According to a 2014 survey by the American Bankers Association “there is some confusion among U.S. consumers about the differences between credit scores and credit reports, with nearly half (44 percent) saying they believe credit scores and credit reports are different names for the same thing.”1
Simply put, credit scores are reflective of a person’s creditworthiness and are based on their credit reports. Each of the three national credit reporting agencies (Equifax, Experian, TransUnion) collect data from creditors and track a person’s bill-paying history, the number and type of accounts held, collection actions, outstanding debt, and the age of the accounts. This information is compiled and weighted with other personal information in order to calculate a credit score. FICO, the most recognizable score provider, measures consumers’ creditworthiness on a scale of 300 to 850. The higher the credit score, the better chance of obtaining credit at a favorable rate.
Tip: Your credit score is only as accurate as the information reported by the creditors and recorded by the national credit reporting agencies. In fact, according to the Federal Trade Commission (FTC), one in four consumers identified errors on their credit reports that might affect their credit scores.2 So check your report and dispute all errors.
Fortunately, federal law gives you the right to get a free copy of your credit reports from each of the three national credit reporting companies once every 12 months. Your credit score may not be included with your credit report, but it will be available for a reasonable fee and often comes with information on how you can improve your score.
Tip: Order a single credit report from only one Credit Rating Agency (CRA) per quarter so you can keep apprised of changes to your credit history throughout the year.
To order your free annual credit report from one or all of the national credit reporting companies, and to purchase your credit score, visit www.annualcreditreport.com, call toll-free 877-322-8228, or complete the Annual Credit Report Request Form and mail it to:
Annual Credit Report Request Service
P.O. Box 105281 Atlanta, GA 30348-5281
5 Tips to Help Improve Your Credit Score?3
Credit scoring systems are complex and vary among creditors or insurance companies and for different types of credit or insurance. If one factor changes, your score may change — but improvement generally depends on how that factor relates to others the system considers. Nevertheless, scoring models usually consider the following types of information in your credit report to help compute your credit score:
- Pay your bills on time. You can count on payment history to be a significant factor. If your credit report indicates that you have paid bills late, had an account referred to collections, or declared bankruptcy, it is likely to affect your score negatively.
- Don’t max out on your available credit.Many scoring systems evaluate the amount of debt you have compared to your credit limits. If the amount you owe is close to your credit limit, it’s likely to have a negative effect on your score.
- How long have you had credit?Generally, scoring systems consider your credit track record. An insufficient credit history may affect your score negatively, but factors like timely payments and low balances can offset that.
- Have you applied for new credit lately?Many scoring systems consider whether you have applied for credit recently by looking at “inquiries” on your credit report. If you have applied for too many new accounts recently, it could have a negative effect on your score. Every inquiry isn’t counted: for example, inquiries by creditors who are monitoring your account or looking at credit reports to make “prescreened” credit offers are not considered liabilities.
- How many credit accounts do you have and what kinds of accounts are they?Although it is generally considered a plus to have established credit accounts, too many credit card accounts may have a negative effect on your score. In addition, many scoring systems consider the type of credit accounts you have. For example, under some scoring models, loans from finance companies may have a negative effect on your credit score.
If you are denied credit or not offered the best rate available because of inaccuracies in your credit report, be sure to dispute the inaccurate information with the credit reporting company. To learn more about this right, see Disputing Errors on Credit Reports.