Understand Your Credit Report
Make the Most and Minimize the Mess
• Your credit history can affect many parts
of your life. Lenders, potential employers,
and landlords — just to name a few —
can all legally access your credit history,
and often do.
• To determine how good a credit risk you
are, lenders often buy both a credit
report and a credit score from the three
major credit reporting agencies: Equifax,
Experian, and TransUnion.
• What’s in your credit report
Your credit report is a detailed list of your credit
history. Part of what it includes is:
– The type of credit you have (credit card, auto loan,
– Your credit limit or original loan amount
– Your account balance (or the total balance of your
– Your payment history (late payments stay on your
credit report for seven years)
– Bankruptcies (stays on your credit report for 10
• Identifying information such as your name, date
of birth, and employment history is listed on your
credit report, but is not used to determine your
credit score. 3
• How to check your credit report
• You should review your credit report at least
once a year to check for errors or fraud, and
also before making a big purchase like a house
or a car.
– Residents of most states can get one free credit
report from each of the three credit reporting
agencies once a year through
– To get credits reports more often than once a year,
you can order your credit report for a small fee.
• Credit scores
A credit score — also known as a credit rating
— is a numeric value based on the information
contained in your credit report. That score
(usually between 300 and 850) tells the lender
the level of future risk associated with your
credit history. The higher the score, the lower
• Credit bureau scores are often called "FICO
scores" because many credit bureau scores
used in the U.S. are produced from software
developed by Fair Isaac Corporation (FICO).
• While many lenders use credit scores to help
them make their lending decisions, each lender
has its own criteria. There is no single minimum
credit "cutoff score" used by all lenders, and
there are many additional factors that lenders
use to determine your actual interest rates.
Tips for Raising your Credit Score
Raising your credit score is a bit like losing weight — it takes time and there
is no quick fix. In fact, quick-fix efforts can backfire. The best advice is to
manage credit responsibly over time. Follow these suggestions from Fair
Isaac Corporation, the creators of the FICO® score.
•Improve your payment history
•Pay your bills on time. Delinquent payments and collections can have a major
negative impact on your score.
•If you have missed payments, get current and stay current. The longer you pay
your bills on time, the better your score. But also be aware even if you pay off a
collection account, it will stay on your report for seven years.
•Contact your creditors or a legitimate credit counselor if you're having trouble
making ends meet. This won't improve your score immediately, but if you can begin to
manage your credit and pay on time, your score will get better over time.
•Lower your amounts owed
•Keep your balances low on credit cards and other "revolving credit." High
outstanding debt can affect a score.
•Pay off debt rather than moving it around. The most effective way to improve your
score is by paying down your revolving credit.
•Don't close unused credit cards as a short-term strategy to raise your score.
Owing the same amount but having fewer open accounts may lower your score.
•Don't open new credit cards you don't need, just to increase your available credit.
This approach could backfire and lower your score.
Tips for Raising your Credit Score (cont.)
• Make the most of the length of your credit history
If you've been managing credit for a short time, don't
open a lot of new accounts too rapidly. New accounts
will lower your average account age, which will have a
larger effect on your score if you don't have a lot of
other credit information. Also, rapid account buildup can
look risky if you are a new credit user.
• Getting new credit
• Do your rate shopping within a focused period of time. FICO
scores distinguish between a search for a single loan and a search
for many new credit lines, in part by the length of time over which
• Re-establish your credit history. Even if you'd had problems in
the past, opening new accounts responsibly and paying them off on
time will raise your score in the long term.
• Manage the types of credit you have
• Apply for and open new credit accounts only as needed. Don't
open accounts just to have a better credit mix — it probably won't
raise your score.
• Have credit cards — but manage them responsibly. In general,
having credit cards (and paying them on time) will raise your score.
Factors That Affect Your Score
• Many lenders use a FICO® score — a numeric calculation of your credit report
calculated by Fair Isaac Corporation — to obtain a fast, objective measure of your
credit risk. By understanding the factors that can help or hurt your score, you'll have
a better understanding of how lenders view you as a credit risk — and how you can
improve your score. Here are the five factors that determine your FICO score. The
levels of importance shown here are for the general population, and will be different
for each individual:
• 1. Your payment history: what is your track record? (approximately 35% of your
The most significant impact on your score is whether you have paid past accounts
in a timely manner (on or before the date the payment was due). However, an
overall good credit profile can outweigh a few late payments, and late payments
have less impact over time.
• 2. Amounts that you owe: how much is too much? (30%)
Part of the science of credit scoring is determining how much debt is too much:
• In some cases, having a very small balance without missing payments shows
you've managed credit responsibly, and may be slightly better than having no
balance at all.
• While you don't want to have too many accounts open, it's good to have more than
one, so that you're not using too much of one account's available credit limit.
• Owing a lot of money on numerous accounts suggests to lenders that you may be
overextended and more likely to make late payments — or make no payments at
Factors That Affect Your Score (cont.)
• 3. Length of your credit history: how established is it? (15%)
In general, a more seasoned credit history will increase your FICO score. Lenders
want to see that you can responsibly manage your credit accounts over time.
However, even those people who have not used credit for an extended period of
time may get high scores, depending on how the other information in their credit
• 4. New credit: are you taking on more debt? (10%)
Opening several credit accounts in a short period of time can represent a greater
risk, especially for those with newer credit histories. According to Fair Isaac
Corporation, FICO scores try to distinguish between an attempt to obtain many new
credit accounts and an attempt to obtain the best interest rate. FICO scores
generally do not associate higher risk with shopping for the best interest rate.
• 5. Types of credit in use: is it a "healthy" mix? (10%)
Your FICO score will reflect your mix of credit cards, retail accounts, installment
loans, finance company accounts and mortgage loans, etc. While a healthy mix will
improve your score, it's not necessary to have one of each, and it's not a good idea
to open accounts you don't intend to use.
• What does not affect your score
Lenders look at many things when making a credit decision, including your income,
employment history, and the kind of credit you're requesting. But none of those
factors are included in your FICO score. And neither the lender nor your score
considers your race, religion, sex, marital status, age, or if you receive public
• FICO scores also ignore self-inquiries, so checking your own credit report will not
lower your credit score. In fact, it's a good idea to check your credit report once a
year to make sure there are no mistakes.
Interpreting Your Score
A credit score, a numeric summary of your credit history, generally
ranges between 300 and 850. But what does the number mean to
• What's a good score?
There is no single "cutoff" score used by all lenders, and there are
many additional factors besides your credit score that lenders use to
determine whether to give you credit and at what interest rate. So
it's hard to say what a good score is outside of a particular lending
situation. For example, one auto lender may offer lower interest
rates to people with scores above, say, 680; another lender may
use 720, and so on.
How others score
According to Fair Isaac Corporation (FICO), this is how FICO®
scores are typically spread among the population:
Why your score isn't higher
When a lender receives your FICO score, up to four "score reason codes"
are also delivered. If the lender rejects your request for credit, and your
FICO score was part of the reason, these score reasons can help the
lender tell you why your score wasn't higher.
• These score reasons are more useful than the score itself in helping you
determine whether your credit report might contain errors, and how you
might improve your score over time. However, if you already have a high
score (for example, in the mid-700s or higher) some of the reasons may
not be very helpful, as they may be marginal factors related to length of
credit history, new credit, and types of credit in use.
• Top ten score reasons
These are the top 10 most frequently given score reasons. Note that the
specific wording given by your lender may be different from this.
• Serious delinquency.
• Serious delinquency, and public record or collection filed.
• Derogatory public record or collection filed.
• Time since delinquency is too recent or unknown.
• Level of delinquency on accounts.
• Number of accounts with delinquency.
• Amount owed on accounts.
• Proportion of balances to credit limits on revolving accounts is too high.
• Length of time accounts have been established.
• Too many accounts with balances.
Top Misconceptions About Scores
Credit scores can be confusing. Empower yourself by ordering your FICO score and
understanding how scoring works. Make sure you know the truth about these popular
•My score determines whether or not I get credit.
Lenders use a number of facts to make credit decisions, including your credit score.
Lenders look at information such as the amount of debt you can reasonably handle
given your income, your employment history, and your credit history. Based on their
analysis of this information under specific underwriting policies, lenders may extend or
decline credit to you regardless of your score.
•A poor score will haunt me forever.
Just the opposite is true. Since a credit score is a mathematical calculation, it changes
as new information is added to your credit history. Scores change gradually as you
change the way you handle credit. For example, past credit problems impact your
score less as time passes.
•Lenders request a new current score when you submit a credit application, so they
have the most recent information available. So by taking the time to improve your
score, you might qualify for more favorable interest rates and other credit terms.
•My score will drop if I apply for new credit.
If it does, it probably won't drop much. If you apply for several credit cards within a
short period of time, multiple requests for your credit report (called "inquiries") will
appear on your report. Your score may drop if you open numerous accounts from
different types of lenders within a short period of time. But most credit scores are not
affected by rate shopping, when multiple inquiries from different lenders are made
within a short period of time.
Top Misconceptions About Scores (cont)
• My score will drop if I check my credit report.
Self-inquiries do not affect your score, as long as you order your
credit report directly from the credit reporting agencies, or through
an organization authorized to provide credit reports to consumers.
It's a good idea to check your credit report once a year.
• People with high incomes have high credit scores.
Income might affect your ability to get a loan, but it does not affect
your credit score. Only your credit history — such as timely
payments and how much you owe — affects your score. Regardless
of income, if you manage your debt responsibly, you can have a
• Credit scoring is unfair to minorities.
Scoring considers only credit-related information. Factors like
gender, race, nationality, and marital status are not included. In fact,
the Equal Credit Opportunity Act (ECOA) prohibits lenders from
considering this type of information when issuing credit. Because
the credit score is mathematically calculated, it treats all borrowers
• Credit scoring infringes on my privacy.
Credit scoring evaluates the same information lenders already
review — the credit bureau report. A score is simply a numerical
calculation based on the information contained in your credit report.