Your credit score and credit report are important to understand if you ever intend to borrow money or obtain credit. A credit report shows your credit history, both positive and negative. A credit score is a three-digit number calculated based on your credit history. Lenders and some employers use your credit report and score to determine your character and creditworthiness.
Reports Can Contain Errors
Many credit reports contain errors of some form. Not all errors are fraudulent, but it is important to regularly check your credit report to identify fraudulent activity and misinformation. Besides credit accounts that you did not open, your credit report may contain errors regarding your personal information. For example, your credit report may show an address that was never yours. Consumers can obtain their credit report free once per year through the AnnualCreditReport website.
Credit Bureaus Provide Tracking
There are three major credit bureaus that track your credit history -- Experian, Equifax and TransUnion. Your credit history is not necessarily identical on all three reports. You can grant permission to others to pull your credit report by signing an agreement.
Lenders Evaluate Credit
Lenders look at both your credit report and credit score to make decisions on whether to grant you credit. The higher your credit score, the more likely you are to receive credit approval from a lender. Although the score is helpful, lenders also pull your credit report to see your positive and negative credit history to make more informed decisions. Lenders also may consider other information -- such as income and job security -- when determining credit approval.
Scores Calculated Based on Credit History
Your credit score is directly related to your credit history. Your payment history makes up the largest portion of your credit score. For example, if you have a long history of on-time payments, you credit score is typically high if no other negative marks exist on your credit report.
FICO is the Commonly Used Credit Score
The Fair Isaac Corporation's FICO score is used more often than any other credit score. The credit score range for FICO is from 300 to 850. The FICO score is calculated using a specific formula not made available to the public, although FICO reveals on its website the types of activities the formula considers when creating the score. A consumer with an extremely low credit score may need a cosigner to obtain credit from a lender.
Other Credit Scores Exist
Although FICO is the most common credit score, there are other credit scores that exist. In 2006, another credit score emerged name VantageScore. This company uses its own specific model to calculate credit scores. The range for VantageScore is 501 to 900.
Others Use Credit Reports
Lenders are not the only ones who use credit reports to make decisions. Employers, especially those working with sensitive financial information, may use credit reports to determine whether a prospective employee is worthy of hire. Many utility and cable providers use consumers' credit reports to approve individuals to receive services.
Credit Reports Have Personal Information
Not only is your credit history reported on your credit report, but your personal information also is provided. Your name, Social Security number, current and previous addresses, phone number and credit limits are all listed on your credit report. All this information is consistently reported to credit bureaus by businesses your deal with.
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