Credit Series: Credit Reports and Credit Scores

This is the first part of my Credit Series, where I explain the most important aspects of credit, credit reports, and credit scores. Each installment focuses on one factor influencing credit, tools to monitor and improve credit, or an explanation of a specific credit concept.

Credit ReportToday I am giving a broad overview of credit scores and credit reports. Over the next few weeks, I will be explaining each factor in much more detail.

People often use the terms credit report and credit score interchangibly, but they have big differences.

Credit Report

A credit report is just a snapshot of your credit use history. Lenders use it to determine whether or not to extend credit to you. It gives them a sense of whether or not you are likely to pay back your debts.

It contains personal information such as your name, address, and social security number, what types of credit you use, how long credit accounts have been open, whether you pay your bills on time, how much credit you have available, how much credit you have used, whether you’ve been looking to open new sources of credit, banking information, and public records.

Credit Scores

Credit scores use the data in the credit report to assign a number which shows lenders how much of a risk you are in paying back debt. FICO scores range from 300-850 with a high score indicating a higher likelihood of getting credit.

The three major credit bureaus are Equifax, Experian, and Transunion. They use FICO software (developed by the Fair Isaac Corporation) to generate credit scores.

There are 5 types of information included on your credit report that are used to calculate credit scores. Payment history accounts for 35% of your score, debt usage is used to calculate 30% of your score, credit age is worth 15%, account mix is worth 10%, and inquiries affect 10% of your score.

Tomorrow, we’ll dive into the five factors of credit scores, starting with the factor that has the biggest effect on credit scores: payment history.

3 Responses to Credit Series: Credit Reports and Credit Scores

  1. Daniel says:

    I’ve used creditkarma but not quizzle yet. I’ll be doing so in the next few days. Credit.com also has a tool I like to use, but with no credit score. I’ll be going over each site in more detail (as well as Annual Credit Report) later in the week. I do think that credit reports are more informative than scores, however. You can’t change your score, but with the report, you are able to see where you stand and if there is an incorrect information.

  2. There are only two places that I know of to get your credit score with no strings attached. The first is http://www.creditkarma.com which does a soft credit pull as often as you would like. The second is http://www.quizzle.com which allows you to get your credit score and a credit report every six months. I use both of them.

  3. No Sweat Greg says:

    I will probably start using Trans Union as described in the article as it seems like they give the most accurate credit score. That and I already have an account with them.

    As someone with lousy credit it is only natural I try to figure out what my score is. After paying back my $5,000 student loan I want to see how much it has improved.

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