A credit score can significantly impact many financial decisions and outcomes. From purchasing a home to leasing a vehicle or even landing a job, lenders and employers use this score to determine whether a borrower is a liability (or not).
Your credit score is based on multiple factors including payment history, debts owed, credit utilization and more — all of which are reflected on your credit report. While it can seem confusing, credit reports break down valuable information and serve as a roadmap for the next financial decisions you make.
How to Read a Credit Report
There are three main credit reporting bureaus: Equifax, Experian and TransUnion. Each may slightly vary, but all the reports contain:
- Personal information: Your name, birthdate, address and Social Security number. Sometimes this section includes employment history.
- Payment history and credit accounts: Credit cards, loans and payment history.
- Public records: Bankruptcies, foreclosures and other financial events.
- Credit inquiries (soft vs. hard): When you check your own credit score it’s considered a soft inquiry. Hard inquiries refer to when lenders check your credit for loans and can impact your credit score more than soft inquiries.
What Your Credit History Reveals
The most robust part of a credit report covers your credit history, which includes:
- Collection of current and closed accounts (7-10 years of activity)
- Payment history showing missed and past-due payments
- Names of all creditors and current balances
- Credit and loan limits for revolving accounts and loans
- Dates of all account openings and closings
These combined factors determine your Fair Isaac Corporation (FICO) score — or credit score — as well as breaking down amounts owed — 30%, length of credit history — 15%, new credit — 10%, credit mix — 10%, and payment history — 35%.
It’s important to note credit scores are subject to change depending on the specific bureau and your financial habits, but they generally range from perfect credit to very bad credit:
- Perfect Credit (800-850)
- Excellent Credit (750-799)
- Good Credit (700-749)
- Fair Credit (640-699)
- Poor Credit (571-639)
- Bad Credit (400-499)
- Very Bad Credit (300-399)
How to Improve Your Credit Score
If you have a low credit score, the good news is it can be improved over time. The first step is to ensure all bills are paid on time. It’s equally important to ensure the minimum payment (and ideally more) is always made on outstanding credit card balances to avoid skyrocketing interest rates and late fee charges.
It’s also worth taking time to thoroughly review your credit report to confirm all personal, employment and debt information is correct. You can request a free report every year from each of the three credit bureaus at annualcreditreport.com. If discrepancies are found, they can be disputed with the credit bureau that issued the report.
Help Repaying Debt
If you are struggling to pay off debt and unsure which method is best for your situation, sign up for a free and confidential credit counseling session. Conducted over the phone or online, we will review your income, assets, expenses and debts to determine the best course of action.
