Understanding Your Credit Score

What is Credit Scoring?
Credit scoring is a system lenders use to help determine whether to give you credit. Information is collected from your credit report and your credit application to calculate your credit score.

A statistical program compares your credit information to those of hundreds of thousands with similar profiles. Based on this comparison, a score is generated which identifies the level of future credit risk you present to a lender.

In order to calculate a credit score, your report must contain at least one account which has been opened for six months or greater. In addition, the report must contain at least one account that has been updated in the past six months. This ensures that there is enough current information on which to base a score.

What is the difference between my Credit Score and my FICO Score?
Credit bureau scores are often called “FICO Scores” because most credit bureau scores used are calculated using software developed by Fair Isaac Corporation (FICO). In general, when people talk about “your score”, they’re talking about your current FICO score. But in fact there are three different FICO scores developed by Fair Issac – one at each of the three main credit reporting agencies. Each of these scores has different names as follows:

The FICO score from each credit reporting agency considers only the data in your credit report at that agency. Fair Isaac makes the score as consistent as possible between the three credit reporting agencies. But, because lenders may report information differently and the credit agencies may report information differently, a slightly different score may result.

Since lenders may review your score and credit report from any of the three credit reporting agencies, it’s a good idea to check your credit report from all three to make sure they’re accurate.

Your Credit Report - Why is it so important and how do I get a copy?

A credit report is a record of your credit payment history. This information is gathered by credit reporting agencies which maintain files on millions of borrowers. The information in your report has been reported to the credit reporting agencies by lenders who have extended credit to you.

Specific Information Found in Your Credit Report

Identifying Information
Your name, address, Social Security number, date of birth and employment information are used to identify you. These factors are not used in credit bureau scoring. Updates to this information come from information you supply to lenders.

Trade Lines
These are your credit accounts. Lenders report on each account you have established with them. They report the type of account (bankcard, auto loan, mortgage, etc.), the date you opened the account, your credit limit or loan amount, the account balance and your payment history.

Public Record Information
Public record information includes bankruptcy, tax liens, monetary judgments, garnishments, overdue child support. Credit reporting agencies collect this information from state, county, and federal court records as well as from collection agencies.

Inquiries
Whenever you apply for a loan or credit, you are authorizing that lender to request your credit report. Each request causes an inquiry to appear on your credit report. This section contains a list of everyone who accessed your credit report within the last two years. The report you see lists both “voluntary” inquiries, triggered by your request for credit, and “involuntary” inquiries, such as when lenders order your report to make you a pre-approved credit offer in the mail.

Consumer Statements
An additional statements section may also be included if you have added an explanation about an account.

Who are the Credit Reporting Agencies?
The three major credit reporting agencies are:

All of the information gathered in your credit report is compiled to calculate a credit score.