Credit scores can seem like a very complicated topic for most people but, it doesn’t have to be.
Deep down there are a few core fundamental principles that will help you better understand your credit, let’s go through them.
1. Credit Report
Your credit report is a history of how well you repay debt. It includes your payment history on debt such as mortgages, auto loans, credit cards, personal loans, and student loans, as well as collection accounts from third-party debt collectors, inquiries, and public record information such as any bankruptcies, Tax Liens, or Judgments. Your credit report also contains your personal information such as your names and aliases, addresses, date of birth, phone numbers, and employers.
2. Credit Bureaus
Your credit history is maintained by companies often referred to as credit bureaus or credit reporting agencies. These companies gather and collect information about you and your payment history from creditors, debtors, and third-party data furnishers. The 3 largest credit bureaus are Experian, Equifax, and TransUnion.
3. Credit Score
Credit scores are calculated by aggregating the information from your credit reports and running that info through a mathematical formula designed to score your report into a simple 3-digit number.
4. Different Credit Scores
Not only are there different scores for each of the 3 credit bureaus, but there are also several different credit scoring models which are used to get credit scores themselves. For Example, the most commonly used credit scoring model is the FICO score but, most people don’t know that there are 49 different scoring models of the FICO score. There are also a plethora of other models used to generate scores like the TransRisk Score, Vantage Score, Plus Score, ScorePower Score, etc…. Each of these scoring models uses a different scoring range and mathematical formula to aggregate a score. This is why credit scores differ from place to place.
5. Credit Score Factors
According to FICO (Fair Isaac Company), the developers of the lending industry’s most widely used credit score, the FICO score, there are 5 main factors that are used to calculate your credit score. Those factors, in order of importance, are; payment history, credit utilization, account age, mix of credit, and inquiries.
6. Free Credit Reports
You may obtain a free copy of your credit reports once a year from the government-mandated website www.annualcreditreport.com.
You may also obtain a free credit report from some free credit monitoring services like;
www.creditkarma.com (FREE TransUnion and Equifax Credit Reports)
www.wallethub.com (FREE TransUnion Credit Report)
www.freecreditreport.com (FREE Experian Credit Report)
7. Free Credit Scores
There is no law currently requiring the credit bureaus to provide you with a free credit score but, there are a few websites out there providing consumers with a free credit score. Please note that none of these scores are FICO scores and they will likely differ from your actual FICO score.
www.creditkarma.com (FREE TransUnion and Equifax VantageScore 3.0 scores)
www.wallethub.com (FREE TransUnion VantageScore 3.0 score)
www.creditsesame.com (FREE TransUnion VantageScore 3.0 score)
www.credit.com (FREE Experian VantageScore 3.0 score)
8. Checking Your Own Credit Won’t Hurt Your Scores
There are 2 different types of inquiries that report on your credit report, hard inquiries and soft inquiries. When you apply for credit (mortgage, auto loan, credit card, etc…) a hard inquiry reports on your credit report and lowers your score. Checking your credit through any of the sites we listed above incurs a soft inquiry, which means that it is just you checking up on your own credit. Soft inquiries do not lower your credit scores so check your own credit through soft inquiries as often as you like.
9. Negative Information Can Report For…
According to the Fair Credit Reporting Act (FCRA), derogatory information can report for up to 7 years from the date of the first key delinquency, with a few exceptions. Chapter 7 Bankruptcy may report for up to 10 years and a Federal Tax Lien may report indefinitely or 7 years from the date it is paid. This means that if you opened an account in 2010 and became delinquent in 2015, the account may continue to report derogatory info until 2022, 7 years from the date that the account became delinquent (2015), not from the date the account was opened (2010).
10. A Low Credit Score Can Ruin Your Life
A low score means that you will be stuck paying higher interest rates on everything from a mortgage to an auto loan, to a credit card, even your insurance rates are influenced by your credit scores. It has even become common practice for employers to check credit reports to determine whether an applicant is financially responsible. Consumers with bad credit are deemed a higher risk and more likely to commit fraud or steal.
11. The Good News
Bad credit isn’t permanent. CreditFirm.Net has helped thousands of consumers just like you remove negative information from their credit reports and improve their credit scores. Since 1997, we have helped our clients purchase homes, get low-interest auto loans, and save millions of dollars by improving their credit scores.
Will you be our next success story?