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Bottom Line Up Front

  • Your credit report affects your ability to borrow money and how much borrowing will cost you. 
  • How much debt you have, how you pay for purchases over time and whether you make on-time or  late payments on utility and service bills may all go into calculating your credit score.
  • Paying bills on time and using credit responsibly may help you build a good credit history that can qualify you for future loans and good interest rates.

Time to Read

5 minutes

February 4, 2022

If you don't have immediate plans to borrow money, finance a purchase or apply for a credit card, you might think you don’t need to worry about your credit score or credit report. Not true! Most of us will use credit in one form or another. And, knowing what goes into your report can help you qualify for the best interest rates when you do apply for a loan or credit card.  

Credit Card Transactions

Credit card issuers typically don't report each purchase you make to the major credit bureaus (Experian®, Equifax® and TransUnion®). Instead, they tend to report how much you've charged overall (also called “your outstanding balance”) and whether you've been making on-time minimum payments to your credit accounts. 

A few examples of the way credit reporting agencies work may help. Let’s say your credit card balance is $1,500 and you pay it off in full. Then you use your card to make $1,000 in new purchases during the next month. Your credit card company would report that you paid in full the previous month and that your new balance is $1,000. 

Another transaction that may impact your credit score is a credit card balance transfer. For example, if you have a $500 balance on each of 3 credit cards, then consolidate, then consolidate them onto a new credit card with a $1,500 limit, then those 3 will show that you have credit available. The card with the $1,500 balance will be maxed out. Debt consolidation does make your payments simpler since you’ll only have 1 due date instead of 3. Keep in mind that credit card balance transfers may require a hard inquiry on your credit. Hard inquiries could lower your overall credit score a bit and will remain on your credit report for up to 2 years. Credit bureaus also monitor other factors such as bankruptcies, foreclosures, liens and late payments. These may have a big impact on your credit report, too.

Large Purchases

If you’re able to pay for your car or house in cash, the purchase won't show up on your credit report. Most people will end up taking out an auto loan or home mortgage. This is a type of account that could impact your credit report for years to come. Fortunately, as long as you consistently make on-time payments, the impact on your credit history is likely to be a positive one. 

Your lender will report how much you still owe on the loan every month, as well as whether you make your monthly payments on time or have any amount past due. As you pay down the loans monthly, you’ll continue to show less debt on your credit reports. 

Home Equity Lines of Credit

A home equity line of credit (HELOC) lets you borrow money against the equity in your home. For example, if your home appraises for $250,000 and your mortgage account balance is $200,000, you have $50,000 in equity. If you borrow $25,000 of that with a HELOC, that figure will be your credit limit, and you can use as much or as little of it as you need. You pay interest only on the amount you've used. 

Your credit report will show your credit limit, similar to a credit card account—but your credit score may treat the HELOC more like an installment loan because your score may not consider how much of your available credit you're using. For example, if you only use $5,000 of your HELOC's $10,000 credit limit, it may not affect your utilization rate and, thus, your credit score. 

Installment Loans

When you make bigger purchases like an engagement ring or a new TV, it's common to pay for it over a period of time with financing. These terms can be from a few months to a year or longer. Your credit report will show the purchase as an installment loan. Each month, it will show whether you made your payment or not. Making on-time payments each month may help your credit report over time. 

If you’re looking to reduce the impact the financed purchase may make on your credit score, it’s best to pay it off as soon as possible. You’ll want to ensure there are no early prepayment penalties. A prepayment penalty could mean you pay more than if you’d stayed with the original plan.

Utilities and Other Services

Expenses like utilities or medical bills typically don't show up on your credit report. But, if you fall behind on your payments and the accounts are turned over to a collection agency, they may be reported. The National Cable, Telecommunications and Utilities Exchange is an organization that shares account information among providers, so even though your credit report might not show your late cell phone payments, other providers can still potentially find out about your payment history. 

Find out where you stand now by getting a free copy of your credit report from When you get it, check it over carefully for any inaccurate negative information or signs of identity theft. If you find any, contest it (contact information will be on the report). 

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