Once you’ve pulled a copy of your credit report, it’s important that you understand how to read it to ensure that your credit information is accurate and up to date.
One section of your credit report contains information about your credit accounts, which are also known as trade lines. About 15 percent of your credit score is based on the types of credit accounts you have as well as how many of each type you have.
Your credit account activity is furnished to the three national credit reporting agencies by your lenders and creditors. They report information such as the type of credit accounts you have established with them, the dates on which you opened each account, your credit limit or loan amount, the account balances, and your payment history.
In general, there are three different types of credit accounts you can find listed in your credit report:
1. Revolving credit
How it works: A revolving credit account allows you to borrow up to a pre-established amount—also known as your credit limit—repeatedly, as long as your account remains in good standing. Your payment amount will vary from month to month depending on your current balance.
On a revolving account, you have the option to either repay the amount borrowed in full or to pay at least a specified minimum. If you only make the minimum payment, however, you will also be charged interest for revolving your balance to the following month. As your balance on a revolving account declines, the amount owed in interest will also decline.
Types of accounts: A credit card is a common example of revolving credit, regardless of whether it’s issued by a bank or credit union, another financial institution, or a retail store. A home equity line of credit—where you borrow against your home’s equity—is also a type of revolving credit.
2. Installment credit
How it works: With installment credit, the payment amount and the number of payments are predetermined or fixed. Once you borrow money, you repay it in equal amounts over a specific period of time. On an installment credit account, you also have to pay an annual percentage rate (APR) that is expressed as a yearly rate and which is determined by the interest rate, broker fees, and other credit charges.
Types of accounts: Installment credit includes mortgages, home equity loans, and student loans. An auto loan, which is typically paid off in 36, 48, or 60 months, is another example of installment credit.
3. Open credit
How it works: With open credit, you are required to pay the full amount borrowed within 30 days of billing, and neither a finance charge nor interest is charged on the account.
Types of accounts: A charge card is considered open credit. Unlike a credit card, a charge card must be paid off in full by the due date, and no interest is accumulated. A charge card doesn’t have a credit limit, and purchases are approved based on factors such as credit and payment histories. Keep in mind that with some charge cards, you do have the option to roll over some debt to the following month.
If you find incomplete or inaccurate information regarding one of the credit accounts listed in your credit report, you can file a dispute free of charge with all three nationwide credit reporting agencies (Equifax, Experian, and Transunion). Based on the result of the investigation, the CRAs will either update the current status of the disputed information, which may include informing you that the data furnisher verified that the information was correct, or delete the item from your report.
Diane Moogalian is vice president of operations for Equifax Personal Solutions with responsibility for operational strategy and execution in support of customer care and fulfillment of credit and identity-related products for consumers. Prior to joining Equifax in 2007, Diane held several strategic roles with leading financial services companies. Diane graduated from the University of Richmond with a bachelor of science degree in business administration (marketing and economics) and earned a certificate in international business from Virginia Commonwealth University.
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