The Impact of Personal Responsibility on Credit Report

Interpreting credit scores and credit reports can be challenging to digest. Therefore, knowing how they work and what factors a consumer can control is necessary. Some factors reflect an individual’s responsibility on credit. Here is the impact of personal responsibility on credit report.

Why is it Important to Practice Your Personal Responsibility on Credit Report?

The Consumer Financial Protection Bureau (CFBB) states that credit scores derived from credit reports predict for lenders whether a person is a good or bad credit risk.

Companies determine whether an individual qualifies for new lines of credit, auto and personal loans, mortgages, jobs, and rental applications via their credit score.

There are ways to improve your credit scores and establish healthy financial practices while responsibly utilizing credit.

Make Timely Payments Each Month

Your payment record and debt amount make up 35% and 30% of the overall credit score. Hence timely payment of debts is essential as a single delayed payment can drastically pull your score down.

Automated payments can be set up using various tools and software to avoid late payments. Lenders may charge you a late fee or high-interest rates in case of being just a day late from the due date of the payment. 

With the help of the Experian Boost tool, you can report your recurring monthly payments to the three credit bureaus yourself – Experian, TransUnion, and Equifax. Self-report your utility, cell phone, and streaming services payments using Experian Boost.

Making timely payments will increase your credit score and reflect well on your credit history. To have your monthly payments monitored each month, connect your bank account to the digital platforms you use to make payments. Credit bureaus accept information that is virtually reported to them.

Pay Off Debts to Enhance Your Credit Utilization Ratio

The credit utilization ratio is your total credit account balance divided by the usage of the available credit limit. As per your responsibility on credit report, the more available credit you use, your credit score will worsen.

Credit bureaus would ideally want you to use a minimum amount of your available credit each month. It is advised to maintain a utilization rate of less than 30% or below to help increase your credit score. The ideal credit utilization ratio is recorded at 10% or under.

Bear in mind that the credit utilization rate adds up to 30% of your FICO score. Aim to pay the full credit card balances each month. A big chunk of money in interest is saved this way and protects your credit scores. 

Use Your Credit Card for Budgeting

According to the CFPB, developing a budget is an integral factor in meeting your financial goals. 

Credit cards aren’t just for availing credit balances but also for budgeting. Your credit card comes with your monthly credit card statement, which is a useful tool for managing money.

You can begin by acquiring your most recent credit card statement or reviewing it online. Proofread your transaction and purchases for verification and categorize your expenses. This category can be further split into necessary and unnecessary spending. 

A realistic monthly budget can be set for you to see where your money is being spent clearly. You can pay off debt instead of spending on nonessential items. This way you can have full responsibility on credit report.

Credit History

This is the most important section of the credit report, as your FICO score is calculated using the information in this section, such as debt percentage, length of credit history, types of credit, and new lines of credit. Making timely payments will increase your credit score and reflect well on your credit history as it determines 35% of your credit score.

Your credit report history includes the following elements:

Current accounts and those that have been inactive for the past seven to ten years. These include joint accounts, individual accounts, revolving credit accounts, lines of credit, and different loans and mortgages.

History of payment which depicts whether or not regular and timely payments were made.

• The current balance showed the balance when the lender reported to the bureau, and the highest balance was reached on the account.
• List of lenders and creditors. 
• Amount of loan borrowed and assigned credit limit.
• Status of the account. For instance, paid, foreclosure, refinanced or transferred.

Some accounts still appear in your credit history after you’ve closed them or paid off a debt. Negative entries in your credit report are; delayed payments, charge-offs, and delinquent loans, which can stay on your record for up to seven years. After ten years, details regarding closed or inactive accounts in good standing disappear from your report.

Make sure to dispute any erroneous or suspicious entries in your credit report so that your credit score and credit history may not be harmed.

Make Your Payments in Full 

Paying your credit card charges in full each billing cycle is recommended. If you cannot pay the whole amount, paying off the maximum amount possible is suggested.

To keep your account in good standing, make minimum payments on your credit card to avoid charges and penalties. This is also a good way to take full responsibility for a credit report.

Regularly Monitor Your Credit 

Keeping track of your credit standing is advised regardless of where you are in your credit journey. You can monitor your credit via CreditWise from Capital One.

With CreditWise, you have free access to your credit report and weekly VantageScore® offered by TransUnion ®. CreditWise can be accessed for free even if you don’t possess a Capital One account.

A free copy of your credit report can be acquired from the three major consumer reporting credit bureaus or from AnnualCreditReport.com. 

Takeaway: Build Credit Wisely

Building credit does not happen overnight and could take several months; it is important to start working on building your credit before it is needed.

Get free expert credit consultation from an accredited consumer credit reporting agency to discuss efficacious debt management strategies.

This will provide top-tier feedback from a certified credit counselor who will evaluate and analyze your current financial standing, devise schemes to build credit and develop a sense of personal responsibility that affects your credit report.