Understanding Your Credit Report and Credit Score
Nowadays there are many ways to go about accessing your credit score and credit report. Many of the companies out there offer pretty much the same services, they may just present them differently. Your credit score is crucial because both creditors and lenders utilize this information when deciding to do business with you. For this reason, it behooves you to find out what your credit score is 6 to 18 months ahead of applying for any type of loan, housing or job. You will get insight as to if you would be approved, what type of rates you will qualify for and most importantly, if it is necessary to try and increase your score.
Before we delve into where you can get your credit score and report, you should know some of the basics surrounding your credit.
The Difference Between a Credit Report and a Credit Score
- Credit Reports provide an in-depth look at all the loans you have taken out as well as any credit cards you have used. For every account, your credit report will show your history of payments, your credit limits and balance, the date when the account was open, and if you have since closed it. In the US, there are three major credit reporting bureaus: Equifax, Experian and TransUnion. Each of them gathers info about consumers’ personal details and as well as their habits when it comes to paying bills.
- Your credit score is a 3 digit number that is determined by the information that is contained in your credit report. This number is then used by lenders to gauge how “creditworthy” you are. Although each credit reporting company calculates scores differently, they all utilize a mathematical algorithm to factor in things like your payment history, balances you owe, how far your credit history dates back etc. This score does fluctuate over time in order to portray an accurate picture of your present financial behavior.
Why agency scores differ from lender scores
Whether you access your free annual credit report from the 3 agencies (Equifax, Experian and TransUnion) or you subscribe to a monthly credit monitoring service, you may think you are getting the same score the lenders get. Many consumers are taken by surprise when the credit score they purchased prior to applying for credit does not match the lender’s credit score.
There are two main reasons why credit scores differ. There are either discrepancies in the methods they use for reporting or they are using different scoring models.
Typical discrepancies in reporting methods include:
- Consistency – Some data providers do not give information to each individual credit reporting agency.
- Timing – The time schedules used by data providers may vary from agency to agency.
- Accuracy – If any changes are made to personal information, it must be matched with the correct credit file.
- Privacy – Credit reporting agencies do not share inquiries or details with each other.
It is at the discretion of both lenders and other creditors to decide when and what information to report as well as which agencies to report to. Some lenders are providing reports on a monthly basis, where collection agencies may only report on a quarterly basis. There are also agencies that only provide reporting to a single credit reporting agency. If there is just a one week difference in reporting information to the agencies, that is enough to make a difference in the score you receive from each one. Given that the reporting agencies do not share information between each other, the score and report you buy may very well be different than what the lender has.
The method used for calculating your score varies for each credit reporting or monitoring agency. Their calculations are based on complex statistical, mathematical or algorithmic models. These proprietary scoring models are protected by patents, trademarks and copyrights.
There are three types of credit scores that credit providers purchase:
- Generic scores – help determine general credit risk
- Industry scores – help determine credit risk for a specific type of credit
- Custom scores – help determine credit risk in relation to the company’s own customer base
Generic credit scores are used as educational tools for you by credit monitoring services. They can help you learn how to go about increasing your score over time. They can also help you understand how your score is affected by things like late payments, opening new accounts or paying off debt.
Industry credit scores tell, for example, car lenders your payment history for your car loan. This score is most likely different from your mortgage or credit card score. If you have ever had a car repossessed, your auto industry score will probably be low in comparison to your mortgage industry score if you have not had any mortgage delinquencies.
Custom credit scores are often based on a lender’s own in-house system. Having the ability to calculate a custom score based around the lender’s specific credit products and customer base allows them to better assess the creditworthiness of a consumer. Specific lenders like auto, mortgage and credit cards are often using their own proprietary scores. With that being said, you can expect most lenders to use the FICO score.
What goes into your FICO credit score
Your FICO score takes into consideration both positive and the negative information on your credit report. Here is what they take into account:
- Payment History – This looks at accounts you have paid on time and late. This makes up 35% of your credit score.
- Total available credit – Available credit across all your accounts and how much you owe on each. This is 30% of your credit score.
- Length of Credit History – The age of your oldest account as well as the age of all your accounts. This is 15%.
- New Credit – This accounts for 10% and looks at how many new accounts you have and how long it as been since you have opened one.
- Types of Credit – What types of credit accounts you have (credit cards, personal loans, mortgage etc.). This accounts for 10%.
Take an Active Role in Providing Your Own Credit Information
You have no way of controlling what credit scores you or a lender will receive at any given time. What you do have control over is the information in your credit file and making sure it is accurate and current. Check to make sure your personal details like name, address, birth date, Social Security number and employment information are correct and up to date. If you have a common name, make certain your report does not contain other people’s information. If you are receiving collection agency notices, call the original creditor and have them check their reporting. Having duplicate items on your report can affect your credit score. If you do correct or dispute any items, make sure you do so with all three bureaus (Equifax, Experian and TransUnion).
How to spot and prevent fraud on your credit report
You do not have to be a victim of identity theft or fraud. There are steps you can take to protect yourself.
The first step is to access your credit report and carefully review it:
- Accounts: If you come across any accounts that you did not open, this may be a sign that someone has secured a line of credit using your identity.
- Inquiries: There is a section called “Requests viewed by others” on your credit report. Peruse the list of creditors for any names that don’t look familiar.
- Addresses: If you come across an address you have never resided at, this could also be a sign that someone has attempted to get a line of credit in your name.
What to do if you think you are the victim of fraud
If you have reason to believe that fraud has taken place on your credit report, applying a fraud alert to it is the first step. There are two types, an initial fraud alert and an extended fraud alert.
Initial fraud alert
If you think fraud has occurred but are not entirely sure, you can set up an initial fraud alert which lets lenders know you may have been a victim of fraud. The lenders will then be extra vigilant when it comes to giving someone a line of credit in your name.
Extended fraud alert
If you know for sure that fraud has occurred, you can request an extended fraud alert. This type of high alert requires either a victim statement or police report. Before lenders will approve any credit application in your name, they will need to verify your identity over the phone.
Keep in mind that any fraud alert placed on your report may slow down your approval process for any new lines of credit.
What to do if you think you are the victim of identity theft
In addition to the steps mentioned above, if you believe your identity has been compromised, you should:
- Place a 7 year fraud alert on your file. The police report you filed will be needed to enact this.
Here are top websites that offer both credit scores and reporting
Fast3CreditScores.com is part of the few companies that provide you with your credit score from the three major credit bureaus. This is especially beneficial since you will be able to monitor any discrepancies and spot identity theft that might show up on any of the 3 credit reports. This company has been in business since 1992, and has become one of the more reliable credit score/report services out there. They are accessible in all states outside of Rhode Island and Iowa. They offer a 14 day free trial (after that it is $19.99/month) that includes:
- Monthly 3-Bureau Scores
- Daily Credit Monitoring and Alerts
- Credit Information Hotline
- Identity Fraud Support Services
PrivacyGuard is a credit monitoring service that also supplies credit scores and reports from the 3 major bureaus. This is key because data that shows on one credit report may not show up on the others. The only true way to have knowledge of what is happening with your credit is to monitor all three. They offer you a 14 day trial for $1 (cost is $19.99 after that) and you get the above plus:
- 24/7 Credit Monitoring from all 3 Major Bureaus
- Monthly Credit Score Tracking- They will alert you if they spot a big change in your credit.
- Toll-Free Support Hotline where you can call for credit info or help with identity theft
- Support for Identity Fraud- They assist you in disputing any fraudulent claims on your credit report
CreditKarma is very popular among the credit score sites as it is 100% free with zero obligation from you. You are able to login everyday if you like and check both your score and report. The credit score is updated daily and your credit report is updated weekly. Here is what you get for free:
- 2 free credit scores from both TransUnion and Equifax as well as a credit report.
- Credit tools that help educate you on what goes into your credit score.
- Credit monitoring to help spot potential identity theft.
MyFICO is pretty much the only company out there that gives you access to a triple-bureau credit report and FICO credit scores. These credit scores are considered the industry standard and are used by the majority of lenders out there. They do not offer a free trial but for $29.95 per month, here are a few key benefits you will receive:
- A 3 bureau credit report that comes with 19 different FICO scores, as well as details on what types of lenders use which score and tips on how to increase it.
- Feedback and tips on how to boost your score on how to increase your score based on where it is currently at and what your next steps should be.
- Daily credit monitoring of all 3 credit bureaus.
- An extensive library of current educational materials to help you better understand how credit works.
This company has been around for a while and is known for providing good credit monitoring and assistance. They offer a 14 day free trial (after that it is $19.99/month) and with that you will get access to your credit score and report from the 3 bureaus. Also included for free with your trial are the following:
- 24/7 monitoring of all 3 bureaus with the ability to customize alerts and receive them via text, phone or email
- Access to scores that update monthly
- Credit application monitoring
- Access to their credit simulator which allows you to see how certain changes can affect your scores