Understanding Credit Reports and Credit Scores

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In this post, I provide a simple and easy overview to help you understand credit report and credit scores.

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What is a credit score? 

A credit score basically tells how likely you are to pay your bills. The higher the score, the higher the chances of you paying your bills.

 

What is credit report?

An important thing to note is that a credit report is not a credit score. A credit report contains the following information:

  • How long you have lived in a place?
  • Where you work?
  • History of Bill Payment
  • Currently Active Loans / Debt
  • How much revolving credit you have?
  • Past Loans
  • Have you filed for bankruptcy?

In the US, there are three major credit reporting agencies:

  • Experian
  • TransUnion
  • Equifax

These agencies collect the information mentioned above and sell it to lenders, insurers, renting agencies, employers, and other institutions. You can learn a lot more about credit report and scores at the following government. It also shows the steps that need to be taken to fix incorrect information that you identify in your credit report.   website: https://www.usa.gov/credit-reports#item-35962.

Here is a website FINRA recommends where you can request a free credit report once a year for FREE from the three credit reporting agencies: https://www.annualcreditreport.com.

 

Who uses credit reports?

Lenders, insurers, renting agencies, employers, use the information on the credit report to decide if they want to do business with you.

 

How is credit score calculated?

There are hundreds of methods being used to calculate a credit score.  The most commonly used and widely accepted method is the FICO Score, developed by Fair Isaac Corporation.

 

How to get your Free Credit Score?

Here I highlight a place where you can get your credit score for free without the need for any credit card information.

CreditSesame.com provides 100% free personal credit scores. There is no credit card required to sign up.

When I was trying to rent a home, my new landlord asked for my credit score and first page of my credit score summary page.  So, this approach of getting a free credit score came in handy. It is a good practice to have review your credit report and credit scores checked once a year.

 

 

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