components, which are mentioned clearly in your credit report. Hence, to achieve a good credit score and to maintain it, you need to learn and understand these components. If you are wondering whom to consult for insights on your credit report, relax! mymoneykarma is here to assist you.

How to Understand Your Credit Report

Learn About the Sections That Your Credit Report Contains

Generally, your credit report is divided into these four major sections:

• Information on Credit Accounts: If you have been using credit for a long time, this section will cover a significant portion of your credit report - reflecting your credit history. It will include all the information from your past accounts, such as the creditor's name, payment history, the date of opened and closed accounts, etc.

• Personal Details: This section includes information such as name, current address, date of birth, etc. Other information such as employment history and previous addresses can also be present in the report.

• Hard Inquiries: When you apply for a new line of credit, the lender pulls your credit score, and that initiates a hard inquiry. This inquiry is shown on your credit report, and it remains for seven years. Here, you need to make sure that you don’t apply for new credit within a short span of receiving the previous one; otherwise, it can affect your credit score.

• Collection Accounts: When you don't pay the debt for a long time, the creditors pass on your account information to the collection agencies, and this remark stays on your credit report for a longer duration.

Fathom the Components That Determine Your Credit Score

The following are the various factors that determine your credit score, as we discussed above:

• Credit Utilization: You should keep your credit card limit utilization below 30% to ensure that it doesn't harm your credit score.

• Payment History: On-time payments can help you in building a good credit score, whereas late payments can harm it and can lead you to pay penalties.

• Credit History: The longer the credit history, the stronger will be your credit score.

• Credit Mix: A mix of credit accounts(such as loans, credit cards) when used in the right proportion can help you in gaining a good credit score.

Here, the crux is that taking care of all these factors will ensure that your credit report always shows a green flag to creditors.

In a Nutshell

A credit report, with proper understanding of it, is a crucial tool that can help you in improving your credit score. Hence, understand the nuances of your credit report and review it regularly to ensure that there are no errors or potential signs of identity theft in it, which can harm your credit health. If there are errors in your credit report, file a dispute with the credit bureaus. 

Wondering where to download your free credit report from? Here is the answer - mymoneykarma

Happy Credit!