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What You Need to Know About Your Credit Report

Credit Wise (featured column)
by Jennifer Wallis

Your credit report contains vital information that lenders use to make decisions regarding your creditworthiness. In some ways, you don't have much control over the information that most major creditors report to the credit bureaus. However, knowing how this information is used and using that knowledge to improve your credit report can definitely improve your buying power.

It is important to review your credit report at least annually in order to check for inaccuracies and to get a glimpse of what the lenders see. Here are a few of the things that you may be able to control in order to optimize your creditworthiness:


Review all of your account information, payment history, and outstanding debts to make sure that all of the accounts are up-to-date and that they are all actually your accounts. It is not uncommon for accounts that still show a balance to appear on your report long after they are paid off. Some creditors may be lax about reporting to the credit bureau and may not update on a regular basis. In some cases mistakes are made and accounts may be placed on your credit report in error. It's important to make sure that the accounts reported actually belong to you.


This is the number of times you apply for credit. Every time you apply for credit, it will be reported as an inquiry and will stay on your report for 2 years. Some lenders will see too many inquiries as a red flag so be sure to limit them. Don't apply for credit that you don't really want or need. If you know you have a major purchase (car or house) coming up, don't apply for new credit if you can help it.

Payment History

Your creditors report your credit history and every 30, 60 or 90-day late payment that you make. They typically show a month-by-month payment history for the most recent two years. It is important to review these to ensure accuracy. Delinquencies and payment patterns will be an important factor in determining how likely you will be to repay your debts so avoid late payments if at all possible.

Number of Accounts

Creditors will look at the number of accounts you have and how close you are to your credit limit on those accounts. If you have open accounts that you never intend to use again, it is a good idea to request that the creditor close them. Try to manage credit responsibly and not get too near your credit limits.

Credit Score

Your credit score is composed of many factors in your credit report. They typically range from the 400's to the 800's. The higher the score, the more likely you are supposed to be to repay your debt. Some of the things that comprise your credit score are: types of credit in use, payment history, amounts owed, length of credit history, and new credit. Your credit report will also tell you why your score wasn't higher. Use those tips to work on improving your score.

Collections-Charged Off Accounts

When an account goes unpaid for a while, a creditor may send it to a collection agency. The collection agency will try to collect on the debt and may report this to the credit bureau. If the account goes unpaid, it will remain part of your credit report for at least 7 years from the date of the last account activity. Charged off accounts are accounts the creditor tried to collect on and basically wrote off as bad debt. They assume that you are unwilling to pay this debt. They will report this as outstanding debt for at least 7 years. If you are in a position to repay these debts, they will not be removed from your report but will at least be reported as "paid in full".


When accounts are delinquent, some creditors will negotiate a settlement and allow it to be paid for a lower amount. While this could be a good option for some who aren't concerned about their credit rating, it is not recommended in every case. Many creditors will report that account as "settled for less than full amount" and this could damage your credit. It is important to ask the creditor if the account will be reported as a settlement. If so, ask yourself if you can deal with the damage it may do to your credit report.

What to Do if Something is Wrong 

Most credit reports will come with a dispute form. This is a form to report inaccuracies to the credit bureau. While it may seem like a good idea to pick up the phone and call the creditor whom you have an issue with, this usually is not a good idea. If you dispute any information through the credit bureau, the creditor is required by law to prove that you owe the debt within 30 days or it must be removed from your report.

Even though credit reports can be complex, learning to read them can be empowering. Be aware of what is contained in your report and take control of the factors that you can to make sure you put yourself in the best financial position. There are many online ways to get your credit report. Take charge of your credit by being an informed consumer.

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Copyright © 2003 by Jennifer Wallis. All rights reserved.

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