What is a credit report? – A credit report is simply a record of all your credit activities. It lists any credit-card accounts or loans you may have, the balances, and how regularly you make you make your payments. It also will include other businesses such as cell phone providers, utilities, cable or satellite companies. Basically, anytime you receive a product or service and don’t pay for it until later, it will show up in your credit report.
What is a credit score? – Your credit score is a three digit number generated by a mathematical formula using the information in your credit report. It was created to predict the risk, that you will become seriously behind on your credit obligations in the 24 months after scoring. As you can see in the chart below, the lower your score the greater the risk to the bank or other lending institution.
Credit Score Ratings Chart
| Credit Score | Description |
|---|---|
| 800+ | Excellent |
| 730 – 799 | Great |
| 680 – 729 | Good |
| 580 – 679 | Average |
| 500 – 579 | Bad |
| below 499 | Very Bad |
The use of your credit score is not limited to banks. Many other organizations, such as mobile phone companies, insurance companies, landlords, and even government departments use your credit score to determine your risk.
There are many credit scoring models in existence, but there is one that dominates the market: the FICO credit score. According to the myFICO.com website, nearly 90 percent of all financial institutions in the U.S. use the FICO scores when making a credit lending decision.
Your FICO score will range from between 300 to 850, where obviously the higher number indicates the lowest risk.
An individual will have 3 FICO scores, one for each credit report from the three major credit agencies: Equifax, Experian and TransUnion.
What goes into making up a credit score? – The information from your credit report goes into five major categories that make up a FICO score. The scoring model weighs some factors more heavily, such as payment history and debt owed.
Parts to your Credit Score
| Payment history | 35% |
| Total Amounts Owed |
30% |
| Length of Credit History |
15% |
| Recent Credit Issued |
10% |
| Types Of Credit Used | 10% |
Payment History: (35 percent) – Your account payment information, including any late payments, delinquencies and public records.
Total Amounts Owed: (30 percent) – How much you owe on all your different accounts. The amount of available credit you’re using on revolving accounts(credit cards & lines of credit) is heavily weighed.
Length Of Credit History: (15 percent) – How long ago you these accounts were opened and the time since recent account activity.
Recent Credit Issued: (10 percent) – Your pursuit of new credit, including credit inquiries and number of recently opened accounts. Note that applying for new credit can negatively effect your credit score.
Types Of Credit Used: (10 percent) – The mix of accounts you have, such as revolving and/or installment.
Personal or demographic information such as your age, your race or color, address, marital status, income and employment do not affect your score.
