[W]hen reading about credit or even viewing your credit report, you may stumble upon some terms you’re not familiar with. It’s important to understand these terms, so you can get a complete picture of your credit health.
FICO score – this is a credit score that is used by all three national credit reporting agencies. It tells creditors how responsible you are with credit and provides guidelines to creditors for lending money or establishing credit.
Credit History – how you have handled credit in the past and up to today. Some of your information goes back ten years.
Revolving credit – this is accounts like credit cards where you continue to have a credit limit even after you pay off your balance.
Installment loan – this is the other type of credit besides revolving credit where you get an account equal to the balance you owe. Once you pay off the balance, you must reapply before you can be approved and have credit again.
Credit utilization – this is how much credit you are using compared to how much of a credit limit you have. If you have a credit card with a limit of $1000 and your balance is $500, your credit utilization is at 50 percent.
Hard inquiry – this happens when a creditor checks your credit based on an application you filled out. It is included on your credit report for up to two years.
Soft inquiry – this is when a potential employer or landlord checks your credit or when you check your own. It is not included on your credit report so no one else will know about it.
Charge-off – this is when you have failed to make payments on your account, so the creditor has closed the account and charged off the debt. This does not mean you don’t have to pay the balance though.
These are just a few of the basic terms used with credit reports. It’s important to learn as much as you can about these reports because they will impact your life any time you apply for new credit or a loan.
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