An Informative Guide to Credit Scores and Credit Reports
One frequently misunderstood aspect of personal finances is the role and importance of credit reports and credit scores in our lives. Many people may have heard about credit reports or credit scores and that they are used in the financial field, but many consumers do not fully understand how they function and how they are used.
Credit reports have actually been around for decades and have been used primarily by lenders who are looking to see how potential borrowers have handled past credit obligations. The thinking has always been if they have paid their debts in the past, they are more likely to pay them in the future.
Over the years, credit reports have undergone changes in how and who uses them. The analysis of credit reports now takes many other factors into consideration. Credit report users can now look at how long people have had credit, the amount of new credit that has been started recently, how they handle credit obligations, and even giving different weight to varying types of credit accounts and entries.
All of these factors have gone into the creation of a numerical value which the big three credit reporting agencies (Equifax, Experian, and TransUnion) use to represent the borrower’s debt management history. The number is a three digit number that is commonly known as a FICO (Fair Isaac) credit score and ranges from a low credit score of 350 to a high credit score of 850. In evaluating credit scores, higher credit score indicate stronger debt management history and, from a potential creditor’s point of view, a higher likelihood that the borrower will repay future credit obligations.
While credit reports were originally used only by lenders, the use of credit scores has expanded to include several other applications. In addition to determining credit and loan qualifications, credit scores are now used by many employers, insurance companies and other businesses to help make hiring and coverage approval decisions. The good news for consumers, is that while the credit score is a reflection of past and current credit history, it is possible to improve a credit score.
To help understand credit reports and scores, we have put together the following resources to help consumers take the mystery out of credit. We hope this information is helpful. Please feel free to bookmark this page and return to it often.
- Credit Reporting History – A brief overview of the history of credit reporting.
- Credit Report Information – Useful look at the credit report and how it is used.
- Annual Credit Report – Web site which provides consumers with one free copy per year of their person credit report.
- Your Credit Score – Educational article for consumers which provides information on credit scoring.
- Your Money Guide – Useful article from the New York Times covering many credit related topics.
- FTC Credit Score Information – Consumer information about credit scores and the role they play in our economy.
How Credit Reports Function
- Credit Report Basics – Useful page with information from one of the top reporting agencies.
- Credit Topics – Resourceful site which provides information on reports and scoring.
- Fair Credit Reporting Act (PDF) – Information on the laws which govern the usage of credit.
Credit Report Usage
- Applicant Screening – Article from the USA Today about the usage of reports for screening employees.
- Credit Files – Web page which provides information on who uses credit files and why.
Good and Bad Scores
- Credit Score Information – CNN Money article which discusses credit scores and meanings.
- Credit Basics – Educational article which helps understand the importance of credit.
- Calculating Credit Scores – Information on what is taken into consideration to determine a credit score.