The Ultimate Guide to Credit Reports and Credit Scores

Jason Vitug May 27, 2023

0 35 38 minutes read

The Ultimate Guide to Credit Reports and Credit Scores

The Benefits of Secured Credit Cards

A secured credit card is a credit line that is tied to collateral such as a cash deposit. The amount of the cash deposit is typically the credit limit for that account. For example, if you put $500 in an account, a creditor may give you a secured credit card with a credit limit of up to $500.

There is a stigma when it comes to secured credit cards that only people with bad credit should have them. In actuality, many more people can benefit from secured credit cards. For instance, it can help you budget by never charging more than what you have saved.

Establishing your credit history

Secured credit cards are a good option for anyone looking to establish a credit history. Many wonder how they can establish credit if no one is willing to give them credit. Secured credit cards are the answer. Once you’ve held a secured credit card for 6 months, a credit score is generated.

Strengthening your credit score

If you are looking at increasing your credit score, secured credit cards can help you. Adding an additional account in your credit report or increasing your available credit can help strengthen your score. It is believed that secured credit cards are weighted heavier than their unsecured counterpart by the credit score algorithms.

Re-establishing your credit

Secured credit cards are a great option for those with bad credit or have filed bankruptcy. Secured credit cards allow you to re-establish your credit history without a credit report review. After having a secured credit card for 6-12 months with on-time payments, many will find it easier to get approved for an unsecured credit card.

Length of time negative information stays on your credit report

Late payments: 7 years
Bankruptcies: 7 years for completed Chapter 13 bankruptcies and 10 years for Chapter 7 bankruptcies.
Foreclosures: 7 years
Derogatory items such as late payments and most public record items remain on your credit report for 7 years, with the exception of Chapter 7, 11 and 12 bankruptcies, which remain for 10 years.
Public records, tax liens which remain for 7 years from the paid date.
Collections generally stay about 7 years depending on the age of the debt being collected.
Inquiries, or requests for your credit history, remain on the credit report for up to two years.

Fair Credit Reporting Act (FCRA)

The Fair Credit Reporting Act (FCRA) is a Federal law, established in 1971 and revised in 1997, that gives consumers the right to see their credit records and correct any mistakes. The FCRA regulates consumer credit reporting and related industries to ensure that consumer information is reported in an accurate, timely, and complete manner. The FCRA is the law that credit bureaus and specialty consumer agencies (agencies that sell check-writing history, banking history, medical records, and rental history records).

The FCRA covers the reporting of debt repayment information, requiring, for example, the removal of certain information after seven or ten years, and giving consumers the right to know what is in their credit reports, to dispute inaccurate information, and to add a brief statement explaining accurate negative information.

What are Credit Report Inquiries?

Credit inquiries are requests by companies such as lenders to check your credit. Soft and hard credit inquiries are two types of information found on your credit report.

Soft Credit Inquiries

A soft credit inquiry is when creditors pull your credit report without you initiating an application or request for credit.

With existing credit relationships, creditors can periodically pull your credit report to see how you are doing with other lenders. This calculates potential risk of default. Soft inquiries do not impact your credit score so there’s no cause for alarm.

Other types of soft inquiries are from credit monitoring services and for marketing purposes such as prescreened credit offers.

Hard Credit Inquiries

A hard credit inquiry happens when you’ve applied for any type of credit such as mortgages, credit cards, and loans. Applying for utilities, cell phone service, and some bank accounts may result in a hard credit inquiry as well.

Hard credit inquiries stay on your credit report for up to 2 years. The impact of the hard credit inquiry lessen after 12 months but is still visible to lenders for an additional 12 months. These inquiries impact your credit score negatively. Applying for credit is necessary but excessive credit applications may signal a future debt problem.

Applying for credit is necessary but excessive credit applications may signal a future debt problem. To lenders, it’s a red flag signifying a higher risk. Too many credit applications all at once can lower your credit score. In effect, it could take your from excellent credit to good credit.

How to Stop Prescreened Credit Offers

If you decide that you don’t want to receive prescreened offers of credit and insurance, you have two choices: You can opt-out of receiving prescreened offers for five years or permanently.

To opt-out for five years: Call toll-free 1-888-5-OPT-OUT (1-888-567-8688) or visit www.optoutprescreen.com. The phone number and website are operated by the major consumer reporting companies.

To opt-out permanently: You may begin the permanent Opt-Out process online at www.optoutprescreen.com. To complete your request, you must return the signed Permanent Opt-Out Election form, which will be provided after you initiate your online request.

When you call or visit the website, you’ll be asked to provide certain personal information, including your home telephone number, name, Social Security number, and date of birth. The information you provide is confidential and will be used only to process your request to opt out.

How to Place a Credit Freeze on Your Credit Report

A credit freeze means that new creditors cannot access your credit report because most businesses will not open credit accounts without checking your credit report. A credit freeze can deter identity thieves from opening new accounts in your name.

A credit freeze does not prevent the misuse or fraudulent takeover of existing accounts.

You can place a “credit freeze” on your credit file at any time, but you must contact each credit bureau. For more information, visit the nationwide credit bureaus’ websites or call the numbers below:

Equifax: Place, Temporarily Lift or Permanently Remove a Security Freeze, 800-525-6285
Experian: Security Freeze, 888-397-3742
TransUnion: Manage a State Security Freeze Online, 800-680-7289

It’s a good annual practice to check your credit report for accuracy and report any errors with the credit bureau.

If you discover accounts you do not recognize, contact the credit bureaus directly to place a fraud alert. If you are a victim of identity theft, continue to check your credit reports periodically, especially for the first year after you discover the identity theft, to make sure no new fraudulent activity has occurred.

Adding a Fraud Alert on Your Credit Reports

If you’re a victim of identity theft or fraud, it’s important to place a fraud alert on all three credit reports.

Follow these steps to place a fraud alert on your credit reports:

Contact one of the nationwide credit reporting companies and place a fraud alert on your credit report:

Equifax, 800-525-6285
Experian, 888-397-3742
TransUnion, 800-680-7289

When you place a fraud alert on your credit report at one of the nationwide credit reporting companies, it must notify the others. A fraud alert requires creditors who check your credit report to take steps to verify your identity before opening a new account, issuing an additional card, or increasing the credit limit on an existing account based on a consumer’s request.

There are two main types of fraud alerts: initial fraud alerts and extended alerts.

Initial fraud alerts

You can place an initial fraud alert on your credit report if you believe you might become a victim of fraud or identity theft. Credit reporting companies will keep that alert on your file for 90 days. An initial fraud alert requires that the creditor take reasonable steps to form a reasonable belief that they know the identity of the person making a new credit request in your name. If you provide a telephone number, the lender must call you to verify whether you are the person making the credit request.

When you place an initial fraud alert in your file, you’re entitled to order one free copy of your credit report from each of the nationwide credit reporting companies. When you place an extended fraud alert in your file, you’re entitled to order two free copies of your credit report from each nationwide credit reporting company over a 12 month period. These free reports do not count as your free annual report from each agency.

Once you get your credit reports, review them carefully. Look for:

Accounts you did not open.
Information about the status of the accounts and whether the account balances appear correct.
Outstanding balances on your reports that you cannot explain.
Incorrect personal information, such as your Social Security number, address, name or initials, and employers.

If you find fraudulent or inaccurate information, contact the credit bureau to have it removed by filing a dispute.

Extended alerts

You can place an extended alert on your credit report after your identity has been stolen. You must file either a police report or a report with a government agency such as the Federal Trade Commission, known as an “identity theft report.” An extended alert is good for seven years. An extended alert requires that the creditor contact you in person or through the telephone number or another contact method you designate to verify whether you are the person making the credit request.

How to Protect Your Identity Through Credit Bureaus

Monitoring your credit report can protect you from the headaches and problems of identity theft. By checking your credit report annually you can be on top of incorrect information. Additionally, you can enroll (and pay) for identity monitoring service which typically scans identity information in credit applications and monitors your credit for the unusual activity.

The credit bureaus offer a fraud alert and a credit freeze to protect you in the event of identity theft. A credit freeze locks down your credit. A fraud alert allows creditors to get a copy of your credit report as long as they take steps to verify your identity.

Fraud Alert

A key provision of the Fair and Accurate Credit Transactions Act of 2003 is your ability to place a fraud alert on your credit record. You are able to use this option if you believe you were a victim of identity theft. The alert requires any creditor that is asked to extend credit to contact you by phone and verify that the credit application was not made by an identity thief.

Credit Freeze

You can always place a credit report freeze with each credit bureau by contacting them directly. A credit freeze is also known as a security freeze will restrict access to your credit report. This will make it more difficult for identity thieves to open new accounts in your name.

Identity Theft Protection Services

ID theft protection services are products that are usually offered by companies such as the credit bureaus, credit card companies or other businesses to monitor your credit report for unusual activity. You can receive these services for free or through a paid monthly subscription.

ID theft protection services vary but most provide daily tracking and reporting of activity on your credit report such as a notice of credit inquiry.

Some may also provide insurance in the event you are a victim of identity theft paying for any legal services you may need.

Questions to Ask Yourself to Improve Your Credit Scores

Credit scoring models are complex and vary among creditors. If a credit score factor changes, your score might change — but improvement generally depends on other factors too.

Nevertheless, scoring models usually consider the following types of information in your credit report to help compute your credit score.

Have You Paid Your Bills On Time?

You can count on payment history to be a significant factor. If your credit report indicates that you have paid bills late, had an account referred to collections, or declared bankruptcy, it is likely to affect your score negatively.

Are You Credit Cards Maxed Out?

Many scoring models evaluate the amount of debt you have compared to your credit limits. If the amount you owe is close to your credit limit, it’s likely to have a negative effect on your score.

How Long Have You Had Credit?

Generally, scoring models consider your credit track record and insufficient credit history may affect your score negatively, but factors like timely payments and low balances can offset that.

Have You Applied For New Credit Lately?

Many scoring models consider whether you have applied for credit recently by looking at inquiries on your credit report. If you have applied for too many new accounts recently, it could have a negative effect on your score. Every inquiry isn’t counted: for example, inquiries by creditors who are monitoring your account or looking at credit reports to make “prescreened” credit offers are not considered liabilities.

How Many Credit Accounts Do You Have And What Kinds Of Accounts Are They?

Although it is generally considered a plus to have established credit accounts, too many credit card accounts may have a negative effect on your score. In addition, many scoring models consider the type of credit accounts you have. For example, under some scoring models, loans from finance companies may have a negative effect on your credit score.

Remove Collection Accounts from Your Credit Report

Creditors and collection agencies are required to report only accurate information to the credit bureaus. However, it’s up to you to ensure the accuracy of your reports. While reviewing your credit report, you may have found inaccurate collection accounts. Follow these steps to help you remove collection accounts from your credit report.

Pull Your Credit Report

Go to AnnualCreditReport.com and print out your credit report. Use a highlighter to mark the collections and delinquencies. Highlighting inaccuracies helps you visualize where to focus your efforts. It will make it easier to see the collection agency and information needing dispute.

Call The Collection Agency

The number of the collection agency should be on the report. Call the collection agency and request more details. Determine if the collection account was placed in error or a paid account reporting as an active collection.

If the collection is inaccurate, support your claim with documents. After review and discussion, you realize this is money you owe, request a settlement of the collection and a “pay for delete.” The “pay for delete” is considered a delete clause–upon payment, the collection record is deleted.

Get The Agreement In Writing

Ask for a verbal, written, or emailed agreement. Additionally, make sure you take notes of the person you’ve spoken to, the dates, times, and a brief synopsis of the conversation. You must comply with the agreement.

Review The Same Credit Report

After you’ve satisfied the agreement, dispute the reported collection account with the credit bureau. The credit bureau will then request information from the collection agency. Depending on the information obtained from their request, you will see the collection account reported with correction information or deleted. From the date of your inquiry, credit bureaus have 30 days to respond with an answer.

If the collection account remains and is now reporting a $0 balance, you can dispute the inaccuracy again with the credit bureau. Provide your notes and the “delete clause.” Contact the collection agency and take notes of the agent’s name, the date, time, and details of the conversation again.

Dispute The Information With The Credit Bureau

If you are unsuccessful removing the collection account, stay focused and continue to dispute with the credit bureaus, periodically. Escalate the dispute by sending a certified letter via USPS courier.

In some instances, you may contact the collection agency and after you’ve satisfied the agreement, may reply that they do not remove collection accounts. Stay calm. Continue the dispute process directly with the credit bureau and provide any updated information.

One thing to keep in mind, credit bureaus are not your enemy. They only report information shared with them. It is up to you to maintain the accuracy of your credit report. Persistence and consistency can lead to a satisfying result.

How to Improve Your Credit Score After a Foreclosure

Having a home foreclosed can be the biggest financial setback for many people but it doesn’t mean it is the end of your financial future. A foreclosure may negatively impact your ability to qualify for a new mortgage, finance a car or get new credit but you do have options to improve your credit score.

A home foreclosure happens because you’ve stopped making payments on your mortgage and the financing company has foreclosed on the home as collateral for the outstanding debt. People who face financial hardships such as lost wages, unemployment or medical conditions may become unable to repay the debt.

A foreclosure is a serious blemish on your credit report and will impact your credit score. It remains on your credit report for seven years. A foreclosure can prevent you from obtaining new credit in the future but some lenders may still extend credit to you but with higher interest rates and less than preferable term.

There are ways to improve your credit after a foreclosure but it takes some time and effort.

Make on-time payments to your other creditors. On-time payments are a big factor in calculating your credit score. Thirty-five (35%) percent of your credit score is based on your payment history and consistently making on-time payments improves your credit score. It will take time to rebuild your credit after a foreclosure but by having on-time payments on other debts will strengthen your credit score and restore confidence from creditors.
Get a secured credit card. A foreclosure is an indicator by many creditors that may disqualify you for new credit. If you don’t have any open credit to make on-time payments on, it will be difficult to improve your credit score. The answer is to open a secured credit card from a bank or credit union. You’ll need to deposit money into a savings account to secure the credit line. The deposit used to secure your credit card will not be accessible to you. A secured credit card may require as little as a $100 deposit for a $100 limit. When you use your secured credit card, make sure to pay the card in full each and every month. As a precaution, stay away from financing companies or lenders who charge high fees and interest rates. Stick with a well-known bank or find a credit union to get your secured credit card or personal loan.
Get a secured personal loan. Your credit score looks at the types of credit you have reported on your credit report. By increasing the mix of credit reported from credit cards to fixed installment loans can improve your credit score. Many banks and credit unions offer a secured personal loan. Similar to a secured credit card, you are required to place a deposit into a savings account for an amount equal or greater than your credit limit. When you get a secured personal loan, the bank or credit union will deposit or give you a check for the amount of the loan. The secured personal loan will have an interest rate and repayment term. For example, a $250 secured personal loan may require a $250 security deposit. The interest rate may be 6% with a 12 month repayment schedule. This means you’ll pay interest and after 12 payments the loan is paid in full. After the loan is paid in full, your security deposit is released and accessible for withdrawal by you.
Pay off outstanding debts. Prioritize debt repayment by making additional payments on any outstanding debt. By following the 3 year repayment plan found in your credit card statements as opposed to the minimum monthly payment can save you thousands of dollars. Use additional funds to pay off your car loan, student loans and other debts. Find ways to increase your income through side hustles or work-from-home opportunities. There are many services that allow you to earn income with your talents or simply offer services to family and friends for a fee. Don’t be afraid to share with them why you are seeking extra income.
Settle and pay off collection accounts. Many people who’ve faced foreclosure may also have collection accounts on their credit reports. Call the collection agencies and pay or settle your debt and ask for a “pay for delete.” Make sure you keep good records of the days, time and people you’ve spoken with and details of the conversation. This will help you dispute inaccurate information on your credit report directly with the credit bureaus.

Tips for Rebuilding Credit After a Car Repossession

You may have purchased a car that you can no longer afford due to financial hardships from lost wages, unemployment or medical emergencies that are higher priority. When you stop making payments to your auto loan, your car may be repossessed by the financing company that issued the car note.

A repossession is reported in your credit report and can follow you for up to 7 years negatively impacting your credit score and preventing you from qualifying for a future auto loan. In some circumstances, you may still be able to get a car loan after a car repossession but you’ll end up paying much more. Dealerships or financing companies that approve loans with borrowers with less than perfect credit often charge higher interest rates and fees. A car that may be priced at $10,000 can cost triple the amount after financing for high risk borrowers.

If you’ve faced a car repossession in the past, you can begin to rebuild your credit by repaying any outstanding debt as soon as possible. Speak with the lender or financing company about debt settlement or repayment options. Negotiate with the lender to have the debt reported as “Paid in Full” on your credit report once you’ve settled and paid the debt which can lessen the impact of the repossession on your credit report.
After a car repossession, time is your best resource in rebuilding credit. As the months and years pass, the impact of the repossession on your credit score will lessen. The repossession will fall off your credit report seven years after the original delinquency.
Additionally, make sure that you’re making on-time payments with your existing creditors each and every month. On time payments with existing creditors will strengthen your credit score.
You may also open a new secured credit card or loan with a bank or credit union that reports payments to the credit bureaus. A secured credit card or loan will help strengthen your credit score by increasing the types of credit reported, adding additional on-time payments in your payment history and possibly increase your available credit that all factor into calculation used to determine your credit score.

Rebuild Your Credit After Bankruptcy

You can reestablish your credit after your bankruptcy has been discharged, or after a foreclosure, or a car repossession. The first step in repairing credit is catching up on late bills, settling and removing collection accounts, and opening up new credit and paying on time.

Reason To Rebuild Credit

Having credit isn’t a reason to have debt. Good credit can help you get better rates and terms for things you may need to finance such as a car or a home.

Rebuilding your credit as soon as you can have many benefits. It’s not easy to rebuild credit after a major negative impact such as bankruptcy, but it isn’t impossible.

Get Your Credit Report

Access your free credit report on AnnualCreditReport.com. Analyze the information on the report. Majority of the items should have been included in your bankruptcy. The accounts will state discharged once your bankruptcy has been discharged.

Rebuilding Credit After Bankruptcy

If you’ve filed bankruptcy, chances are your credit cards were included in the petition and closed. The first step in reestablishing your credit is with a credit card. You’ll need to show creditors that you have open credit accounts with a new history of repayments.

Get a secured credit card. A secured credit card works like a regular (unsecured) credit card except it requires a security deposit. For example, a $500 deposit gives you access to a $500 credit limit. Secured credit cards are offered by many banks and credit unions. Inquire with the bank or credit union that you currently have a banking relationship with and ask about their secured credit card offering. Stay clear of secured credit cards that require application fees, annual fees, and monthly service charges.
Get a secured personal loan. Adding a small personal loan can help improve your score. This creates a mix of credit on your credit file. A secured personal loan requires a security deposit for the amount of the loan and monthly payments for the term of the loan. Banks and credit unions may offer secured personal loans too.

The Benefits of Secured Credit Cards

Establishing Your Credit History

Strengthening Your Credit Score

Re-Establishing Your Credit

How to Rebuild Credit

There are many reasons to rebuild credit after a bankruptcy, foreclosure, car repossession or reported collection accounts. Rebuilding your credit sooner rather than later can help you get from bad to good credit faster. Good credit can help you get better financing options, rates, and terms that are more beneficial to your financial wellbeing.

Although you may have experienced a financial setback that affected your credit standing, rebuilding credit can happen immediately. You want to rebuild credit after a major credit setback to ensure you have access to credit needed and at better rates and terms in the future.

The first step in rebuilding credit is to assess your actual credit standing to determine what is necessary to rebuild your credit profile. A thorough assessment and understanding can determine if you will need to settle outstanding debts, remove paid collection accounts or reestablish credit through unsecured credit cards or loans.

5 Tips to Improve Credit Scores Quickly

There is no quick way to improve your credit scores. It takes time but the time spent well that can save you money and give you peace of mind. The sooner you review your credit report and correct inaccurate information, the quicker you’ll see improvements to your credit score reflected by the changes in your credit report.

Pull Your Credit Report Make Sure The Information Is Accurate

Check your name, social security number, and date of birth. There should be no other names, date of birth, or social security numbers. Get your free credit reports on the only federally mandated website AnnualCreditReport.com.

Review The Public Information And Collection Accounts

Verify the information is correct and dispute all inaccurate information. Contact the collection agencies that have placed a collection account on your credit report. Pay the entire amount owed or get a settlement but make sure you request a “pay for delete.” Take notes of the date, time, and person you’ve spoken with at the collection agency. If you’ll need to send additional information to the credit bureaus, you have additional information available.

Check Each Account For Accuracy

Review each tradeline for accuracies such as account limits, balances, and payment history.

Push Delinquencies Further In Time

Make on-time payments on any delinquent accounts and get them current. The older the delinquency the less impact to your credit score.

Increase Your Available Credit

You can request a credit line increase or apply for new credit lines to improve your credit utilization rate. Get a secured credit card or personal loan if you’re unable to get an unsecured credit line.

How to Improve Credit Scores

Your credit score is a reflection of how you’ve handled credit and loans. By making sure you make timely payments and do not carry credit card balances from month-to-month your score should be satisfactory. However, mistakes do happen either from financial institutions reporting incorrect information to a missed payment due to simply forgetting a due date.

Depending on your individual situation there are a few ways to improve your credit score. We’ve compiled the top ways to improve your credit score.

Pay Your Bills On Time

One of the best things you can do for your credit is to pay your bills on time. While one or two 30- to 60-day late payments won’t have too much of an impact, just one 90-day late payment can damage your credit for up to seven years. To ensure you always make on-time payments, use account management and online bill reminder serviceswhich will remind you when your bills are due. Not only will this help keep your credit score from dropping, but it will also help you save money on late fees.

Keep Your Credit Utilization Ratio Low

You may have heard before that closing a credit card can negatively affect your credit score, but there’s a reason for it: It can cause your credit utilization ratio to skyrocket. You should keep your credit utilization ratio, which is the percentage of your credit limit that you actually use, at around 10 percent or at zero, according to FICO.

Here’s what closing a line of credit could do to your utilization ratio: Let’s say you have two credit cards: One has a $5,000 limit and the other has a $10,000 limit. Each month, you use your credit card for about $1,500 worth of expenses, which brings your utilization ratio to a safe 10 percent. However, you decide that because you never really use the card with the $10,000 limit, you’re going to cancel it, but you don’t change how much you’re spending each month. Now, your credit utilization ratio has jumped to a whopping 30 percent, which can cause your score to drop.

Guidelines To Establish Good Credit

Getting approved for credit is the first step but ensuring you build a solid history of good credit is an on-going process.

Learn as much as you can about credit reports and credit scores.
Apply for a credit card or loan from a bank or credit union.
Make payments on time and pay off your balance in full. That means not spending more than you normally would with cash.
Keep credit card balances low.
Track your spending and don’t exceed your credit limit.
Don’t use cash advances as interest rates are much higher with additional fees.
Keep your accounts open to ensure your average account age is long.
Don’t apply for too many credit cards all at once.

Prepaid Cards, Debit Cards, Cell Phone Payments, Utility, And Rent Payments

You are not establishing a credit history with these products. These providers do not report your payment information to the credit bureaus.

Prepaid cards or debit cards do not establish credit and are not reported to credit bureaus. Additionally, payments to landlords, cell phone, or utility companies aren’t reported on credit reports, however, nonpayments or uncollected funds may be reported to credit bureaus. These nonpayments become collection accounts that will negatively impact your credit score. Additionally, debit card usage or prepaid debit cards do not establish a credit history.

Establishing Credit With No Credit History

Without an established credit history, creditors are unable to assess your credit risk. Whether you’re an 18-year-old student or a 45-year-old divorcee, to establish credit with no credit history, you can do the following:

Get A Secured Credit Card

A secured credit card works like a regular (unsecured) credit card except it requires a security deposit. For example, a $500 deposit gives you access to a $500 credit limit. Secured credit cards are offered by many banks and credit unions. Inquire with the bank/credit union you currently have a banking relationship with about their secured credit card offering.

Note: Watch out for secured credit cards with application fees, annual fees, and monthly service charges.

Get A Department Store Card

Some retailers have easier approval terms. The limits tend to be small such as $100 but by using the store card and paying the balance in full each pay period you’re establishing a history of on-time payments.

Note: To create and maintain a good credit score, don’t buy more than you normally would with cash.

Get A Secured Personal Loan

Adding a small personal loan can help you improve your score. This is due to creating a different mix of credit on your new credit file. Banks and credit unions may offer secured personal loans too. A secured personal loan requires a security deposit for the amount of the loan and monthly payments for the term of the loan.

Become An Authorized User On Credit Card

If your parents, a spouse or partner have good credit, then this option is viable. Although you’ll get the credit history of that particular card added to your credit file, you don’t actually need to get or use the credit card. However if they missed a payment or carry a balance from month-to-month, the negative aspects carry over to you too.

As an authorized user, you aren’t responsible for the payment of the debt unlike that of a cosigner or co-borrower on a credit card. If you’re an authorized user on a delinquent account (because the card owner missed a payment) you can request to have the authorized user account removed from your credit file through the credit bureau.

Note: Not all creditors report authorized users to the credit bureaus, so you’ll need to check with the card issuer.

How to Get Free Credit Scores

Many financial institutions and credit card companies are now offering access to a credit score and your FICO credit score. Ask your bank, credit union, or credit card company for this added member benefit.

We’ve reviewed the following credit report tools that offer consumers free credit scores. These are free services and require no credit card input to access your free credit score. To get your free credit score, choose an app in our marketplace, enter your personal information to verify your identity and quickly review your credit report and see a credit score.

These credit scores may vary from one service to another and can differ from the scores used by creditors. The free credit score should help you gain a better understanding of where you fall within a credit score range.

FICO Vs. FAKO – The Truth About Credit Scoring Systems

The FICO score was created by Fair Isaacs Corporation and, according to their website launched the first publicly available credit scoring system called, obviously, FICO. Shortly thereafter, Fair Isaacs developed a similar score for Equifax and Equifax named it their Beacon score. Fair Isaacs remains in the credit scoring industry today and has become a public company trading under the symbol FICO.

The first thing to note is that the three major credit bureaus don’t use the FICO score. They each have their own proprietary scoring system – which is similar to the FICO score – but each one uses their own algorithm and range. Experian has many scoring systems but the one they currently sell to consumers through resellers is the ScoreX Plus system. TransUnion also has many scoring systems and their consumer scoring system is called TransRisk. Equifax is similar and their consumer-oriented scoring system is now called the Equifax Credit Score although their Beacon score is still commonly used by auto dealers.

And to make things confusing

Each of these scoring systems has gone through many changes and versions over the years. For example, the same data run through last year’s TransRisk score may not give the same result as this year’s TransRisk score. So, your score could change (slightly) just because the algorithm got updated, but your data remained the same.

And even more confusing

As a result of FACTA, the three credit bureaus got together and created the VantageScore credit score, which is also similar to the FICO score but was developed independently from Fair Isaacs, the creator of the FICO score. Equifax, does, however, have an agreement with Fair Isaacs to sell the FICO score but they make it clear on their website that the two are not the same.

And then there are many third-party scores such as CreditExpert’s score and CE Analytic’s CE score.

Fair Isaacs also develops proprietary scores for other companies such as lending institutions and they update their consumer score on a periodic basis. In fact, there are many versions of the FICO score used by various organizations that are tailored to their purposes.

FAKO Scores

The scoring systems created and sold by the credit bureaus and third parties have been unfairly dubbed “FAKO scores” implying that the only real score is the FICO score. That is far from the truth. These other scores are every bit as good as the FICO score when used for the same purpose, that is, consumer credit scores. You can’t really compare the special scoring systems built for specific purposes or clients by Fair Isaacs or the credit bureaus.

Why is the score I pulled different from the score my lender pulled?

Consumers need to understand that the actual number derived from each system isn’t as important as where it falls within the range of the system being used. That is, an excellent FICO score will (usually) also be in the excellent range for the VantageScore as well as the TransRisk score – even though the numbers generated are different. Said another way, consumers should compare the range they fall in when comparing scores and not the actual number.

What Can Lower Your Credit Score

Your credit score is an important indicator of your financial health. Lenders and service providers may use it to decide whether to extend you credit or services. Some car insurance providers may also set your insurance rate.

It’s good to know what factors impact your credit score. Your credit score is a numeric representation of your credit history. The FICO credit scores take into account 5 factors:

Payment History – 35%
Amounts Owed (credit utilization) – 30%
Length of Credit History – 15%
Account Inquiries – 10%
Types of Credit in Use – 10%

Here are some specific factors that negatively impact your credit score:

Paying late. Having late payments reflected on your credit report will negatively impact your credit score.
No payments or defaulting on credit. Deciding not to make payments on an account will extend your delinquency period and hurt your score.
Accounts with collection agencies. If you decide not to pay your accounts (credit or service agreements), your account may be sent to collections.
Having liens or judgments. Liens or judgments are legal requirements that must be fulfilled. These can be tax or child support liens or judgments against you brought on by creditors.
Foreclosures. When you stop paying on your mortgage, you will have late payments reported that could lead to losing your home with information reported to your credit.
Repossessions. Having your car repossessed will have an impact on your credit score.
High credit card balances. Having high credit card balances relative to your credit limit or maxed out credit cards will impact your credit utilization rate.
Closing credit cards. Closing credit cards will hurt your score whether you currently have a balance or not. This lowers your available credit and may increase your credit utilization.
Closing old credit cards. Your credit is also based on the length of your credit history. Closing old credit cards may shorten your credit file.

Excellent or Bad Credit

Currently, there are two well-known scoring methods used called FICO and VantageScore. FICO scores were created by FICO and use a scoring algorithm that is different from VantageScore scores. VantageScore was created through a partnership of the three credit bureaus Experian, Equifax, and TransUnion. The FICO and VantageScore credit scores use a range of 301 to 850. Within that range, consumers may fall into different categories from bad to excellent credit.

Excellent Credit: 750+
Good Credit: 700-749
Fair Credit: 650-699
Poor Credit: 600-649
Bad Credit: below 600

These categories are a good way to figure out where you fall within that range but lenders have their own guidelines of what is considered a good credit score. This is why it is important to know where you fall in the credit score range and to shop around for the best rates.

Creditors have lending guidelines that may consider any score under 700 a high risk and therefore charge a higher interest rate. While others may approve a credit application with a 640 and above credit score. It is important to know what your credit score is but equally important to know where that score falls within the range. This will give you a better of an idea of how a lender may view your credit.

In summary, your credit score, where you fall in the credit score range and the lender’s guidelines can determine whether or not your score is considered bad, good or excellent.

Credit Score Ranges

For the most common credit scores, the information that goes into your score comes from your file at the credit reporting companies, which is why it is so important to review these files to ensure they are accurate.

Credit Score Ranges

The most commonly used credit score is known as FICO. The name comes from the Fair Isaac Corporation, which developed the scoring model. They are used to predict the likelihood that a person will pay his or her debts. The scores use only information from credit reports.

FICO credit score range: 300 – 850.
VantageScore credit score range (version 2.0 and earlier): 501 – 990
VantageScore credit score range (version 3.0 or later): 300-850

Common Factors That Make Up A Typical Credit Score

Your bill-paying history
The number of accounts you have and what kind
How much of your available credit you are using
How long you have had your accounts open
Your recent credit activity
Whether you have had a debt collection, foreclosure, or bankruptcy, and how old these are

By law, the calculation of your credit score cannot use or take into account factors such as race or color, religion, gender, national origin, or marital status.

What You Need to Know About Credit Scores

The exact information used by credit scoring providers (such as FICO) to calculate your credit score is a proprietary company secret but there is some publicly available information. For example, FICO has shared that 5 factors make up your credit score:

Payment History (35%) – the largest percentage because paying on time is important for lenders to know.
Amounts Owed (30%) – also known as capacity. It’s based on the amount of outstanding credit you have against your available credit limits.
Length of Credit History (15%) – how long you’ve had credit plays a role in your credit score. Longer credit histories are viewed positively. Adding new accounts can lower your overall credit history length.
Types of Credit in Use (10%) – this is based on the mixture of credit such as credit cards, personal loans, mortgages, auto loans, etc. A good variety is generally accepted as strengthening credit scores.
Account Inquiries (10%) – applying for credit impacts your credit score and having too many recent loan applications (or inquiries) can have a major negative impact. Apply for credit when absolutely necessary.

There are a variety of credit scoring systems such as VantageScore or the credit bureaus own scoring methods. The most widely used is the FICO credit score. Each credit bureau creates and offers their own credit score so it shouldn’t be confused with a FICO score.

Many financial institutions, credit card companies, and credit report monitoring tools may offer a free credit score. Some of these scores are FICO scores so consult with the company offering the free credit score on what scoring system is being used.

Fix Credit Report And Dispute Errors

Under the Fair Credit Reporting Act, you have the right to access your credit report and ensure the accuracy of the information provided. Whenever you dispute a record on your credit report, the credit bureaus are required by law to start an investigation of your claim and delete information that is inaccurate or unverifiable.

Step 1: Get a copy of your credit report. Request your free copy of your reports from AnnualCreditReport.com (www.AnnualCreditReport.com). Request and review one credit report at a time.
Step 2: Verify the information on your credit report is correct. Check your name, addresses, public records, and inquiries. Then check each tradeline to make sure the information creditors are reporting accurately such as credit establish date, balance, limits and payment history.
Step 3: Initiate the dispute online. Once you have access to your credit report online begin the dispute process and provide necessary information or documentation regarding your dispute.
Step 4: Submit the disputes. The credit bureaus have 30 days from receipt of the dispute to provide an answer regarding your inquiry.

The credit bureaus will provide an answer for each of your dispute whether favorable or not. If you disagree with any of the answers you can request a reevaluation by submitting more information that supports your claim.

Get Your Free Credit Report

Request a copy of your credit report through AnnualCreditReport.com. If you find inaccurate information, you have the right to request changes. The credit bureau will contact the lender/creditor and attempt to verify the accuracy of the records.

Be wary of credit experts who promise to remove inaccurate and accurate information from your credit report for a fee. There are federal laws that govern what and how credit repair organizations can do.

Dispute The Information Online Or Through Courier-Mail

Start the dispute process online. Keep a log of the disputes you’re making, the date and time, and any information you are supplying to support your claim.

a. Document each time you communicate (written or verbal) with a lender or collections agent. Note the name of the agent, date, time, and specifics of the conversations you’re having. Maintain copies of these records.

b. Often times your dispute may not result in your favor. Having documents supporting your claim can help you escalate your dispute request. You’re entitled to appeal the credit bureaus decision.

Where Do You File The Dispute Online?

When you get your credit report through AnnualCreditReport.com there are sections of the website dedicated disputing inaccurate credit information.

Experian – Information and start a dispute investigation click here.
Equifax – Information and start a dispute investigation click here.
TransUnion – Information and start a dispute investigation click here.

What Happens When Credit Bureau Suggests You Contact The Creditor Or Lender?

At times the credit bureau will verify the accuracy of the information on your credit report. If you disagree, the credit bureau may direct you to contact the creditor or lender directly. Document your conversations and request information for your records.

It takes time when fixing your credit report and removing inaccuracies. Be patient and communicate with your creditors and the credit bureau. Continue to provide documentation or any additional information that support your claim.

How to Order Your Free Credit Report

The Fair Credit Reporting Act requires each of the nationwide credit reporting companies — Equifax, Experian, and TransUnion — to provide you with a free copy of your credit report, at your request, once every 12 months. For example, you request your credit report on April 15 this year, you will not receive another free copy until 12 months later on April 15 or 16 of the following year.

Do not individually contact the three credit bureaus directly.

Get your free credit reports from the credit bureaus at www.AnnualCreditReport.com.

The three nationwide credit bureaus have set up one website, a toll-free telephone number, and mailing address through which you can order your free annual report. To order your free copy of your credit reports

Visit AnnualCreditReport.com,
call 1-877-322-8228,
or complete the Annual Credit Report Request Form and mail it to:

Annual Credit Report Request Service
P.O. Box 105281
Atlanta, GA 30348-5281

Reasons Why You Can Get A Free Credit Report

You may order your reports from each of the three nationwide credit reporting companies at the same time, or you can order one at a time which is more advisable.
Pulling your credit report on www.AnnualCreditReport.com will not impact your credit score.
You’re also entitled to a free report if a company takes adverse action against you, such as denying your application for credit, insurance, or employment, based on information in your report. You must ask for your report within 60 days of receiving notice of the action. The notice will give you the name, address, and phone number of the credit reporting company.
You’re also entitled to one free report a year if you’re unemployed and plan to look for a job within 60 days; if you’re on welfare; or if your report is inaccurate because of fraud, including identity theft.

Otherwise, a credit reporting company may charge you a reasonable amount for another copy of your report within a 12-month period.

Three Major Credit Bureaus

Credit bureaus are organizations that track and report your credit, including your history of paying bills and calculates your ability to repay future loans. Credit bureaus are not government agencies and are private corporations that offer two services:

compile credit histories on prospective borrowers
and provide credit reports to lenders.

There are three major credit bureaus in the United States comprised of Experian, TransUnion, and Equifax.

Experian

www.experian.com
1-888-397-3742

Experian is one of the three major credit reporting bureaus in the United States. They collect information from financial institutions, creditors, and lenders and create credit files for individuals who have credit reported. Information found on Experian credit reports is used by financial companies to determine the creditworthiness of applicants.

TransUnion

www.transunion.com
1-800-916-8800

TransUnion collects information from financial institutions, creditors, and lenders. They make the information available to consumers and to other creditors to determine credit eligibility.

Equifax

www.equifax.com
1-800-685-1111

Equifax collects information from creditors, lenders and financing companies to create individual credit reports. These reports are used by financing companies to determine credit worthiness of credit borrowers.

The Information Found in Credit Reports

The report lists your name and any name you may have used in the past in connection with a credit account. Carefully check your report to be certain these are accurate. Your credit report contains a large volume of information. Looking at it closely, you’ll see the information is grouped into four sections.

Names and Residences

Personal information such as your name, social security, date of birth and current and previous addresses, and phone numbers
Current and previous addresses and employers, social security number, and date of birth

Credit Accounts

Your history of paying bills as reported by credit grantors or public agencies:

Retail stores
Banks
Finance companies
Mortgage companies
State and Federal Courts

Inquiries

Inquiries: The report lists companies that have accessed your credit report. Companies that received your I.D. or credit information for the purpose of offering you credit, providing a service, or for employment.

Collection Items

Collection items: The report lists unpaid debts that have gone into collection.

Public Records

Public records: The report lists liens, foreclosures, bankruptcies, civil suits and judgments, and criminal arrest and conviction records. The reports may also include information on overdue child support provided by a state or local child support agency or verified by any local, state, or federal government agency.

**Your Credit Report Does Not Contain Information About**

Race
Religion
Political party affiliation
Medical history
Lifestyle
Background
Criminal record

A Closer Look at Credit Reports

A credit report contains information about your credit, some bill repayment history and the status of your credit accounts. This information includes how often you make your payments on time, how much credit you have, how much credit you have available, how much credit you are using, and whether a debt or bill collector is collecting on money you owe.

Credit reports also can contain rental repayment information if you are a property renter. It also can contain public records such as liens, judgments, and bankruptcies that provide insight into your financial status and obligations.

Lenders use these reports to help them decide if they will loan you money, what interest rates they will offer you, or to determine whether you continue to meet the terms of the account. Other kinds of companies can purchase reports to help inform them while making a wide range of business decisions such as providing or pricing insurance; renting you a residential property; providing you with cable TV, internet, utility, or telecommunication services; and (if you agree to let them look at your credit report) making employment decisions about you.

Getting Started – Credit Reports and Credit Scores

A healthy credit report and a strong credit score are important indicators of financial wellness. Our goal is to demystify credit reports and help you understand the factors that impact your credit score. This guide will help you learn the basics of credit and optimal ways to establish, improve, rebuild and protect your credit.

Credit Report

Credit Score

A credit score is a numerical representation of your credit history. It makes it easier for lenders to systematically make loan decisions. Credit scores are a reflection of how you’ve handled credit in the past and are used to determine your potential credit relationship in the future. You have more than “one” credit score and multiple credit scores exist used by lenders. All credit scores are generated from information found in your credit report, but how the numerical number is calculated can vary.

Jason Vitug May 27, 2023

0 35 38 minutes read