What is a credit report?:
The Fair Isaac Corporation pulls information from your credit report to determine your FICO (credit) score. Your credit report is maintained by three credit bureaus: Transunion, Equifax, and Experian.
Anything and everything that has to do with your credit is found on these reports: accounts, payment history, “hard pulls”/inquiries (how many times a company viewed your credit report). Generally, your credit report at all three bureaus will be the same, except for the amount of inquiries on each report.
Your credit report is viewable from each bureau. See the Tools section for the link to the how-to guide for http://www.annualcreditreport.com.
What is a Credit Score? – Short Answer:
A credit score is a number developed by Fair Isaac Corporation that is calculated from different credit characteristics (recorded on your credit report) that represents your creditworthiness (credit risk).
What is a Credit Score? – Long Answer:
Your credit score is determined based on 5 factors:
- Payment History
- Amounts Owed
- Length of Credit History
- New Credit
- Credit Mix
The “weight” of each factor is as follows:
Factors (1) and (3) are self explanatory. Don’t miss any payments and have a long history of credit and you will be scored well in these subjects.
Factor (2) is your credit utilization. In short, try not to carry a large percentage of balance on your credit cards and you’ll be scored well here.
Factor (5) is your credit mix. Essentially, the more accounts you have, the better. Accounts include loans, mortgages, credit cards, etc.
Factor (4) is where most of the misunderstanding comes from. People think that opening credit cards will have “a huge impact“ on your credit score due to the “hard pull/”/inquiry (when a company views your credit information), and this is just plain not true. Factor (4) accounts for 10% of your overall credit score. It is impossible for your credit score to be hurt that badly by new accounts.
What’s a good score?:
FICO scores come in a range of 0-850. The following image shows you what your number means:
Your credit score is viewable for free from many different avenues. See the Tools section of this blog post for some quick how-to guides.
Keep track of your credit score and creditworthiness using these free tools:
- http://www.annualcreditreport.com (How-To guide coming soon)
- http://www.creditkarma.com (How-To guide coming soon)
- https://creditcards.chase.com/free-credit-score?CELL=68GP (How-To guide coming soon)
- Free Credit Score Checks from Credit Cards (Info guide coming soon)
So many people have no idea what a credit score is but get scared about this subject because their parents always discussed it in a “big bad monster” type of way. Your credit score is not a mystery. It is a calculated number based off of real facts. Keep track of your creditworthiness and credit score using the tools discussed in the Tools section of this blog and use your credit score to work for you. A FICO score of 740 or higher will pretty much make you eligible for most credit cards (barring any other pre-requisites, which I always discuss on each how-to post).
The only times I will not recommend someone to open new credit cards are:
- You are going for a mortgage in the next 6-12 months
- You are not fiscally responsible and generally carry a credit card balance
Credit score represents your creditworthiness. FICO (Fair Isaac Corporation) takes your credit report (your “credit permanent record”) and generates a credit score from 0-850. You can pull both your credit report and your credit score.