Credit Reports and Credit Scores Explained

Many people have not looked at their credit report in years. Some may not even know what their credit score is at all. It’s so important to know your current credit score and what’s on your credit report. They follow you around like a shadow and there’s no getting rid of them. They will be used to judge your risk and/or creditworthiness from lenders to possible employers to utility companies. It’s critical to know where you stand and what everything means on your credit report because there could be some errors on there and that could hurt you financially.

We’re going to break both of these things out into two sections: Credit Reports and Credit Scores. Then we’re going to dive deeper into each section and really explain everything about each of them. Let’s start with credit reports!

How To Obtain Your Credit Report For Free –

You can get your credit report for FREE by going to www.annualcreditreport.com. Those websites that advertise free credit reports on TV are not really free and could charge you a monthly fee for signing up. Be very wary of these websites. Read the fine print carefully before signing up online to get your report. However, the good news is that the government has created the Annual Credit Report website so you would have somewhere safe and FREE to get your credit reports at least once per year.

You can get your free reports from the Annual Credit Report website once every 12 months, from the 3 major credit bureaus (Experian, TransUnion, and Equifax). It’s a good idea to get a report from only 1 credit bureau first. Then, 3-4 months later get it from the other bureau, and a few months after that get it from the last bureau. Space it out so that you can check on your credit report throughout the whole year. If you choose to get all 3 at the same time, you won’t be able to check them again for free for one whole year and A LOT can change in a year.

The US government does not give out free credit scores since that’s not part of the arrangement that was made with the credit reporting bureaus. However, credit scores can be provided when you pay for your credit report from any of the 3 major credit bureaus. You can also go to www.myfico.com and pay to see your actual FICO credit score. The fee is fairly small.

What’s On A Credit Report & How To Understand It –

Unfortunately, not knowing what is in your credit report can cost you money. This is because when you go to take out a loan, they check your credit score and determine what interest rate you qualify for based on your score. It may not be 100% apparent how this costs you money because the money you lose is through interest only. If you end up with a 7% interest rate instead of a 5% interest rate on a $20,000 loan, you will pay over $2,000 more over a 10-year repayment plan all because of the higher interest rate.

Let’s get into what’s actually on your credit report. One very important item is your current credit lines. This includes retail store cards, credit cards, car loans, mortgages, home equity loans, etc. It’s very important to check your credit report at least once a year if not more to make sure that no lines of credit have been fraudulently opened in your name. Identity theft is occurring more frequently now and the sooner you can catch it, the better off you’ll be when trying to fight it. It’s also important to make sure that a line of credit that was paid off in full gets removed from your report.

Another part of your credit report is dedicated to credit inquiries. These are instances where your credit report is accessed or “looked at” by a potential lender. Since your credit report is accessed whenever you look for a line of credit, this is a way for credit companies to judge how much and how often you are looking for new credit. If they see that you are looking for credit fairly frequently, then they may judge you to be a bigger risk and you may get denied. For this reason, it’s important to make inquiries for credit sparingly. Always ask if the hit to your credit will be a “soft” inquiry or a “hard” inquiry when you are seeking new credit. Here’s more info about that: https://www.advantageccs.org/blog/the-difference-between-hard-and-soft-credit-inquiries

The final item that’s in your credit report is your public records. These involve overdue debts, bankruptcies, foreclosures, child support, and other serious wage garnishments like liens and judgments. Since these items stay on your credit report it’s important to have your credit under control from the beginning. If you find you are slipping into unmanageable debt, it’s important to contact a free credit counseling agency as soon as possible.

You also have all of your identifying information on your credit report, such as your full name, address (maybe even past addresses), social security number, date of birth, and employment information. These are all used to identify you and separate you from someone else’s credit report. However, mistakes do happen! If you have a very common name like John Smith you could end up with another John Smith’s credit card info or even mortgage info on your report. There have been instances where a different John Smith’s information will wind up on your credit report because you share the same first and last name. That’s why it’s so important to check your report frequently and make sure all the information is correct and accurate.

The 3 Major Credit Reporting Bureaus –

There are many credit reporting agencies out there. However, you may have heard about the three major credit reporting bureaus. They are ExperianTransUnion, and Equifax.

Credit reporting bureaus gather and store the data that structures your credit report and ultimately your credit history. That means they have data about your current accounts as well as your overall payment and credit usage history. They look at things like payment history from a variety of financial institutions, including credit card companies, banks, mortgage companies, and other such lenders. Different organizations, similar to cell phone service providers and utility service companies, also report your information to the major credit bureaus. For the most part, these non-lending companies only report late payments or other negative information.

How Long Does Negative Info Stay –

Federal law specifies how long negative information may remain on your credit report. However, the Fair Credit Reporting Act regulates that your negative information can be reported for 7 years from the date of last activity and bankruptcies for 7-10 years depending on what Chapter Bankruptcy you’ve filed.

Negative information includes late payments, accounts that have been turned over to a collection agency and judgments that have been filed against you in court. The date of filing of a public record or the date of the first missed payment is what the credit bureaus go by when deciding what information to delete from your credit report. It all depends on that particular credit reporting agency.

Where To Get Help Understanding Your Credit Report –

AdvantageCCS offers a service called Credit Report Review. We can help you obtain a better understanding of your credit report, credit history, credit score, and show you possible ways to improve your credit score on your own.

Check out this awesome free resource from CreditCards.com to see an example of a credit report and learn more about what’s on it: http://www.creditcards.com/credit-card-news/help/interactive-sample-credit-report-6000.php

This is also a really great free tool, especially if you’re looking at your Experian credit report: http://www.experian.com/blogs/ask-experian/credit-education/report-basics/understanding-your-experian-credit-report/

What To Do About Errors On Your Credit Report –

Findings show that nearly 80 percent of the credit reports reviewed in a recent study contained, at least, one error. More often than not, people who have errors on their credit report are unaware that those errors exist how their credit scores are being affected. In fact, there is a one in four chance that the error will actually result in denial when applying for credit. Even something as simple as outdated personal information – such as address or name change – can have a negative impact on your credit report because conflicting personal information can create confusion when you go to apply for a line of credit. It is wise to contact all three credit bureaus – Experian, Equifax, and TransUnion – following any such change to be sure the information they have on you is up to date and correct.

Credit Scores:

Credit scores are derived from a combination of all the scores from the major credit bureaus and credit scores are used to calculate a person’s credit worthiness. This is most important when a person is looking to buy a home. Not all credit bureau sites are willing to give free credit scores from all three major credit reporting bureaus. Most of these sites give one score and then you will be required to pay for the other two. It is important to note that these credit scores are the main determinants of your financial credibility and trustworthiness. It shows whether you can be trusted with other people’s money. It is vital to take control of your credit at all times no matter what you are going through.

When making any kind of credit decision, lenders look at a variety of factors, including your credit scores. A credit score is a snapshot of your credit risk picture at a particular point in time. It changes as new information is added to your credit file and old information drops off.

How To Acquire Your Credit Scores –

There are a few ways to get your credit scores, including from a credit card statement that has it listed somewhere on the bill (Discover offers this), by contacting a non-profit credit counselor, or for a small fee from a credit reporting agency such as Equifax or Experian.

You can’t get your credit score for free usually like you can with your credit report. The government does not give out free credit scores since they are not part of the arrangements with the credit reporting agencies. Sometimes credit scores are given for free if you pay to view your credit report with one of the credit reporting agencies.

You can obtain your Equifax credit report and also your credit score at http://www.myfico.com or through Experian at http://www.experian.com. TransUnion also offers a credit score with your credit report by visiting http://www.tuc.com. Be sure to keep in mind that there is no one score used to make decisions about you. Lenders get to choose which credit score they will use and you have a number of different scores based on the scoring companies like FICO, Vantage Score, etc.

FICO, the company who issues some of the most trusted credit score numbers in the business, offers free score simulation on their website. You enter general information about your financial history and FICO issues its best estimate of your score. This simulator is not your actual score, but it is a free tool that can be helpful in figuring out where you stand financially. You can also try another free tool called Credit Karma to get an estimate of your credit score. It won’t be exact but it will be close to your real FICO score.

If you are in debt and curious about your credit score, contact Advantage CCS. Our credit counselors can help you find a cost-effective way to locate your score and can put you on a debt management plan that will help you get your score where it needs to be.

What Factors Make Up Your Score –

There are 5 categories that determine how high your credit score will be: payment history, amounts owed (owing a great deal of money on many accounts makes you a higher credit risk and it will lower your score), length of credit history (a longer credit history will increase your score), new credit (opening several accounts in a short period of time represents a greater risk to lenders), and your mix of credit (creditors like to see consumers with a combination of installment and revolving loans/lines of credit, think mortgage, credit card, student loans, etc.)

Each of these 5 categories has a different “weight” assigned to them. For instance, the payment history category is roughly 35% of your total credit score. The first thing any lender wants to know is whether or not you’ve paid past credit accounts on time. The payment history category is one of the most important factors. Next, you have the amounts owed category at 30%. This looks at your debt-to-income ratio. If you owe more money than you are making that’s a bad sign to lenders. It makes you more high risk. The length of credit history is next at 15% and this is how long you’ve been using credit. If you are fairly new to using credit that could hurt your credit score slightly. The last two categories are new credit and mix of credit, and both of these have a “weight” of just 10% each. That’s about all the information you’ll get from FICO on how they determine your credit score. They are pretty secretive about the algorithms they use to calculate a score. But it’s clear to see that paying your bills on time is crucial to having and keeping a high credit score.

Why Are There Different Credit Scores –

While FICO is the most well-known credit scoring system, there are several other versions and providers of credit scores, such as Vantage Score, NextGen, BEACON, and EMPIRICA to name just a few. Some scores are directly developed by the 3 credit bureaus while others are developed by outside companies. Your FICO score will most likely be different than your Vantage Score or BEACON score.

There are three primary reasons why your credit score will vary among Equifax, Experian, and TransUnion. The first and most compelling reason for score variance is that the financial information available to each credit agency differs from day to day. Suppose your TransUnion score was pulled first. One month later, your Experian score was pulled, and the resulting credit score was lower than your TransUnion score. However, you paid the electricity bill late just before your TransUnion score was pulled. Your late payment lowered your credit score, but it did not become a factor until your Experian score was pulled. This accounts for the difference between your scores.

The second and more hotly disputed reason for score variance is the difference in credit ranking calculations between each credit reporting agency. TransUnion, for example, claims that Equifax and Experian all use different algorithms to calculate their credit scores. However, others have claimed that there is no difference in the way FICO algorithms are designed or applied. Some experts believe that confusion arises because each credit reporting agency calls the algorithm by a different name – but it is the same algorithm. This is always kept a big secret. FICO never releases exactly what makes up their algorithm, and the agencies never reveal how they weigh certain aspects of your credit report to come up with your credit score.

The third and most likely reason for credit score discrepancies has to do with what’s being reported on each agency’s credit report. You might have an error on your Equifax report that is not found on your Experian or TransUnion reports. This is actually a very common mistake and why it’s so important that you check out all of your credit reports on an annual basis, if not on a quarterly basis. This could be the reason why your credit score might differ from each agency.

What Is Your Credit Score Used For –

Your credit score is used for a number of pretty important things. From lenders who have to decide whether you’re someone they’d like to do business with, to how much it will cost to do so, to which options they’ll offer you and what interest rate you’ll receive, you credit score will be taken into account each time.

Your score matters when you are trying to obtain new credit. That could be in the form of a credit card, mortgage, home equity line of credit, personal loan, etc. If you apply for private student loans, banks will most likely be interested in your credit score. Auto lenders will look at your score to determine whether they will approve leasing a car to you or allow you to borrow money to purchase a car. Insurance companies factor in your score when deciding whether or not to provide coverage to you. Landlords will usually ask to see your credit score before they let you rent their property. Some utility companies will even use your credit score to determine if they want to provide their services to you.

How To Improve Your Score –

Fixing a bad credit score takes time and dedication. It isn’t a one-shot deal, and there is no perfect step you can take financially to repair a bad credit score overnight. You must instead learn to change your money and debt management habits so that you can begin to establish a lengthy history of good, positive debt management.

In credit counseling, you will learn to fix your credit score through a combination of techniques that are tailored to your specific financial situation. Some people might need to make more money or consolidate their debts. For some people with bad credit, fixes might be as simple as curbing extracurricular spending or eliminating credit cards. Others might opt to select one credit card, make small purchases on it, and faithfully pay all debts off to re-establish credit. The possibilities are numerous.

What Type Of Things Might Lower A Credit Score –

In addition to finding out your credit score, you’ll also be able to find out the four top reasons why your score isn’t higher. The quickest way to improve your score is to pay any delinquent bills. Keep balances low on credit cards. If you have high balances on your credit cards, make a concentrated effort to pay off the debt by starting with the card closest to the limit. Apply for and open new credit accounts only as needed. Make sure your credit file is accurate. Your credit score will improve over time if you make changes now in the way you handle credit. Check out these other reasons why your credit score may drop: https://www.advantageccs.org/blog/reasons-why-your-credit-score-may-drop


As you can see there are many factors and variables that make up your credit report and credit score. You’ll also realize by know how incredibly important these two things are and that you must take good care of them both and do your best to make sure everything is correct on your credit report. Try using the different tips above to help you improve your credit score so you can reap the benefits of lower interest rates and being known as a creditworthy person.

For more information on ways to protect your credit report and score, contact Advantage Credit Counseling Service. Credit counselors are available online, on the phone or in person to help you review your credit report for errors and help you develop strategies to improve your score over time. With a debt management plan and a budget, you can start breaking the debt cycle today.

Author: Lauralynn Mangis
Lauralynn is the Online Marketing Specialist for AdvantageCCS. She is married and has two young daughters. She enjoys writing, reading, hiking, cooking, video games, sewing, and gardening. Lauralynn has a degree in Multimedia Technologies from Pittsburgh Technical College.