Did you know that creditors, mortgage lenders, and even some employers may reference your credit score to approve or deny you an opportunity? We’re here to help you understand the basics of credit reports, credit scores, and the financial factors influencing your credit outlook so you can take charge of your lending fate.
Credit report vs. credit score.
Although commonly assessed together, credit reports and credit scores are not the same. The Federal Trade Commission defines a credit report as including “information on where you live, how you pay your bills, and whether you’ve been sued or have filed for bankruptcy.” Once assessed, your credit report is made available by national reporting companies such as Equifax, Experian, and TransUnion, who provide the information to creditors, insurers, employers, and other businesses.
Based on your credit report, a numerical model is used to assign a score. Fair Isaac Corporation (FICO) and VantageScore are the two most common scoring models, with FICO being the most frequently recognized. FICO Scores range from 300 to 850. According to credit reporting company Experian, 66 percent of Americans have a good FICO Score, ranging from 670 to 850.
Credit score influencers.
No matter the scoring system used, credit scores are influenced by key financial elements found in your credit report. These include payment history toward debt, total debt, length of credit history, and recent credit behavior. There are components within each, and all elements are not considered equal. In both the FICO Score and VantageScore methods, payment history is the most influential factor.
Consumers who maintain good credit have access to a broader range of lending options with better rates and preferred terms. The lower your score, the more limited your lending options will be.
What’s my score?
While it’s true that requesting your credit report may have a minimal but negative numerical impact on your credit score, it is broadly recommended that you understand your financial footing by reviewing your credit report annually.
To encourage consumers to do this with no impact to their credit scores, lawmakers created the Fair Credit Report Act (FCRA). This requires each of the three major credit-reporting companies to provide a free credit report once every 12 months with no impact to your score. To streamline this process and to ensure you are not being tricked by imposter websites, the three credit reporting companies established a central website for consumers to request their free credit reports.
- Website: annualcreditreport.com
- Phone: 1-877-322-8228
- Mail the Annual Credit Report Request Form to:
Annual Credit Report Request Service
P.O. Box 105281
Atlanta, GA 30348-5281
The free FCRA-mandated report is only available through the designated portal.
Why your credit score matters.
Consumers who maintain good credit have access to a broader range of lending options with better rates and preferred terms. The lower your score, the more limited your lending options will be. Building good credit from the beginning of your credit history is key. One way to do this is to open a credit card and maintain the account responsibly by making payments on time. Additionally, ensure your card balance is less than 30 percent of the total credit available, giving you an ideal credit utilization ratio. You can also put bills in your name and pay them with strict regularity. These steps will help you establish a good credit history and build the foundation for a positive credit score.
If the damage is already done and your credit score has suffered from years of debt neglect, consulting with a financial expert is a good place to begin in repairing your score. Remember the process of improving your score takes time. Turning your credit score around is like course-correcting a cruise ship, not a speedboat.
If you’re dedicated to resolving your credit woes, the credit experts at Member One are only a visit, call, or click away. Credit scores are not written in stone, and we can help guide you on the path toward a higher score so you can prove to lenders, creditors, and even employers that you’re creditworthy.