What Is a Credit Report?
Your credit reports and scores can both be important, but they’re not the same thing. Your credit report contains information about your history repaying and managing debt. A credit score is a three-digit number based on the information in a credit report, and it gives organizations an easy way to assess risk associated with lending someone money. If you have not yet seen your credit report or know what’s on there, we have very experienced counselors that can help iron out the details very clear for you to understand and move forward with better credit.
The information in your credit report is organized in different sections:
- Personal information: This includes your name, address, year of birth and possibly employer.
- Accounts: These could include loans and credit cards, and potentially other types of monthly bills. Your open, closed and collection accounts are generally separated.
- Public records: Bankruptcy filings from the last seven to 10 years are the only public records on your credit report.
- Recent inquiries: Records of when someone (including yourself) checks your credit report.
Your credit report will also have details about each account, such as the date you took out a loan, the loan amount, your monthly payment amount and your history of making late or on-time payments. The credit bureaus receive most of the information that appears on your credit reports from creditors. For example, when you apply for a loan, the lender may report the personal information from your application, such as your name and address. Once you take out the loan, it reports the account information and regularly sends updates about your payments and your account’s status (whether it’s being paid on time or not). The credit bureaus can then include this information in your credit reports. In addition to information from your creditors on your credit reports. Your credit report is important because organizations can request a copy before making a decision on whether to approve your application for a loan, a credit card or even a rental home or job. Someone can only check your credit if they have a permissible purpose. The information in your credit reports provides the basis for your credit scores.
What Is a Credit Score?
A credit score is the numerical result of a mathematical formula that evaluates the information in one of your credit reports. Companies build these formulas, called scoring models, based on historical data from millions of anonymized credit reports. By analyzing the data, they can create complex models to help predict the likelihood that someone will miss a payment in the future. FICO and VantageScore are the two main companies that create consumer credit scoring models. Both companies maintain multiple versions of their credit scores, which is why you may have many different credit scores. Lenders may also create their own credit score models. Creditors can request a credit score—they can choose one or request multiple scores—along with your credit report when deciding whether to lend you money. For example, if you apply for a loan, the lender might check your credit report and a FICO score based on that specific report.
What Impacts Credit Scores?
Each credit scoring model uses slightly different criteria to determine a score. However, many scoring models use similar factors, and these are commonly grouped into several categories:
- Payment history: Your history of making debt payments on time or missing payments. 35% of your credit!
- Amounts owed: How much you owe on loans and how your credit cards’ balances compare with their credit limits. 30% of your credit!
- Length of credit history: The age of your credit account history, which could include the age of your oldest and newest accounts and the average age of all your accounts. 15% of your credit!
- Recent activity: How many accounts you’ve applied for and opened recently.
- Types of credit accounts: Whether you have experience with different types of accounts, such as credit cards and loans.
Credit scoring models only look at the information in your credit report when calculating a score, and different types of information might help or hurt your credit scores. For example, paying down a credit card balance could help your scores, but missing a loan payment could hurt them. Closing an account won’t keep it from impacting your credit score. If you pay off a loan or close a credit card that doesn’t have a balance, the account can remain on your report for 10 years. The federal Fair Credit Reporting Act allows most negative information to stay on your credit report for up to seven years, but the impact of negative items can decrease as time passes.
What’s a Good Credit Score?
Many credit scores range from 300 to 850. A higher score is better because it indicates the person is less likely to fall 90 or more days late on one of their bills—in other words, that they manage debt responsibly. This is why having a good credit score, such as a score above 700, can help you get approved for new accounts with more favorable terms.
- Qualify for more accounts. Your credit can impact your eligibility for credit cards, loans, mobile phone accounts and even rental homes.
- Save money on loans and insurance. Your credit report and score can impact how much you pay in fees and interest on credit accounts. Credit-based insurance scores may also impact how much you pay for insurance premiums.
- Save on security deposits. You may have to pay more fees or a larger security deposit for utility and telecom accounts if you don’t have good credit.
- Get a job in some cases. Your credit report (but not a credit score) may impact your ability to get a job or a promotion.
Even if you don’t plan on taking out a loan or opening a credit card, establishing and building good credit could give you more options and save you money. Have the credit for a rainy day or to get a good refinance and save money should be enough.
How to Check Your Credit Report and Score
You can subscribe to a credit monitoring service like Identity IQ, Credit check total, etc. This gives you the ability to not only see the credit scores, but also keep an eye on credit checks, payments etc. At Credit Services Of America, we can help you get on track and provide insight on credit. We can also educate you on how to manage your credit life, this will ensure you stay ahead of the process and know how to plan your next move to increase your credit score. We currently still have the FREE credit consultations and over 12 years of knowledge to back it up!