The Importance Of Monitoring Your Credit Report

Category: Finance, Credit.

It s easy enough to apply for a credit card today only to forget about it over the next year or so. Consequently, this can have an affect on your overall credit rating since having too many credit lines open could make you look like a worse credit risk in the eyes of lenders.

However, that account still remains open and active on your credit report. They might be wary that you ll be overextending yourself. Therefore, it might be a good idea to maintain open accounts for some of your accounts, even if you plan on paying them off. In addition, if you have several accounts open, there s a greater chance that you will forget about an account you opened awhile back and you could unintentionally stop making payments on it. In fact, you should keep at least 2 or 3 accounts open regardless of how much you use them because otherwise, there won t be anything for lenders to use to determine your credit history on. How Closing an Account Can Affect Your Credit Report. In this case, accounts are not just limited to credit cards, but can also include personal loans, student loans, mortgages, etc.

It s also important to understand that once you close an account, the record of the closed account remains on your credit report and can affect your credit score for a while. For example, let s say you have four accounts, each with available credit lines of$ 1000( so$ 4000 in available credit) . In fact, closing unused credit accounts may actually cause your credit score to drop in the short term, as you will have higher account balances compared to a smaller available credit. And let s say you owe$ 500 on two of the cards and the other two are cards you want to close( so you owe$ 1000 total and have$ 4000 in available credit) . This might actually cause your credit score to drop, at least in the short term. Well, since lenders factor in how much you owe vs. how much credit you have available, if you close those two cards, you go from owing 25% of your available credit( $1000 out of a possible$ 4000 available credit) to owing 50% of your available credit( $1000 out of only$ 2000 available credit) .

In the long term, not having extra, though temptation to charge and not having credit you don t need is much more of a benefit. It s a good idea to monitor your credit report from time to time, especially if you re making significant changes like applying for new credit or closing older accounts. The Importance of Monitoring Your Credit Report. That way, as you gradually pay off your debts and streamline the number of accounts you have, you ll also be aware of any potential negative impact your actions might be making, either short term or long term. By following these tips, you can avoid some of the common pitfalls consumers face when paying off their credit accounts. You ll also be able to watch your score increase over time and there s nothing like positive feedback to keep you on track with your goals.

Now that you are aware of these concepts, you can ensure that you re making the best decisions in terms of your credit and put yourself on the fast track to being debt free.