Free Credit Report ! - Understanding Credit Reports and Credit Scores

What is a credit report?

Each of the three major credit reporting agencies -- Equifax, Experian (formerly TRW), and Trans Union -- maintains information about you and your credit history. Lenders, employers, landlords, and service providers buy that information in the form of a credit report to help them decide whether to approve your application for a loan, credit card, job, or housing, or to offer you a product or service at a particular rate.

Because of the importance of these matters and privacy issues surrounding them, these credit reporting agencies are strictly regulated by the Federal Trade Commission.

A typical credit report includes:

Personal information. Compiled from credit applications you've filled out, this information normally includes your name, current and recent addresses, Social Security number, date of birth, and current and previous employers.

Credit history. The bulk of your credit report consists of details about credit accounts that were opened in your name or that list you as an authorized user (such as a spouse's credit card). Account details, which are supplied by each account's provider, include the date the account was opened, the credit limit or amount of the loan, the payment terms, the balance, and a history that shows whether you've paid the account on time. Closed or inactive accounts stay on your report for 7 to 11 years from the date of their last activity.

Inquiries. The credit reporting agency records an inquiry whenever your credit report is shown to another party, such as a lender, service provider, landlord, or insurer. Inquiries remain on your credit report for up to two years.

Public records. Matters of public record obtained from courts of law -- including liens, bankruptcies, and overdue child support -- may appear on your credit report. Most public record information stays on your credit report for 7 to 10 years.

A credit report does not include information about your checking or savings accounts, gender, ethnicity, religion, political affiliation, medical history, or criminal record. Your credit score is generated by information on your credit report, but is not part of the report itself.

What is a credit score?

A credit score is a rating used by a lender to help determine whether you qualify for a particular credit card, loan, or service. The company gets information about your financial history from your credit report, which it obtains from one or more of the three major credit reporting agencies -- Equifax, Experian (formerly TRW), or Trans Union. That information is then analyzed using a complex mathematical model to yield your credit score.

Most credit scores estimate the risk a company incurs by lending you money or providing you with a service -- specifically, the likelihood that you'll fail to make payments in the next two to three years. The higher the score, the less risk you represent. Many lenders consider your credit score in conjunction with other factors, such as your annual income and how long you've held your current job.

You don't have just one credit score

Your score varies according to the different scoring models used by lenders and the different information stored by each credit reporting agency.

What factors affect my credit score?

Many different formulas are used to calculate credit scores, but most are based on the following factors, which each lender weighs differently:

Payment history. A record of late payments on your current and past credit accounts will lower your score.

Public records. Matters of public record such as bankruptcies, judgments, and collection items may lower your score.

Amount owed. Owing too much will lower your score, especially if you're approaching your total credit limit.

Length of credit history. In general, a longer credit history is better.

New accounts. Opening multiple new accounts in a short period of time may lower your score.

Inquiries. Whenever someone else gets your full credit report -- a lender, landlord, or insurer, for example -- an inquiry is recorded on your credit report. A large number of recent inquiries may lower your score.

Accounts in use. The presence of too many open accounts can lower your score, whether you're using the accounts or not.

What goes into your score?

Current balances on accounts	Accounts showing all payments were on time are positive.
Reported delinquencies	Negative, especially if severe and recent.
Bank revolving accounts	Lack of accounts, or too many can be negative.
Number of accounts with balances	Too many credit card accounts may have a negative effect on your score.
Number of finance company accounts	Loans from finance companies may negatively affect your credit score
Recent payment history	An insufficient credit history may have an effect on your score, but that can be offset by other factors, such as timely payments and low balances
Number of recent inquiries	Not all inquiries are counted. Inquiries by you, or creditors who are monitoring your account or looking at credit reports to make "prescreened" credit offers are not counted.
Number of accounts opened within the last year	Adding too many new accounts can be negative.
Proportion of balance to your credit limit	If the amount you owe is close to your credit limit, that is likely to have a negative effect on your score
Length of time accounts established	Long-established accounts are positive
No recent (non-mortgage) account balance information	Can be negative when seeking mortgage loans
Legal item filed or collection item reported	Negative, effect decreases with time.
Accounts not paid as agreed and/or legal item filed	Your score will be affected negatively if you have paid bills late, had an account referred to collections, or declared bankruptcy
Employment and residency	Longer time in your job and at your residence can help your score.

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