A credit report summarizes your personal creditworthiness based on a scoring model that shows the likelihood you will pay your bills. The major parts of this equation include previous credit performance and open trades -- the active credit accounts you carry. Open trades include credit cards and loan agreements, such as a mortgage, car loan or other line of credit. "Trade" and "account" can be used interchangeably.
With installment accounts, you agree to pay your bill over time. These accounts typically have fixed terms and require regular payments. Examples include mortgages, student loans, auto loans and personal loans from financial institutions. You usually make a set amount of monthly payments until the loan is paid in full, including interest accrued. The credit history section of your credit report will include information about your monthly payments on these installment accounts.
With revolving credit, the financial institution gives you a maximum credit limit that you are allowed to use and pay back over time. As you make payments toward the credit you have used, the available credit is replenished by a corresponding amount minus the interest. Credit cards and home equity lines of credit are examples of revolving accounts. Your credit report will indicate the credit limit, current balance and monthly payments you have made. Late payments, typically those more than 30 days late, will negatively affect your score.
Charge accounts allow you to use the credit up to a specific charge limit that has been assigned by the issuing company. You are required to pay the total balance in full by a certain date. Although some accounts will not charge interest if you clear the balance by the due date, others charge interest immediately when you make purchases. On your credit report, the credit limit and the balance due will be shown.
If you have a collection account, it means your loan repayment is overdue and has been turned over to a third-party debt collection agency. Regardless of your reasons for neglecting to make payment, the collection agency that assumes responsibility for collecting the money for the original creditor will report the delinquency to the credit bureaus. As you make payments, the account remains open and is listed as a collection account on your credit report. It has a negative impact on your credit score.
- Consumer Financial Protection Bureau: What Is a Credit Report?
- Credit: What Is Installment Credit?
- Consumer Financial Protection Bureau. "How Long Does Negative Information Remain on My Credit Report?" Accessed June 24, 2020.
- Georgia Department of Law, Consumer Protection Division. "Credit Reports and Credit Score." Accessed June 24, 2020.
- TransUnion. "How Long Do Closed Accounts Stay on My Credit Report?" Accessed June 24, 2020.
- Consumer Financial Protection Bureau. "I Filed for Bankruptcy. How Long Will That Appear on Credit Reports?" Accessed June 24, 2020.
Dr Jack Gordon, the Chief Technology Officer at Strontium Logistics, is a 20-year veteran of the engineering and marketing business who favors stiff drinks, good debates and developing innovative digital marketing strategies to help companies grow.