Your credit rating comes from many sources—for example, from companies that have rented or leased goods or services, your bank, your landlord, and most often from a credit report. The most important elements of your credit rating are your Credit Report and your Credit Score. We will briefly explain both of these to you and point you to sources where you can learn more. The most important thing to know is that establishing and keeping a good credit rating is key to your financial life.
A credit report contains information about your credit activity, such as loan paying history and the status of your open and closed credit accounts, how much credit you use, for how long, and how much credit you seek. Credit reporting companies, also known as credit bureaus or consumer reporting agencies, collect financial data about you that is submitted to them by creditors, such as banks, credit card companies, and some utility and phone companies. Lenders use credit reports to help them decide if they will open an account for you and what interest rates they will offer. Lenders also use your credit report to determine if you continue to meet the terms of an existing credit account (to raise or lower limits or cut off further credit). Other businesses might use your credit report to determine whether to offer you insurance; rent you a house or apartment; or provide you with cable TV, internet, utilities, or cellphone service. With your permission, an employer may look at your credit report and use it to make employment decisions about you.
If you have used or even applied for credit, you probably have a credit report established. It is important to know what that report says about you.
Federal law states that everyone has the right to get one free credit report every 12 months from each of the major credit reporting companies: Equifax, Experian, and TransUnion.
- You can request a free copy of your credit report from annualcreditreport.com once a year from each of the three major reporting bureaus. To request by phone, call 1-877-322-8228. When you order a credit report, you must use your full name (with Sr., Jr., III), your current address, past addresses within the last five years, your Social Security number, and birth date.
- You are also entitled to a free copy of your credit report if a business used the information and denied credit to you. The business must provide you with the name of the credit reporting agency that provided the information.
A credit score is a number developed from information in your credit report and possibly from your application for credit. It is used by lenders to determine if you are credit-worthy and if so, how much credit you can afford. The information that is used to determine the “score” is your payment history, how much you currently owe, how long you have used credit, the types of credit you use, and whether you are opening or trying to open new accounts. Personal or demographic information, such as age, race, address, marital status, income, and type of employment, do not affect the score. The best-known score is the FICO Score, developed by Fair Isaac Corporation. This company develops scores for various lenders and also for the credit reporting agencies. But a FICO score is not the only type used. Creditors may develop their own proprietary scores to help them make decisions. This is especially true for mortgage lenders and auto finance companies. So it may be that your “score” is not just one number. And your score is not static; it changes as you use and pay off your accounts. There are things you can do to improve your score.
What is a good score? Individual creditors make that decision. It depends on the type of credit and the amount of credit you are seeking. The score may also be used to determine what interest rate you will be offered.
Your credit score is not disclosed to you in your credit report. You may obtain your score a number of ways; sometimes a fee is involved. Some credit card companies offer a free score. You can get a free estimated score from FICO by visiting http://www.myfico.com/free-credit-score-range-estimator/.
The following resources are available to help you learn more about these important topics.
Reviewing Your Credit Report
For a Credit Rating Tutorial, see the information under “Credit Repair Alternative: Credit Report Education” at https://www.incharge.org/debt-relief/credit-counseling/credit-score-and-credit-report/ This site gives you information on how to improve your score.
For a free online course in credit rating, visit https://crediteducation.incharge.org/. You will be asked to register, but the course is free. You can take the course on a computer or cellphone.
What is a Credit Score?
Credit Rating Education from FICO http://www.myfico.com/credit-education/credit-reports/
General questions and resources from the Consumer Financial Protection Bureau (CFPB) https://www.consumerfinance.gov/
By Vicki Whitelaw