Control your borrowing power by keeping an eye on your credit score.
Your financial history as a borrower is documented in your credit report, and your credit score is calculated using that information. Lenders can use this score, along with your report, to assess the risk involved in lending to you, and how likely it is that you will miss a payment or default on your loan.
Keeping tabs on your credit score can help keep your financial reputation in check and improve the chance of an application being approved. However, keep in mind that you should still check your credit report regularly to get a comprehensive view of your credit history.
What is a credit score?
There are a few credit reporting agencies in the US that collect your financial information to create a credit report, among them Equifax, Experian and TransUnion. Because each bureau collects and weighs your data differently, you may find that your credit score differs among them.
Ultimately, your credit score is used by lenders to assess your ability to repay debt and manage loans.
How does a credit score work?
Lenders and even the bureaus weigh the information in your credit history differently, but they’ve widely adopted two scores: FICO Score and VantageScore. Both weigh the same factors when determining your credit score, including how long you’ve had credit, your payment history, your credit utilization ratio and how many loan and other types of credit you carry.
Today, FICO Scores are used in 90% of credit decisions, which makes it a good barometer of how potential lenders might see you when determining approval.
|Credit rating||How a lender sees your credit score||FICO Score||VantageScore|
|Excellent||An adverse event is highly unlikely to harm your credit in the next 12 months.||800 or higher||781 or higher|
|Very good||You’re more likely than the average American to maintain healthy credit, and it’s unlikely you’ll incur an adverse event in the next 12 months.||740–799||720–780|
|Good||You’re less likely to declare bankruptcy, miss a payment on a debt or have a judgment against you, indicating less likelihood of a default.||670–739||658–719|
|Fair||You’re likely to incur an adverse event such as a default, bankruptcy or something similar in the next year.||580–669||601–657|
|Poor||You’re highly likely have adverse events listed on your credit file within the coming year, including court judgments, bankruptcies, insolvency or defaults.||579 or lower||600 or lower|
How is my credit score calculated?
Each credit reporting bureau calculates your credit score differently depending on proprietary algorithms. In general, the factors below can affect how the bureau calculates your overall credit score.
- Your personal information. Your age, how long you’ve been employed and the time you’ve been at your current address can each affect your score.
- The age of your credit report. A credit report that’s been active a long time can improve your score.
- Your payment history. Whether you’ve paid past and current credit accounts on time is a major factor in your overall score.
- Your credit utilization ratio. Experts advise carrying a balance with a utilization of 30% or less. For example, if your credit limit is $1,000, keep your balance below $300, which is 30% of your limit.
- Type of credit providers. For instance, holding an account with a bank carries a different level of risk than a store finance provider.
- The number of listed credit inquiries. Frequent applications for credit raise your risk index and lower your credit score.
- Liens and other judgments. An indicator of increased risk, civil judgments can decrease your credit score.
How do I check my credit score?
You have a few options when it comes to seeing your credit score. But keep in mind that you have more than one credit score, as your score will vary by the company you request it from.
An easy way to see your credit score is to check your credit card or other loan statement. Many major providers have begun to provide scores on your bill and online. Your bank may also be able to provide your score.
If you haven’t yet requested your credit report from Experian, Equifax or TransUnion this year, you are entitled to a free copy of your credit report annually. Reports typically include your credit score along with your credit history.
Other options include submitting a request to a score service or reporting company directly. Some services require that you sign up for a monthly subscription service, while others require a one-time fee.
Here’s a list to start of products you can purchase:
- MyFICO. FICO provides customized calculations of your credit history to lenders based on loan need, for example mortgages or car loans. You cannot buy these customized FICO scores, but you buy your score calculated with a general FICO model. Access to a one-bureau FICO Score and credit monitoring starts at $19.95 a month, whereas $58.85 gives you access to a three-bureau report and score. Annual subscriptions are also available.
- VantageScore. Developed by the three national credit reporting bureaus, VantageScore boasts a result that is more uniform across the bureaus. Access to your full credit report and score starts at $14.95 for 30 days, or view only our VantageScore for $7.95.
- Experian CreditWorks. Experian allows you to view a score based on the FICO Score 8 model for $19.99 a month.
Do I need to check my credit report as well as my credit score?
It’s good practice to review your credit report annually to stay on top of making sure that lenders see only the most accurate picture of your financial health. You’re entitled to free copy of your credit report from each of the bureaus annually, and you can also order a copy if you’ve recently been denied credit.
Carefully review the information in your credit report and document any problems you find to report to the bureau for fixing. Even small errors and typos in the following factors can affect how a lender scores your potential borrowing risk.
- Your personal information. Incorrect information in your name, Social Security number or employment history can negatively affect your credit reputation.
- Open accounts. If you’ve fully repaid a loan or closed a card and you’re seeing them as open on your credit report, report it to the credit bureau. Consider too calling the provider that reported it to resolve the issue.
- Incorrect payments or defaults. You may find erroneous information about late or missed payments. Dispute these listings with both the reporting bureau and the creditor or institution that provided the information.
- Duplicate listings. Especially with collections, make sure that the same debts or accounts are not listed twice.
How do I get a free copy of my credit report?
Order your free credit report online at the government-authorized site AnnualCreditReport.com every 12 months or call 877-322-8228. You will need to provide your full name, personal address, Social Security number and date of birth to verify your identity.
If you prefer mail, complete the Annual Credit Report Request Form and mail it to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.