All About Your Credit Score and Credit Report

Your credit score and credit report may be a mystery to you, even though they affect so many areas of your life. This blog will give you a clear understanding of both.

Your credit report is a history of all your credit activities.  It contains your name, address, social security number, date of birth, employer, phone number, a list of those who’ve looked at your credit, and everything positive or negative about your credit accounts. It doesn’t, however, include your credit score.

The information in your credit report is private, but it’s also susceptible. That’s why only those with your express permission or legal need are allowed to view it.

As we pointed out, your credit report doesn’t include your credit score. But the information it contains is used to define your credit score, between 350 to 850 (bad to excellent).  Different credit scores may use a range of 500 to 999.  However, the FICO credit score, which ranges between 300 to 850, dictates most credit-granting decisions.

Your credit score helps creditors decide if they should lend to you. It’s also a form of identification to determine your insurance rates and guide employers on hiring, firing, and promotion decisions.

How is credit scoring calculated?
Credit scoring predicts how likely a borrower is to pay back a loan. To that end, it’s essential to understand what factors affect your credit score to ensure you score high with your credit history.

Different types of information, known as factors, are gathered from your credit report to make up your credit score. These factors fall into broad categories, such as payment history and outstanding debt.

Credit scoring rates the importance of each category to calculate your scores, which reflect patterns over time. An adverse action like a tax lien or bankruptcy filing can immediately and significantly harm your credit score.

Several Factors That Can Hurt Your Score:

• History of nonpayment
• Public record information
• Evidence of collection accounts
• Recent delinquent accounts
• High balances owed on accounts
• Credit cards charged to their limits
• Too many new accounts

Your prior credit history is the only thing considered when calculating a credit score. The law prohibits any determining factors that show bias, including race, gender, age, income level, national origin, sources of income, religion, or marital status.

Because income level isn’t a factor, you could have a low income and a high credit score. You could also have a high income and a low credit score. It just depends on your credit history.

FICO® scores, developed by Fair, Isaac, and Co., Inc., are the most commonly used credit scores today. According to FICO, five primary factors calculate credit scores:

• Payment history
• Outstanding debt
• How long you have been using credit
• Pursuit of new credit
• Types of credit in use

Five sample factors for calculating credit scores are listed below, along with a sample of each factor’s importance to the total score. As you read through the list, think about how your credit might score today.

Payment History: 35%
What is your track record? Have you made your payments on time?

Outstanding Debt: 30%
How much do you owe? Do you have a high level of debt? Are you near the credit limit on some or all of your accounts?

Credit History: 15%
What is the length of your credit history? Has it only been a few years? The longer your credit history, the better.

Pursuit of New Credit: 10%
Have you made numerous applications for new credit? Are you taking on too much debt?

Types of Credit in Use: 10%
Do you use a variety of credit types? The score will consider your mix of credit cards, retail accounts, installment loans, finance company accounts, and mortgage loans. It is NOT necessary to have one of each, nor is it a good idea to open credit accounts you do not intend to use.

Each factor has a weight or level of importance with a corresponding percentage (e.g., 35 percent shown in the example above). Each score factor is graded and then multiplied by the weight. Computers calculate these scores in an instant.

To view a free credit report provided by all three national credit bureaus, you can visit annualcreditreport.com. Keep in mind that you won’t be able to see your credit score, just your credit reports.

How to Get the Best Possible Credit Score
No credit score lasts forever, so it’s best to think of it as a snapshot of your credit performance at a point in time. Your score can go up or down depending on how you manage your credit.

Your credit score, based entirely on your credit report, is the creditor’s most powerful tool for assessing credit risk.  Credit monitoring, identity fraud protection, and privacy protection will help safeguard your efforts.  Be proactive about it!  Use SmartCredit.com to see your free credit scores, and use our Action Buttons to communicate directly with your creditors for anything you need.

It’s simple. Just use our Smart Credit Report® and click the Action Buttons to fix credit report errors, get goodwill corrections, replace lost or stolen credit cards, and report possible identity theft.  No need for phone calls, writing letters or looking up account numbers.  It’s fast and effective! SmartCredit® also provides 24/7 credit monitoring, superior privacy protection, and comprehensive identity fraud protection.

David B. Coulter – founder and C.E.O. of SmartCredit®

Categorised in: Credit Monitoring, Credit Report, Credit Score, Employment, Getting Credit, Health Care, Improving Credit, Money & Identity

This post was written by David B. Coulter