What is a Credit Report Score?

A credit report score, more commonly known as just a credit score, is a three-digit number that tells lenders how creditworthy you are. Every time you borrow money, the lender will report it to one or more of the credit bureaus. The bureaus take this information and collate it into a credit report. They then convert that information into a single number to make it easier for lenders to decide how credit-worthy you are.

Credit Report

A credit report contains all of your borrowing and repayment history from the past seven years. In reality, you don't have one credit report, you have at least three. Each of the three major credit bureaus--Experian, Equifax and TransUnion--compiles its own set of credit reports. Lenders use one of multiple bureaus to report information about their borrowers, as well as to get information about potential borrowers.

Credit Score

Each bureau uses its own formula to calculate a three-digit credit score. The range of scores differs depending on the bureau, but is usually between 300 and 850. The higher the score, the more credit-worthy you are. Each time a lender runs a credit check, the bureau will calculate a new, up-to-date credit score.

Calculation

The exact formulas used to calculate the scores are secret. However, we do know what sort of information goes into that calculation. Approximately 35 percent of the score is your repayment history. Missing a payment can cost you points off your score. Another 30 percent is the total amount you owe. A further 15 percent is the length of your credit history. The remainder takes into account other factors, such as new credit applications and the mix of credit types.

Checking Your Credit Score

You can get a free copy of your credit reports from Annualcreditreport.com. These reports will give you a good idea about the health of your credit history and let you check for signs of identity fraud. However, they will not give you a concrete credit score. For that, you will need to go directly to the credit bureaus. You can request your scores via their websites. However, you will have to pay a fee for the privilege. You can also sign up for a credit monitoring service, which will give you access to your scores whenever you want. This, too, will cost you money.

Why Credit Scores Matter

Your credit score matters a great deal. If you are applying for a mortgage, your credit score will determine whether or not you get approved and the interest rate you will pay. If your score is too low, you may not have access to common personal finance tools such as credit cards, loans and cell phone contracts. Landlords often run credit checks before accepting a tenant. Even some employers run credit checks before deciding whether to give you a job.