Today we are going to be getting back to the basics and learning 5 types of credit accounts. When I say getting back to the basics, this is not an advanced article/video, but there’s a lot of things in here that you may or may not know. I want to help some of you understand your credit report, how to analyze it, what to see on it, and what those things mean.
Let’s dive into it.
There are five types of credit accounts. Real Estate, revolving, installment, collections and other.
What is a real estate credit account?
A Real Estate credit account could be your first or second mortgage.
What is an installment credit account?
An installment credit account is fixed payments. Meaning that the same payment is due every single month. It does not vary.
So, think about it as being not variable. If they give you a mortgage, or if they give you a loan for a vehicle, you’re going to have the same payment every month, that is categorized under installment.
What is a revolving credit account?
A revolving credit account means it can be a revolving amount of payment each month. A typical revolving account would be a credit card, where you got a $10,000 limit. You guys spend three or four a hundred bucks on it, the amount that you owe each month, depending on how much you spend on that card, will be your payment.
It is revolving. That means it’s not fixed every month to be the exact same payment. It varies.
What is a collection credit account?
That’s when your account goes seriously late. So you’ve got your 30-day late pay, you’ve got a 60-day late pay, you go to 90-day late pay, and then you go to 120 days before it gets sent over to an attorney or a collection agency to try to collect the money.
Once it hits collections on your credit report, there are companies that will actually buy the debt, and so the original creditor will actually sell the debt to ABC Company.
ABC Company picks it up for right around four to seven cents per dollar.
So for every hundred dollars this company will purchase your bad debt for about four to seven dollars, and try to collect the money.
You know, sometimes they’ll offer you, “Hey, if you want to pay half, we’ll go ahead and settle your debt for you.”
Because they’ve only picked it up for about four cents. So if you paid 50 they made money.
That being said, that’s how the collections work.
What is classified as an “other” credit account?
Typically this is used for when it is, like a lot of the American Express’s that have a limit that’s not set, they call it the unlimited.
So if you have an unlimited credit card, they can’t put unlimited on there. If you see a category that says other, that does typically means that it is an unassigned, or it is in a category that is not able to be found.
American Express is one that usually does, falls under other as your category.
Diving deeper into the basics
What I’m going to read to you guys a little bit here are a few other topics that you really want to know on your credit report.
And then just basic Credit 101 stuff, so let me go ahead and read a few of these here for you:
What is a creditor? It’s the official name of a larger… So basically, what a creditor is, is the person who actually gives you the money. The lender. The lender, the creditor, which, also, is the person that could come after you if you don’t pay.
An account number is something you’ll see on your credit report that identifies each loan, or credit card, or vehicle, or home, so they can identify each account separately.
It’s an identification number to check.
What is a condition? A condition is whether the status is open or closed, tells you the condition, is the line actually opened or is it a closed account, okay?
Balance is the amount you presently owe on a loan or a credit card. That’s the balance. Really simple.
You’ll also see type. That’s again, going back to whether it’s real estate, whether it’s revolving, whether it’s installment, you see the word type, that just means they’re trying to distinguish between which is installment, revolving, and so on, and so forth.
Past due is the amount of payment overdue for what is basically recently put on your credit report. The past due amount is if you went late, what got reported to the credit bureau after the statement date would be your past due amount.
High balance. If you see high balance, that just means the highest that’s ever been charged on a credit card.
So if you’ve got a $10,000 credit limit and your high balance is $9,500, that means that at one point in that loan, not the current amount due, but the high balance is the most you’ve ever spent on that credit card.
Let’s talk about limits for a credit card or revolving line. That is the most that you can spend on the credit card or loan. That is your limit.
Payment. This is the minimum amount you’re required to pay each month on an account. That’s your payment. Usually, that goes with the loan side, not the credit card side, but that is how the payments work.
If you see something that says open, that tells you the month and year that the line has been opened.
Responsibility. Is this a joint account? Is this an individual account? Is it an authorized user?
So if we want to see the responsibility, that will indicate on your credit report, usually, with the authorized user it is going to be AU, that is the code, so AU is authorized, user.
Individuals, INV, and then you’ll see other ones where it could be either a co-borrower or maybe that you are co-signing for somebody, and that would also show up as CO or joint.
Collection accounts or accounts are seriously past due. When you go to collection, it is when, after it hits that 120-day mark they go to collection. So a collection account has already been late, late, late, late, late, and they finally say, “You know what? It’s going to collection. We’re going to try and collect the money.”
Difference between the original creditor and, you know, Bank of America, you owe Bank of America money, that’s the original creditor.
Now, Bank of America could sell the debt to ABC Collection Company, which pick it up, and at that point that would actually be the people that are trying to collect the money, because what happens is, it got charged off.
So, Bank of America charged off the debt, and they said, “You know what? We’re wiping our hands free of it.” ABC Company picked it up, like I said, four to seven cents, but your original creditor would be the first person you got your loan from.
Date opened. Again, this is like month and year. You’ll see some that say date opened, it tells you the month and year the actual account was opened.
Date reported. The date of the collection agency when it was reported. So once you go to collections, there is a thing that’s called date reported, and that is the date that the actual collection will show up on your credit report.
And that’s pretty much it guys. That’s, for the most part, a lot of things that you will see on a credit report. But again, if you have to go back to this video a hundred times and, you know, what does this mean, or what does this mean?
That’s why I put it out there. This is Credit 101, a lot of things you probably didn’t know on here, a lot of things you probably did.
But this is a very informative video that you can go back as many times as you need, to understand how something works.
And when you’re looking at a credit report, you know exactly what you’re looking for.
So thank you, guys.
Until tomorrow, my name is Mike with Wholesale Tradelines.