Key Takeaways
- You can use the information in your credit report to help determine how much total debt you have, compare debt accounts to each other, and see who all your creditors are.
- Prioritize paying off debt that has gone to collections or anything that may be close.
- Then work your way through the highest-interest debt and work your way down.
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. Pair your credit report with strategies for paying off debt to create a repayment plan that matches your financial goals.
Tip
Once a year, you can get a free copy of your credit report from each of the three major nationwide credit bureaus. The information on these reports can vary, so it’s important to review all three copies closely.
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 and better understand how each plays a role in your total debt.
While each credit bureau formats its version of a credit report differently, they all contain the same basic information used to calculate your credit score.Your report should include a list of the accounts you have open. Each account should show your borrowing limit, current account balance, credit utilization rate, and payment history, including whether or not you’ve made payments on time.
Important
Your total debt compared to the credit available to you or your credit utilization rate plays a large role in determining your credit score.
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 that can severely impact 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.
Lenders aren’t required to report your activity to the credit bureaus. If a lender doesn’t send information about 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.
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.
Note
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.
