Credit And Debt Management: Credit Reports And Scores
  1. Credit And Debt Management: Introduction
  2. Credit And Debt Management: Credit Reports And Scores
  3. Credit And Debt Management: Building Credit From Scratch
  4. Credit And Debt Management: Repairing Credit
  5. Credit And Debt Management: Credit Cards
  6. Credit And Debt Management: Reducing Debt
  7. Credit And Debt Management: Debt Collection And Bankruptcy
  8. Credit And Debt Management: Credit Counseling
  9. Credit And Debt Management: Credit And Relationships
  10. Credit And Debt Management: Conclusion

Credit And Debt Management: Credit Reports And Scores

by Cathy Pareto

It's funny how things come to define us as people. Sadly, our credit score is one of those things. A credit score can either be a scarlet letter or one-way pass to easy money; it's probably wise for us to begin our discussion with how the credit-reporting process works. A good credit score can translate to much lower interest rates for mortgages, credit cards and auto loans, resulting in significant savings for you.

Credit Bureaus
The term "credit bureau" can be used interchangeably with the term "credit reporting agency". These organizations collect credit information about credit consumers by using public records, creditor data, employers and more to compile each person's credit history. The organizations make this information available to current and prospective creditors, employers, landlords and others who are legally allowed to request it. The three credit reporting agencies are: Equifax, Experian and TransUnion.

Credit Scoring
These agencies use the data they've collected about you to formulate a credit score, a value that will later be used to determine your creditworthiness, or perceived risk, to creditors. Some of the factors considered in calculating the score include the amount you owe on non-mortgage accounts, such as credit cards, your payment history, number of credit lines open, age of credit file, number of recent credit report inquiries and credit history. (Get a look at the various components of the personal and financial data that go into this dossier in Consumer Credit Report: What's On It.)

The FICO® score is the one most widely used by lenders. All three credit reporting agencies have their own names for the FICO® score: Equifax calls it BEACON®, Experian calls it the Experian/Fair Isaac Risk Model, and TransUnion calls it the FICO® Risk Score. Despite the different names, however, the scoring method is consistent across all three.

Most people's FICO scores vary slightly by agency because some lenders only report credit data to one or two credit bureaus and not to all three. The FICO score has a scale ranging from 300 to 850 (the higher the score, the better), but most people's scores tend to range between 600 and 850. However, other factors, including income and employment history, are also considered when consumers are evaluated for creditworthiness.

Credit Score Components
So, what are the main factors of your credit score? The most important determinant is your payment history, which counts for up to 35% of your score. Next is the amounts owed, for 30% of your score, followed by length of credit history, which makes up 15%.

Many different things can negatively affect your credit score, so be sure that you know what they are so you can avoid them:

One of the best methods to avoid any of the aforementioned credit challenges begins with a budget. A budget is merely a guideline of how you spend and how you should allocate your resources. It is intended to track your fixed and variable expenses as well as your savings allocations. A budget is an essential tool for any debt-management plan in that it gives you a better understanding of your financial situation. Knowing how and where you spend your money is an essential building block to fiscal responsibility and offers the best defense against unforeseen or unwanted credit disasters, such as foreclosure or bankruptcy.

Credit And Debt Management: Building Credit From Scratch

  1. Credit And Debt Management: Introduction
  2. Credit And Debt Management: Credit Reports And Scores
  3. Credit And Debt Management: Building Credit From Scratch
  4. Credit And Debt Management: Repairing Credit
  5. Credit And Debt Management: Credit Cards
  6. Credit And Debt Management: Reducing Debt
  7. Credit And Debt Management: Debt Collection And Bankruptcy
  8. Credit And Debt Management: Credit Counseling
  9. Credit And Debt Management: Credit And Relationships
  10. Credit And Debt Management: Conclusion
RELATED TERMS
  1. Credit Mix

    The types of accounts that make up a consumer’s credit report. ...
  2. Credit Scoring

    A statistical analysis performed by lenders and financial institutions ...
  3. Good Credit

    A qualification of an individual's credit history that indicates ...
  4. FAKO Score

    A derogatory term for a credit score that is not one of the FICO ...
  5. Credit Score

    A statistically derived numeric expression of a person's creditworthiness ...
  6. Credit Utilization Ratio

    An input used in determining a person's credit score. It is the ...
RELATED FAQS
  1. What are the biggest factors that can affect my credit score?

    A credit score is a numeric expression that helps lenders estimate the risk of extending credit or loaning money to people. ... Read Answer >>
  2. What's the difference between credit score and credit history?

    Check out the differences between credit score and credit history, and learn how your credit history is used to create your ... Read Answer >>
  3. Does a free credit report show your credit score?

    Find out how you can obtain your credit score, and find out whether your score is included in your free annual credit reports. Read Answer >>
  4. Will having several credit cards hurt my credit score?

    The manner in which you use your credit cards may affect your credit score more than the number of credit cards you own will. Read Answer >>
  5. Why don't I have a credit score?

    Learn about some of the reasons why you might not have a credit score, and find out how you can build a good credit score ... Read Answer >>
  6. How is my credit score calculated?

    The credit score, commonly referred to as a FICO score, is a proprietary tool created by the Fair Isaac Corporation. This ... Read Answer >>

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