Credit Report and Credit Score

An Overview of Your Credit Report

Your credit report is a compiled history of your financial habits, and is supplied by three major credit reporting agencies—Equifax, Experian, and TransUnion. This report helps determine a score that tells lenders how much of a risk you are. This score falls anywhere from 300 to 850, and can hurt or help you.

Your Credit History and Your Credit Score

This credit history and report is the foundation of your credit score, so it will include various aspects of your financial behavior (although excludes income and personal details). This score, called a FICO score, consists of the following categories and percentages:

Payment history                  35%
What you currently owe       30%
Length of credit history        15%
New credit applications        10%
Types of credit                   10%

Your payment history will include all your accounts, and will look at whether you have had late payments, non-payments, etc. Even if you have one late payment it can hurt your credit score, so make sure your payments are on time. It pays to make sure your creditors post payments on time as well—it will keep you from having to clean up messes later when applying for that mortgage or buying the new car you’ve been wanting.

High Balances Cause Concern

When your current accounts are inspected, creditors will take note of high balance accounts. A good rule of thumb to keeping your credit score in good shape is not to use any more than half of your revolving credit (some experts say only 30%!), and pay your balance every month. Never go over your credit limit on credit cards.

The Importance of the Length of Your Credit History

Your length of credit history is also important. The longer you have had credit, the better—the longer you have had good credit, that is. If you have problems with your credit report, it pays to clean up the mess early so that time can help you.

Watch Applications for New Credit

Applications for new credit can indicate a potential problem in the eyes of creditors. Don’t load up on new credit. Use what you have and keep your balances low. If you feel you have to have more credit to afford the things you want in life, you can’t afford them—you will end up paying for them somehow, and if you do it through credit you may end up with bad debt. Don’t let your credit report and credit score suffer for short term gratification. The type of credit you use also plays a role in how you’re perceived as a risk. A good mix of various types of credit is better than all of one kind, especially finance company credit.

Although credit scores and reports are not perfect solutions for lenders, it’s still a good predictor for their risk level. After all, people who didn’t make payments on time in the past probably won’t in the future.