What you need to know about your credit score and credit report

On January 17, 2017 in Debt ConsolidationFinancial Management

What you need to know about your credit score and credit report

Credit Report

If you’re thinking about getting a loan of any kind, whether it be a credit card, a personal loan or a mortgage, it’s important to know what your credit score is. These numbers can be difficult to understand, particularly if you’ve never taken a look at your credit report before. Here is some important information about credit scores and reports, and why you should care about yours.

What is a credit score?

Your credit score is a three-digit number that will clue your creditor into how financially dependable you are. The higher your score, the better. A low credit score might indicate financial mishaps like late payments, overspending or even bankruptcy.

There are five factors that are taken into consideration when calculating your credit score, each accounting for a different percentage of the final score, according to myFICO:

  • Payment history: 35 percent
  • Amounts owed: 30 percent
  • Length of credit history: 15 percent
  • Credit mix: 10 percent
  • New credit: 10 percent

Where can I find my score?

The first thing you should do to determine your credit score is request a credit report. There are three credit bureaus from which you can request your report:

  • Experian
  • TransUnion
  • Equifax

Each of the three bureaus can send you one free credit report each year. Request them all at once, or space them out evenly throughout the year. In any case, don’t pass up the opportunity to take a look at the same information your bank or other lender will see.

One simple way to access and print out your TransUnion and Equifax credit reports is through CreditKarma’s Credit Reports page (see link below).

What is the difference between a credit report and a credit score?

If a credit score is like a grade you might get in school, a credit report is like a report card. It will tell you your current score, as well as what information went into calculating your score.

What should I do when I get my report?

The first thing you should do is check for errors. A mistake on your credit report might falsely show that you aren’t as creditworthy as you actually are.

There are four sections on a credit report, according to Bankrate:

  • Identifying information
  • Credit history
  • Public records
  • Inquiries

Identifying information will include your:

  • Name
  • Current and previous addresses
  • Spouse’s name
  • Employer
  • Birthday
  • Phone numbers
  • Driver’s license number

Your credit history will include your:

  • Creditors’ names
  • Account type (“revolving” for credit cards, “installment” for loans like a mortgage)
  • Loan amount or credit limit
  • Amount still due
  • Monthly payment amounts
  • Account status, such as whether an account has been closed, paid, inactive or if it’s still open

It will also list any other names that are on the account with you, in addition to how well you’ve paid the account thus far. Credit history is gathered from various creditors who aren’t obligated to share any or all information with all three credit bureaus. As such, this section could differ between credit reports.

The public records section will show any instances of:

  • Bankruptcy
  • Tax liens
  • Judgments

This information is obtained from courthouses, according to Credit.com. Things like arrests and lawsuits aren’t included.

Finally, the inquiries section will show all examples of:

  • Hard inquiries
  • Soft inquiries

A hard inquiry (sometimes called a hard pull) happens when you apply for credit, like a personal loan, mortgage or credit card. Hard inquiries indicate that you are actively searching for more credit, so they can bring down your score slightly. For this reason, you don’t want to apply for too many different lines of credit at one time.

A soft inquiry or soft pull is one that shows that someone is looking at your report, but not because you’ve applied for credit. Your request for your report is a soft inquiry. Your employer may have issued a soft inquiry during the hiring process, and a current creditor might make a soft inquiry just to see how your account has changed.

You can see why it’s financially savvy to regularly monitor your credit report, and to limit your loan applications. When you need to borrow money, you want a high credit score and a clean credit report, so that you can get the best rate from your lender.