Having working knowledge of credit is a necessary part of life as an adult. Your credit reports – and the credit score which results from the information in your reports – dictate how much of a risk you pose to future creditors. When your credit report is not in the best shape, lenders won’t be apt to approve applications for new credit cards, personal loans, auto loans, or mortgages.
Even utility companies and landlords now use your credit history to determine if a deposit is required to start service or initiate a new lease. Having a healthy credit report and ultimately, a good credit score starts with understanding the basic credit report terms listed below.
1. Credit Bureau
A credit bureau, also known as a credit reporting agency, is an organization that compiles data on your relevant financial history to build your credit report. Lenders are able to access this data when new applications for credit are submitted. You have a credit report with each of these agencies. In the United States, three main credit bureaus exist: Equifax, Experian, and Transunion.
2. Credit Score
Your credit score is an algorithmic calculation of your financial behavior, based on several factors included in your credit report. Credit scores are determined by your credit utilization rate (the amount of money you owe on a revolving credit account like a credit card compared to your credit limit), your payment history, and your credit mix. A credit score calculation also takes into account the length of your credit history and any credit inquiries that have taken place in the recent past. Credit scores range from 300 to 850, and the higher your score, the better positioned you are for getting a new credit account.
3. Tradeline
A credit tradeline is a term used for accounts included in your credit report. Items like credit cards and loans are listed as tradelines individually, and each includes details about the lender or creditor, the type of account, credit limit or loan amount, and payment history.
4. Account Status
Each account listed on your credit report includes an account status. The most common account statues include the following:
- Paid as agreed – meaning your account is in good standing with the lender or creditor
- Account paid in full – no balance remains on the account
- Account closed – no balance remains on the account, and the account is no longer active
- Account paid for less than the full balance – a creditor has accepted a lower settlement amount on an account but it is now paid in full
- Account past due – typically defined by how late you are on payment in 30-day increments
5. Hard Inquiry
A credit inquiry is reported to the credit bureaus and included in your credit report when you apply for a new credit account, such as a credit card or loan. Hard inquiries include those directly from creditors evaluating your credit history. These inquiries can bring down your credit score.
6. Dispute
A credit dispute involves asking the credit bureaus to correct an error found in your credit report. Credit bureaus are required to investigate disputes and provide follow-up information to you when that investigation is complete. Most disputes are managed online directly with the three credit bureaus.
7. Lock
A credit lock is a service offered by the three credit bureaus that allows you to lock your credit report from inquiries. This is typically used when you suspect identity theft or fraud has taken place connected to your credit report. A lock offers some protection against new creditors pulling your credit history and report, which limits the ability to get approval for a new account.
8. Fraud Alert
A fraud alert on your credit file informs potential lenders that you suspect you may be a victim of fraud. If you or someone else attempts to apply for a credit card, buy an automobile, or simply increase the amount on an existing credit line, the fraud alert is there to ensure the lender goes the extra mile to verify you are who you say you are. Should an identity thief attempt to open an account under your name, the extra security measures should help prevent it. Today, setting up a fraud alert is quick and convenient.
9. Freeze
A credit freeze is a more in-depth process to limit access to your credit report compared to a credit lock. A freeze requires you to go through each credit bureau to request your credit report be shut down in terms of future access, and you must take specific steps to unfreeze your credit if needed in the future.
10. Thaw
Thawing your credit is the process of unfreezing your reports with the three credit bureaus. This process involves verifying your identity with the credit bureaus, as well as providing a PIN to thaw your reports.
11. Lift
A lift is similar to thawing your credit, in that it is the process of lifting a fraud alert, a credit freeze, or a credit lock from your reports. This may be done with the simple click of a button if you are lifting a credit lock. Lifting a credit freeze or a fraud alert requires additional steps.
12. Charge-off
If you see a charge-off on your credit report, this means a lender or creditor has written off the balance of your debt as delinquent, and it does not anticipate receiving payment. A charge-off is also known as bad debt, and it can be detrimental to your credit score.
13. Delinquent
When you are delinquent on an account, this means you have failed to pay as agreed on a credit card or a loan. Creditors report delinquencies to the credit bureaus after payment is 30 days late, and then every 30 days up to 120 days. After this time, delinquent accounts are often transferred to a collection agency.
14. Public Record
Public records include any information readily available to the public. In terms of your credit report, a public record could include bankruptcy, a tax lien, a foreclosure, or a court judgment. These items negatively impact your credit score.
15. Lien
A lien is a legal claim a creditor has against your property due to unpaid debts. Common liens are contractor or mechanic liens and tax liens. These items bring down your credit score.
16. Collection
An account that is said to be in collections is one that has been sold by the original creditor to a debt collection agency. This is most common when a debt remains unpaid for more than 120 days, and the creditor does not want to pursue collecting on the debt any longer. Collection accounts are reported to the credit bureaus, and they have a negative impact on your credit score.