Through April 20, 2021, Experian, TransUnion and Equifax will offer all U.S. consumers free weekly credit reports through AnnualCreditReport.com to help you protect your financial health during the sudden and unprecedented hardship caused by COVID-19.
Understanding how to build or rebuild credit can raise a lot of questions. Learning what lenders are looking for in a credit score, what role your credit report plays and what you can do to improve your credit may all seem critical—and overwhelming at the same time.
Below are answers to nine of our most commonly asked questions about credit, along with links to related stories if you want to dive deeper. With this essential knowledge, you’ll have much of the insight you need to help you succeed in your credit journey and improve your financial security.
What Is a Good Credit Score?
good credit score ranges from 670 to 739 on the FICO® scale and 661 to 780 with VantageScore. A lender may have different criteria, however. Many banks, for example, consider a score of 700 and above to be good. And many of the best rates and terms are available for applicants with even higher scores—in the very good or exceptional range.
When you’re looking for a loan or credit card, it pays to shop around. The same credit score might qualify you for a great rate with one lender and a more expensive loan with another.
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What Is the Difference Between a Credit Score and a Credit Report?
Your credit report provides a detailed record of your credit and payment history. It shows how much debt and how many open accounts you have (and with whom), how long you have been managing credit accounts, and a historical record of how and when you’ve paid your bills. You may have credit reports with one or more of the national consumer credit bureaus: Experian, TransUnion and Equifax.
While your credit report provides lots of information on your credit account management, a credit score is a single number calculated using the information in your credit report. Credit scores are calculated by credit scoring companies including FICO® and VantageScore and typically range from 300 to 850.
Lenders and credit card companies use both your credit score and report to determine how well you manage credit and how much risk they assume when they offer you a loan or credit card.
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Why Do I Have So Many Different Credit Scores?
If you’ve received your credit score from your credit card issuer, your bank or a credit reporting agency such as Experian, you’ve probably already noticed that your scores are different from day to day and place to place. There are many reasons why you have multiple credit scores, but for starters, here’s a short list of factors that can result in your having different scores in different places:
- Each of the three credit reporting bureaus maintains its own credit history on you. Because that data can vary, your scores from each bureau can vary as well.
- FICO® and VantageScore use different credit scoring models to calculate your score.
- Within FICO® and VantageScore, there are even more scoring models. For example, FICO® calculates separate scores for auto lending, mortgages and credit card applications.
- Banks and other lenders may use their own algorithms to calculate custom scores.
Rather than fixating on a single score or worrying about the differences between one score and another, you may find it helpful to think of yourself as having a range of credit scores. If you maintain good credit habits like paying all your bills on time every month, keeping credit card balances low and maintaining a good credit mix, a few points of fluctuation among scores will not matter: You’ll have solid credit scores across the board. The same holds true if you do not manage your credit accounts well: Your scores may vary slightly depending on where you get them, but they’ll reflect your overall credit management behavior.
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What Factors Affect My Credit Score?
- Payment history: How you manage credit payments is the biggest factor in your credit score, accounting for 35% of your FICO® Score☉.
- Credit utilization: How much of your available revolving credit (such as credit cards) you’re using is the second most important factor in your credit score calculation, accounting for 30% of your FICO® Score.
- Length of credit history: How long you’ve managed credit makes up 15% of your FICO® Score.
- Credit mix: How many different types of credit accounts you manage makes up 10% of your FICO® Score.
- New credit: New credit accounts as well as the inquiries performed when you applied for credit make up another 10% of your FICO® Score.
Building and maintaining good credit is as simple—and complicated—as using your credit responsibly in these five areas.
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How Can I Improve My Credit Score?
By understanding how your credit score is calculated, you can reverse engineer a better score. Consider the five criteria FICO® and VantageScore use to determine your score—payment history, credit utilization, length of credit history, credit mix and new credit—and look for ways to optimize.
Many tactics take time. For instance, you can (and should) maintain a perfect payment history starting today, but any payments made 30 days or more past due or collections you’ve already experienced will remain on your credit report for seven years from the first date the account became late. If you’re looking to improve your score in the short term, paying down outstanding credit card debt can help reduce your credit utilization ratio and thus improve your score. Or consider factoring in on-time phone and utility bill payments using Experian Boost™† to improve your score instantly.
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