Understand How to Read Your Credit Report
Credit reports are accounts from different places where the purchaser gets loans from. These accounts range from cell phones, credit cards, car loans, and mortgages. Each account has a different label to categorize what each loan type is, and each account shows how well the purchaser takes care of the payments. There are six types of account and 9 levels to determine the rating, with 9 being the worst. The 6 different accounts are Open, Revolving, Installment, Lease, Line of Credit, and Mortgage.
Credit can sometimes sound like a totally different language when all the different ratings and accounts. At Anava Financing we want to simplify the process so it becomes second nature for our consumers on how to view and understand credit. Let’s define some terms and outline some numbers to see exactly what a credit report consists of.
Accounts. The term account is something you could put in terms of a bank. When someone borrows money from a business, it's like opening up a bank account with them. This bank account starts with something different depending on the account. Most of the time the account starts in the negative or at zero. The Six different types of accounts you can see on a credit report is:
Open Credit (symbol O) - This is an account that has a balance due at the end of a specific period.
Revolving (or Option) Credit (symbol R) - This account allows you to borrow from it to a set amount then pay it back with interest. An example of this account would be a credit card.
Installment Credit (symbol I) - This account has a fixed number of payments due, i.e. a student loan or an auto loan.
Lease Account (symbol L) - A lease account is exactly how it sounds, it’s an account on a lease. So a lease of a storefront or a lease of a car.
Line of Credit (symbol C) - A Line Of Credit (LOC) can be obtained two different ways, secured or unsecured. A secured LOC is similar to a Secured Credit Card, it is backed by cash or an asset (like a house). An unsecured LOC is given to someone typically with great character that the lender feels that they don’t need to secure the loan with anything.
Mortgage Account (symbol M) - The largest account most people will obtain is a mortgage. It’s self explanatory.
Each one of these accounts will have a rating, or a manner from 0 to 9; 1 being the best and 9 being the worst. If there is a rating of 0, it just means the account is so new they can’t give it a rating, it only stays like this for about a month. From 1 to 5 is ratings on payments, 1 is within 30 days, 2 is 30-60 days, 3 is 60-90 days, 4 is 90-120 days, and 5 is greater than 120 days but not yet rated a 9. Having a rating of 7 is when a debt is under consolidation, or similar arrangements. An 8 is when there is repossession of an asset. Lastly, 9 is the worst; bad debt that’s placed in collections.
Now that we know about accounts and the manner in which they can be in, let’s look at an example of a credit card; R1 would be the best manner, R3 would be 60 days behind in payment, and R9 would be the account being in collections.
This is just a short introduction on understanding your Credit Report. If you have any questions about your credit report, or are interested in obtaining a credit report, call Rudy or send him an email to book an appointment.