Trades or trade-lines listed on your credit report are currently active credit accounts. Your mortgage, car loan and credit card accounts all show up as trade-lines on your credit report. Credit reporting agencies base your credit score on data related to your current trade-line activity as well as records pertaining to closed accounts.
Credit Reports
Your creditors make monthly reports to Equifax, Experian and TransUnion that detail your recent account activity including the amount of your last payment and the balance you owe. If you miss a monthly payment by more than 30 days, your creditors notify the credit bureaus, and the number of late payments you have had on each account appears on your report. When you close an account, the creditor stops reporting it to the credit bureaus and it no longer appears as an active trade-line on your report.
Credit Utilization
Beyond enabling creditors to see how well you manage your debt payments, trade-lines also have an impact on your credit score in terms of debt utilization. Your credit report shows both the amount you currently owe on each account and the maximum credit available to you from that creditor. If you utilize a high percentage of your available credit, it harms your score because high debt levels are synonymous with cash flow problems.
Closed Accounts
When you pay off an installment loan, the account terminates and no longer appears on your report, but when you pay off a revolving debt such as a credit card or equity line, the account stays open until you actually ask the creditor to close it. Your creditors continue to make monthly reports on open accounts even if you have a zero balance. If you keep credit cards open with a zero balance, you lower your overall credit utilization and this helps you to improve your credit score.
Other Considerations
Closed accounts have an impact on your credit score if those accounts were not satisfactorily paid off. Events such as foreclosures stay on your credit report for up to seven years and negatively impact your credit score. If you overdraw your deposit account at your bank and refuse to settle the balance owed, your bank can report the account to the credit bureaus. This debt shows up on your report for up to seven years even though the account itself never appeared as a trade-line on your report while still open.
0 comments:
Post a Comment