If you have more than one source of debt, it can be challenging to determine which debts to pay off first. The key to success when balancing a lot of debt is to know which ones you want to prioritize after making your minimum payments.
Your credit report can play a key role in helping you determine which debts to prioritize because it has a significant amount of helpful information. Let’s look at how you can use your credit report to create a debt repayment plan for your financial goals.
- You can request a free copy of your credit report from each major credit bureau once a year.
- You can use your credit report to help determine how much debt you have and what your repayment plan should be.
- Credit reports contain detail information about how much debt you owe and what negative factors may be affecting your credit score.
How To Check Your Credit Report for Free
One way to get a handle on your debt is to review your credit report, which can provide details on your debt’s role in your credit score.
Once a year, you can get a free copy of your credit report from each of the three major nationwide credit bureaus—Equifax, Experian, and TransUnion—from annualcreditreport.com. The information on these reports can vary, so it’s important to review all three copies closely.
As a result of the pandemic, you can get a free copy of your credit report each week from the three credit bureaus until December 2022.
Oftentimes, credit card issuers, banks, and loan companies also provide free access to your credit score, which may appear on your statement or on your online account. Credit score services can also offer free access to your credit score.
What Does a Credit Report Show?
So, what does a credit report reveal to consumers and lenders?
Your credit report mainly outlines information about how you’ve managed your credit. While each credit bureau formats their version of a credit report differently, they all contain the same basic information used to calculate your credit score.
This is what you can generally expect in your credit report:
- Personally Identifiable Information (PII): Identifying information such as your name, date of birth, address, employment details, and Social Security number.
- Credit accounts: A list of the types of accounts you have open, what your borrowing limit is, your current account balance, what your credit utilization rate is, and what your payment history looks like, including whether or not you’ve made payments on time.
- Credit inquiries: Any recent inquiries you’ve made for credit, including both hard and soft inquiries. (Only you can see soft inquiries; lenders will only see hard inquiries on their copy of your credit report.)
- Public records and collections: Information collected from state and county courts, such as bankruptcies as well as overdue debt that has been sent to collections.
Using Your Credit Report To Prioritize Your Debt Payments
Your credit report can be a valuable tool to help you create a plan to pay off your debt. It can be helpful to see all of your debts in one place so you can compare them to each other and better understand how each plays a role in your total debt.
First, review the “amounts owed” section to determine the total amount of debt you need to pay off. Your total debt compared to the credit available to you or your credit utilization rate plays a large role in determining your credit score.
It’s worth noting that lenders aren’t required to report your activity to the credit bureaus. If a lender doesn’t report your debt to the credit bureaus, it won’t appear on your report. It’s important that you write down any debts that don’t make it onto your report so you know exactly how much debt you owe.
For example, medical debt isn’t generally listed on credit reports unless you severely surpass the repayment deadlines. Retailer payment plans are typically excluded as well. You may need to review your recent bills or connect with your creditors to determine your total debt beyond what’s in your credit report.
If you’re juggling the repayment of multiple sources of debt, it can be hard to know where to focus your repayment efforts. While you should always aim to make the minimum required monthly payment for each source of debt, you can be strategic about how you make any additional payments.
If you have any debt in collections or are in threat of going to collections, you’ll want to focus on paying those off first since having debt in collections can hurt your credit score. If all of your debts are in good standing, you can save a lot of money by focusing on paying off the debts with the highest interest rates.
Make Getting Out of Expensive Debt a Top Priority
The longer you have debt, the more you pay in interest. While it’s important to find a debt repayment strategy that meets your unique needs, many consumers like to focus on paying down debts with higher interest rates first.
One way to eliminate high-interest debt faster is to use the avalanche method, also known as the highest-interest-first plan. With this method, you put extra payments toward the debt with the highest interest. Once you pay off that debt, you focus on paying off the debt with the next highest interest rate, and so on.
Let’s say you have three forms of debt: an auto loan with a 5% interest rate, a student loan with an 11% interest rate, and credit card debt with an 8% interest rate. You would first make your minimum payment and then put any extra toward the student loan. Once your student loan is paid, you would pay extra toward the credit card and, finally, the auto loan.
Another popular debt repayment method is the snowball method which focuses on paying off the smallest source of debt first and working your way up. Some people prefer this method because it keeps them more motivated as they eliminate a debt source sooner.
If you’re struggling to create a debt repayment plan, consider working with a debt counselor for guidance.
Frequently Asked Questions (FAQs)
How do I dispute my credit report?
When you review your credit report, check for any inaccuracies. If you find a mistake, you can file a dispute with the credit reporting agency. Each bureau has its own process for filing a claim, but once you file one, they will investigate your claim and can remedy any mistakes.
How long does debt stay on your credit report?
Even when you pay off your debt, it can remain on your credit report. Negative information such as missed debt payments stays on your credit report for about seven years. Bankruptcies can remain on your report even longer, from seven to 10 years.
How often is my credit report updated?
Your credit report gets updated whenever lenders report new information about your financial habits to the three main credit bureaus. Most lenders report activity about once a month, but every 45 days at a minimum. Some lenders may update the bureaus more frequently.