Updated: Jun 7, 2020
Good morning Honeys, Happy Monday!
I hope you had a great weekend!
This week our focus will be on understanding credit and today's topic is how to understand your credit report. With so many women now graduating with student loans, it shouldn't be surprising that on average, women have 27% more credit card debts than men, and 26% more in student loans. Since we as women are not thought about debt management but about homemaking, we are more likely to fall prey to debt than our male counterparts. The only way to improve these numbers is to help more women understand how to credit really works.
With the unemployment rates rising more and more daily, as women, we must become smarter about handling our personal finances. Before we face bankruptcy, debt collectors, and depression as we agonize over debt.
Credit Report 101
First, you must understand how to read your credit report. You can receive a copy of your report yearly in the mail by contacting the credit bureau (Equifax, Trans Union in Canada) or you can get it online by answering a couple of questions. This will not affect your credit score.
What is a Credit Report?
Your credit report is a snapshot of your credit history (how you behave with borrowed money). This is one of the primary tools that lenders use to decide whether or not they would like to lend you money and at what interest rate.
Whether you're buying a car or your first home, you will need to know what's on your credit report.
How to read your credit report?
Initially, you must make sure that all the information is accurate in your report. If you find any mistakes contact the credit bureau to repair it.
You are scored on the type of loan that you have by a grade from 1 to 9.
A letter will also appear in front of the number: for example, I2, O2, R2. These letters stand for the type of credit you are using.
"I" signifies an installment loan
Such as for a car loan, where you borrow money once and repay it in fixed amounts, on a regular basis, for a specific period of time until the loan is paid off.
"O" refers to open credit such as a "Line of Credit" or a Student Loan
Where you borrow money, as needed, up to a certain limit and the total balance is due at the end of each period or when you complete your schooling as in a student loan.
"R" refers to revolving credit AKA Credit Cards
Credit cards are revolving credit, on which you make regular payments in varying amounts depending on the balance of your account and on which you can then borrow more money up to your credit limit.
So why is it important to understand these codes? Too much of one type of credit is not desirable for your credit score. You can't have too many "R" (Revolving Credit) mainly because it would mean that you are living on credit. Especially if you don't pay them all on time and/or pay your statement balance in full each month.
The meaning of each code:
R00 - Too new to rate so you’ve never had credit or approved but not used.
R1 - Pays or paid within 30 days of payment due date or not over one payment past due.
R2 - Pays or paid in more than 30 days from payment due date, but not more than 60 days, or not more than two payments past due.
R3 - Pays or paid in more than 60 days from payment due date, but not more than 90 days, or not more than three payments past due.
R4 - Pays or paid in more than 90 days from payment due date, but not more than 120 days, or four payments past due.
R5 - Account is at least 120 days overdue, but is not yet rated "9"
R7 - Making regular payments through a special arrangement to settle your debts i.e., credit counseling
R8 - Repossession voluntary or involuntary return of merchandise
R9 - Bad debt; placed for collection; moved without giving a new address or bankruptcy.
As someone who as had numerous R9 scores in my 20’s, I know how it can mess up your life. However, by understanding how credit works, I was able to repair my credit history and qualify for a mortgage within 6 months to 1 year.
Tomorrow we will cover how to understand credit score and why it matters.
TTYL and by the way…Have a great day
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