Your credit report offers a snapshot of your financial life. When you better understand what your credit report is, how to read it and what factors influence it, you'll be better equipped to manage your overall credit and improve your credit score.
Your credit score is a grade assigned to your credit history that expresses your creditworthiness as a single number. Higher credit scores mean you're less of a risk, which means you are more likely to be able to borrow larger amounts at lower interest rates. Lower credit scores mean you're a higher risk, and are therefore more likely to be offered lower amounts at higher interest rates or be denied credit altogether.
The most commonly used credit scores are provided by Fair Isaac Corporation and are known as FICO®Footnote1 scores. They can range from 300 (the worst) to 850 (the best). Creditors differ, but a good score is usually considered to be 700 or above.
The 3 major credit bureaus—Experian, Equifax and TransUnion—collect information from public records and companies you do business with. They use that information to create a record (your credit report) that includes:
All these pieces of financial information factor into your credit score.
Five key items on your credit report are calculated to create your credit score, but they don't factor into the overall score equally. Some items in your credit report have more weight than others. Here's the breakdown:
You may have a different FICO score for each of the credit bureau agencies. That is, each bureau uses their own formula when calculating the FICO score. Since all the bureaus use your credit report to perform their calculations, the different FICO scores are usually very similar.
Experts recommend that you review your credit report annually for accuracy. If you find any errors, report them to the credit bureaus—and to the originating creditor—to have them corrected. If you think fraud or identity theft has occurred, contact the credit bureaus immediately. The Fair Credit Reporting Act (FCRA) requires that each of the reporting agencies provide you access to a free credit report. Here's how to get them:
The best things you can do to keep your credit score up is to pay your bills on time and limit your debt payments to less than 20% of your income.
Your credit report and credit score tell creditors how you manage money. Make sure that you do everything you can to keep your credit score high and your credit report clean—it will save you money in the long run.