Understanding the Different Types of Debt Reporting on Credit Reports

Your credit report is like your financial report card. It shows how you’ve handled borrowing and paying back money in the past. Companies look at this report when deciding if they should lend you money or offer you credit. There are different types of debts that can show up on your credit report, and we’ll talk about them in easy-to-understand terms.

⟶ Video Summary ⟵

━ Credit Card Debt

Credit card debt is like a revolving door; you borrow and pay back up to a certain limit. Your credit report will show how much you can borrow (credit limit), how much you currently owe, if you’ve been paying on time, and if you’ve ever missed a payment. If you’re using a lot of your available credit, it could negatively impact your credit score. Aim to use less than 30% of your limit to help your score.

For more information read Decoding Credit Card Debt: Key Steps to Prevention and Recovery

━ Personal Loans

Personal loans are like borrowing a specific amount of money for a set time, with monthly payments. They can be secured (you put something like a car or home up as a promise) or unsecured (just your word that you’ll repay). Your credit report will show how much you borrowed, how much is left, how long the loan is for, and if you’ve made payments on time. Paying on time helps your credit score, while late or missed payments can hurt it.

For more information read What’s a Personal Loan, and How Can You Deal with It?

━ Collections

When you’ve missed many payments on a debt, it might be sent to a collections agency. This can stay on your credit report for up to seven years from when you first missed a payment and can lower your credit score. If you see a collections account on your report, it’s important to sort it out by either paying it off or working something out with the collections agency.

For more information read The ABCS of Collections, Avoiding Debt, and Repairing your Credit Score

━ Repossessions

If you don’t pay a secured loan (like a car loan or mortgage), the lender can take back the item you bought. This is called repossession. It will show on your credit report and can really hurt your credit score. Like collections, repossessions can stay on your credit report for up to seven years.

For more information read What is a Repossession, and How Can You Bounce Back?

━ Student Loans

Student loans are like personal loans that are used for education costs. They show up on your credit report with details like how much you borrowed, how much is left to pay, and if you’ve been making payments on time. Paying on time can help your credit score, while late payments can hurt it.

For more information read Breaking Down Student Loans: the Basics, the Challenges, and the Recovery

━ Mortgages

A mortgage is a big loan used to buy property. It shows up on your credit report with details like how much you borrowed, how long you have to pay it back, how much is left, and if you’ve been making payments on time. Keeping up with your mortgage payments can really help your credit score.

For more information read The Mortgage Journey: From Understanding to Recovery

━ Bankruptcies

Bankruptcy is when you legally say you can’t pay your debts. This can stay on your credit report for 7-10 years and can really hurt your credit score and chances of getting new credit.

For more information read Bankruptcy: A Guide to Prevention and Recovery

CONCLUSION

Knowing how different debts show up on your credit report is important for keeping your finances in check. Paying on time and not maxing out your credit can help your score. But bad marks like collections, repossessions, and bankruptcies can hurt your score. Checking your credit report regularly can help you catch any problems and sort them out, keeping your credit in good shape.