Credit Scores and Credit Reports

Credit Scores and Credit Reports – Some Basics from a Non-Expert

There may be times when you want to gather information about your own credit scores and credit reports, such as when you want to apply for a shiny new car travel rewards credit card.  I’m going to share some tips here about how to do that:

What is a Credit Report?

• Your credit history compiled into a long-ass report (well, mine is long because I’m old and have needed a lot of loans to get through life so far)
• It lists your loans such as mortgages, car loans, student loans, credit card applications, lines of credit
• It reports about your bill paying history (pay your bills on time or else your report will call you out on this)
• Has information about any need for a collection’s agency (and now that Victoria’s Secret credit card you opened in college & forgot to pay comes back to bite you in the butt)
• How much your balances are and your available credit
• I’m sure there’s more but I can’t remember
• There are 3 credit reporting agencies: Experian, Equifax, and TransUnion

How can I get a FREE copy of my Credit Report?

You should check your credit report every year because you get a freebie each year.  It’s important to check for inaccuracies so that you can have them corrected.

Go to : AnnualCreditReport because this is the official site for getting your free credit score.   There are others with similar names that will try to fool you, but this is the real one.  You don’t need to pay or give them any payment information to get this free report.

“Federal law requires each of the three nationwide consumer credit reporting companies – Equifax, Experian and TransUnion to give you a free credit report every 12 months if you ask for it. They also make it easy to accomplish many credit-related tasks right from your computer. Visit today to learn more”

What is missing from the Credit Report? 

Your actual Credit Score.  The little (or hopefully bigger) number you have been waiting for.  The one that you have heard of & compare with your friends like your SAT scores or your baby’s birth weight.

What is a Credit Score?

This is the number that represents your credit worthiness. From the mouth of the Federal Trade Commission itself:

“Ever wonder how a lender decides whether to grant you credit? For years, creditors have been using credit scoring systems to determine if you’d be a good risk for credit cards, auto loans, and mortgages. These days, other types of businesses — including auto and homeowners insurance companies and phone companies — are using credit scores to decide whether to issue you a policy or provide you with a service and on what terms. A higher credit score is taken to mean you are less of a risk, which, in turn, means you are more likely to get credit or insurance — or pay less for it.”

• Your credit score will be a number from 300-850
• FICO is the one most often used by companies, so that’s the one you want to know
• Your credit score fluctuates constantly

From the research I have done, I have found that the determining factors for coming up with the FICO score are:

• You payment history = 35%
• Debt amounts = 30%
• Length of Credit History = 15%
• Having different types of credit (a good thing) = 10%
• New credit = 10%

You will have to pay for your actual credit SCORE if you want to see what that number is.  You can pay for it through the credit reporting agencies (Experian, Equifax, TransUnion), through MyFICO, or through other types of credit monitoring sites (be smart about this though).

I have also found that some of the banks (US Bank specifically) will send me a copy of my score when I apply for one of their cards.

Weird fact: your score will not be the same across the board.  We have gotten scores that have ranged by 50 points depending on where the score is coming from.  Each of the credit card companies (banks) will pull your scores from their preferred agency, so your score will look different from, for example, Experian vs TransUnion.  It is much less straight-forward than you would think, so just make sure you pay your bills on time, have various types of credit, and keep your oldest credit cards open (preferably this would be with no annual fees).

How to get a Free Credit Score

I use both Credit Karma and Credit Sesame to get my credit scores for free (in addition to the above mentioned services).  Some people will argue that these are not as accurate as MyFICO, but they are useful (and free) tools to use for monitoring your credit.  It’s good to have lots of tools in your toolbox.

Does applying for new credit cards hurt my credit score?

Yes and no.  According to the MyFICO site, the drop in your score will be minimal and temporary when you apply for new credit.  If you are planning on going for a big loan like a mortgage, then you should hold off on credit card applications.  Otherwise, your score is just a number and doesn’t necessarily impact your life unless you are in need of a big loan (or you want to have something to brag about to all of your friends).  The benefit (for us…only speaking for ourselves here) of getting thousands of dollars worth of free travel is worth a temporary hit to our credit score when we have no big loan needs in the near future.