Making Sense of Your Credit Score & Credit Report
You probably hear the terms credit score and credit report all the time. But do you know how they’re different – and why they’re both important for your financial health?
Your Credit Report and Where to Get It
Your credit report is a detailed review of your credit history – that is, your history as a borrower. The lengthy report includes how well you have paid balances on your credit cards, loans, and mortgages; how many credit accounts you have open and the types of accounts you have (such as credit cards, auto loans, and student loans); credit limits on your accounts and how much you owe creditors; how long your various credit accounts have been open; and recent credit inquiries made by prospective lenders, employers, or landlords.
Your credit report will also list information about past collections, repossessions, or bankruptcy filings, and it may contain records of past accounts that you closed. The report also includes identifying information like your name, address, Social Security number, and date of birth.
Your credit report does not include your credit score. That’s a separate issue.
Three major credit-reporting companies compile your credit reports: Equifax, Experian, and TransUnion. Potential lenders and creditors are legally allowed to request your credit report, as are landlords, insurance companies, phone and utility companies, current creditors, and prospective employers (with your permission).
You should remain vigilant in checking your credit report. Checking your report regularly can help you spot fraud, identity theft attempts, and see if there are any inaccuracies.
Each year, you are entitled to receive one free credit report from each of the credit reporting agencies via annualcreditreport.com. This is the only website authorized under federal law to fill orders for annual credit reports for free. Because of the COVID-19 pandemic, consumers can now have free weekly access to their credit reports until April 2021 via this website. Additionally, starting in 2020, everyone in the U.S. can get six free credit reports per year through 2026 by visiting the Equifax website or by calling 1-866-349-5191. That’s in addition to the one free Equifax report (plus your Experian and TransUnion reports) you can get at annualcreditreport.com.
When you go to the website, you will fill out a simple form and request which report(s) you want to receive. It’s suggested that you stagger your requests, accessing a report from one of the three reporting agencies every four months. This way, you can continuously watch for suspicious activity. If you find an inaccuracy on your report(s), each reporting bureau provides information about how to contact them to dispute mistakes.
It’s a good idea to review your credit report before financing a big purchase like a house or car. Issues with your credit could prevent you from being approved for a loan or from getting the most preferred rate. By checking ahead of time, you can identify potential issues or errors on your credit report and take steps to correct them before applying for the loan.
Your Credit Score and Where to Get It
Your credit score is a three-digit number designed to represent your creditworthiness, based on information that’s in your credit report. The Fair Isaac Corporation produces the FICO® Score, which is the most commonly used score. Another scoring option is VantageScore, which was developed by the big three credit-rating agencies. Both scores range between 300 and 850. Generally speaking, scores in the high 600s or above are considered good, and scores in the high 700s or above are considered excellent.
Because you may have more than one credit report (one per credit bureau), you’ll also have more than one credit score.
The main factors that influence your credit score are your payment history, how much of your available credit you are using (your credit utilization rate), how long you have had credit (your credit history), the mix of credit accounts you have (such as lines of credit vs. installment loans), and the number of credit inquiries made about your credit over 24 months.
Like your credit report, your credit score is a way for lenders to gauge how much risk they would be taking by lending you money and what interest rate they will charge you, which is called risk-based pricing.
You can request your credit score for a fee from the three credit bureaus. However, many credit card companies, banks, and credit unions have started to provide accountholders with their credit score for free. Also, some websites, like those for Experian® and Credit Karma, offer your score for free without requiring credit card information.
Knowing your credit score and checking it regularly is a good way to know where you stand financially and an important step in keeping your credit in good shape. It gives you a high-level view of how your financial actions (like paying off a loan or opening a new credit card) affect your credit. A sudden drop in your score could also signal a problem like identity theft.
Get Smart About Your Credit Score and Credit Report
Both your credit report and credit score impact your financial health and ability to access new financial opportunities. A healthy credit report and a high credit score can help you secure lower interest rates on loans, qualify for better credit card benefits, and enjoy higher credit limits. So keep an eye on both your credit report and credit score, and borrow responsibly, to keep your credit as strong as possible.