Credit reports and credit scores. Doubtless you’ve had yours checked, and you’ve seen those blasted commercials. But what’s the point of checking your credit score? Just what is a credit score anyway?
Well your credit score is based on your credit report, which contains some identification information (name, date of birth, partial social security number, etc), your existing credit (credit card accounts, student loans, how much you owe, and your history of payment), your public record (bankruptcy status, court judgements, etc.), and a list of other people or businesses who recently requested your report.
Clearly, this is a lot of information about you, and it’s no wonder that all kinds of people will take a look at your credit report or credit score to assess your financial responsibility. Your landlord will want to know if you have had trouble making payments in the past. Banks will use it to determine if they’ll give you a loan. Credit card companies will adjust your interest rate. Utility companies will decide whether or not to provide service to you.
All of this information is primarily collected by three different credit bureaus — Equifax, Experian, and TransUnion — who then provide your credit report to companies or people that request it. Each bureau gets information about you from different sources, so your credit report may differ across all three.
Curious about what your credit report looks like? Well, you are entitled to a free report from each bureau every year, which you can access at annualcreditreport.com.
Ok, so that’s some information about your credit report, but what’s a credit score? Your credit score is like the Cliff Notes version of your credit report. It’s a number that’s based on your report, which is meant to indicate how likely you are to repay a loan and pay it on time. Specifically, your score is comprised of information like: the number of accounts you have; whether you pay on time; how much of your credit you are using; the amount of outstanding debt; and the age of your accounts, etc. When people run a credit check on you, they’ll sometimes let you know your credit score. If you just want to find it yourself, however, your credit score, unlike your credit report, is not free. You can check your credit score at each credit bureau or use a site like myFICO.com.
It’s a good idea to know your score, so that you are aware of how potential lenders will view you. It’s also wise to get your free annual report, so that you can make sure nothing unexpected shows up, which could be an indication of identity theft or just a mistake. If you happen to find something fishy, you can dispute it with the credit bureau.
That’s it for this installment of our Piggy Bank. If you didn’t already know about credit reports and scores, we’ve hopefully given you some basic information to build on. We’ll bring you more financial tidbits in the coming weeks.
For a more comprehensive overview, check out the Federal Reserve’s page on credit reports.