When it comes to getting approved for a credit card or loan – and getting the most optimal terms available – your credit plays an integral part. There are two overarching components of your credit that potential lenders will be looking at: your credit score and credit report.
It might seem a bit confusing, but credit scores and credit reports are not one and the same.
Let’s take a look at the basics of both.
What is a Credit Score?
If you’ve ever applied for a loan or credit card, you’ve likely heard mention of your credit score. But what is a credit score exactly?
Credit scores are three digit numbers accessible to lenders, credit card companies, and other interested parties that are intended to show how responsible you are with handling debt and other payments. However, you don’t have just one credit score. You have multiple credit scores for a few reasons:
- There are three credit reporting agencies with varying amounts of information (more on that later).
- There are different scoring models.
- Each model has different versions (and lenders aren’t required to update to the latest version).
- Different models exist for different credit types (auto loans, mortgages, etc.).
The weight each scoring model places on different credit predictors can also vary. Let’s consider the two main scoring models you may have heard about:
FICO (managed by the Fair Isaac Corporation)
In use for over 25 years, FICO scores are widely considered the industry standard for credit scores. According to their calculations, 90% of lenders rely on their scoring model to determine the credit worthiness of consumers. Here is how FICO weighs different factors in calculating your credit score:
- Payment history (35%)
- Amounts owed (30%)
- Length of credit history (15%)
- New credit (10%)
- Credit mix (10%)
VantageScore (managed by VantageScore Solutions)
The three credit reporting agencies (CRAs) – Equifax, TransUnion, and Experian – created VantageScore because they saw a need for “a highly consistent, more predictive scoring model.” Here is how VantageScore weighs different factors in calculating your credit score:
- Payment history (extremely influential)
- Age and type of credit (highly influential)
- Percent of credit limit used (highly influential)
- Total balances/debt (moderately influential)
- Recent credit behavior (less influential)
- Available credit (least influential)
How Can You Review Your Credit Score?
With so many credit scores it can be hard to get a handle on how healthy your score will look to potential lenders. Luckily, there are ways to get your hands on at least one version of your score before applying for new credit. Here are just a few:
Purchase Your Score from FICO.
FICO offers a monthly subscription service that includes access to your FICO credit scores, your credit reports, identity theft insurance, and credit monitoring (depending on the subscription tier you choose).
Sign Up for a Free Service Like Upturn.
Upturn will allow you to access your VantageScore 3.0 (based on data from TransUnion), review items on your TransUnion credit report, easily dispute errors you may find, and get personalized recommendations to repair your credit. [Sign up here]
Get It from Your Bank or Credit Card Company.
Several banks and credit card companies (like Bank of America, Wells Fargo, Barclays, and Chase, to name a few) give you access to one version of your credit score on your monthly statement or through their website. Contact your bank or credit card company to see if this is something they offer.
What is a Credit Report?
So if your credit score is the number potential lenders use to determine credit-worthiness, what is a credit report?
A credit report is a document listing your past and current reported accounts, along with information about those accounts – like payment history, account balance, and credit limit. This information is reported to CRAs by creditors (like lenders and credit card companies) and other individuals and entities like landlords and is used to calculate your credit score(s). However, creditors and other reporting individuals and entities are not required to share account information with all three CRAs which means you have three separate credit reports that could look quite different.
Now let’s take a look at the part CRAs play in compiling your credit report and influencing your credit score.
Credit Reporting Agencies
The three CRAs are the entities that create your credit report and sell the information to companies trying to determine your creditworthiness. While what’s on your credit report is used to calculate your credit score, you won’t find your credit score on your credit report. (Remember, you have multiple credit scores calculated by credit scoring companies.)
Since there are three CRAs with potentially different information about you, it’s important to review all of your credit reports on a regular basis. This can help in catching (and disputing) errors in a timely manner – hopefully before they negatively impact your chances of getting approved for new credit.
How Can You Access Your Credit Reports?
Thanks to the Fair Credit Reporting Act, you can receive a free credit report from each of the three CRAs on an annual basis. You can request and review your reports online at AnnualCreditReport.com.
Things to Look for on Your Credit Reports
You have your credit reports in hand – now what?
Take a look at this information:
- Personal information
Including: name, birthdate, social security number, address, employer
- Account information
Including: credit limits, loan amounts, balances, payment history, status (closed, open, delinquent)
- Public records information
Including: bankruptcies, liens, judgements, civil suits, foreclosures
Including: number of credit inquiries, who made the credit inquiry
That might seem like a lot of information to scan with a fine-tooth comb (especially with three separate reports), but credit report errors are more common than you may think. In fact, in a 2013 study by the Federal Trade Commission, 1-in-4 consumers found errors on their credit reports that were potentially impacting their credit scores negatively.
Here are a few tips for spotting those mistakes:
- Check the accuracy of your name and social security number.
A misspelled name or a few numbers in the wrong place could lead to someone else’s information being placed on your credit report.
- Make sure all accounts are yours.
This is where you could potentially find evidence of identity theft. Take a look at each account and ensure you were responsible for opening all of them. (Note: Not all creditors may be easy to recognize. For instance, the creditor on an Amazon credit card account might say Synchrony Bank. A quick search should help you get to the bottom of the account that creditor may be tied to.)
- Review payment history for every account
Considering how much payment history can impact your credit score, it’s important to make sure each account is accurately reflecting your payment history. Pay careful attention to accounts showing a payment was made 30 or 60 days late.
Credit Report Disputes: Here are Some Things You Need to Know
As a consumer, you have another important right as outlined by section 11 of the Fair Credit Reporting Act: the right to dispute information on your credit report(s). Here’s a simple breakdown:
Under the Fair Credit Reporting Act, you can dispute:
- incorrect personal information
- accounts you didn’t open or cosign on
- inaccurate payment history
- incorrect loan amounts and balances
- inaccurate public records information (bankruptcies, liens, etc.)
- or anything else you determine to be inaccurate or incorrect
Under the Fair Credit Reporting Act, you can’t successfully dispute:
- items that are negative but accurate
It may be tempting to dispute accurate information that’s negative, but these items will remain for a predetermined amount of time (depending on what they are). Disputing them could result in the CRA labeling your dispute as “frivolous.” [Learn more about what “frivolous” means.]
How Do You Dispute Errors?
After reviewing your credit reports and finding any potential errors, it’s time to make a dispute with the specific CRA reporting the information. This can be done a few different ways.
Take the DIY route
Disputing credit report errors on your own might seem overwhelming, but it’s entirely doable. Here are two ways you can go about it:
Write a letter to the CRA reporting the information
When writing a letter to CRAs, make sure you are conveying the right information in a concise manner with the proper documentation to back it up. Here’s some things that should be included:
- the item you’re disputing
- the type of item it is (account, judgement, etc.)
- whether the information is inaccurate or simply incomplete and why
- the change you are requesting
- a request the issue be resolved
Once your letter is complete, it’s time to gather the right documentation to identify yourself and prove your case. But here’s the thing: There are different documentation requirements for each of the three CRAs. Find out what they are here.
Submit a dispute on the CRAs website
All three CRAs offer the option of disputing your claim online (for free) and tracking the progress of your dispute afterwards. You can sign up and see the requirements for submitting a dispute on their respective websites:
Use a free service to send the dispute on your behalf
Good news: You don’t have to go it alone to see results. There are free services like Upturn to do the heavy lifting for you.
Upturn gives you access to your TransUnion credit score and credit report for free and guides you through each item to help pinpoint potential errors. If errors are found, a dispute can be generated on your behalf and tracked through your account.
Pay a service to create and manage the dispute for you
In addition to free services, there are credit repair companies and services that can potentially help as well.
Get all the information you need about how credit repair works, along with red flags to look for, here.
Once you’ve mailed or digitally submitted your dispute, it’s time to wait for the response from the CRA. Here’s the good news: CRAs should complete their investigation into the item in question fairly quickly (usually within 30 days (or 21 days if you live in Maine)). During that time they should contact the data furnisher (the creditor that reported the information to them) and decide whether the information is accurate, inaccurate, or incomplete. If the data furnisher doesn’t respond within the allotted time, the CRA will update or delete the item.
Now it’s time to decode the results you receive from the CRA. Here are a few actions the CRA may decide to take and the terms you’ll see as a result:
- Disputed information was deleted.
Terms you may see: “information deleted,” “deleted,” or “processed”
- Disputed information was corrected.
Terms you may see: “information updated,” “updated,” or “processed”
- Disputed information was confirmed accurate.
Terms you may see: “verified as accurate,” or “remains”
Keep Your Credit Score and Report in Good Standing: Here’s How
Monitor them regularly
For a complete picture of your credit, make sure to take advantage of the one free credit report you’re entitled to each year (from each CRA) at AnnualCreditReport.com. You can also stay on top of your credit scores by utilizing one of the many free services available (see above). (Just remember: You have multiple credit scores and these services generally show 1-2 of them.)
Sign up for alerts
If you want to stay on top of new items that make their way onto your credit report, there are a few options available.
- A free service like Upturn
After accessing your TransUnion credit report and VantageScore 3.0 for free, Upturn will monitor your report for newly added items you should be aware of. (Other free services like Discover Scorecard and Credit Karma can do the same for your Experian credit report and Equifax credit report, respectively.)
- A fraud alert through the CRAs
If you haven’t been the victim of identity theft but are concerned you may be (if you lost your social security card, for instance), you can place a fraud alert with one CRA and they are required to tell the other two CRAs on your behalf. This will require businesses to confirm the identity of anyone attempting to take out credit using your name and social security number by contacting you directly.
Victim of identity theft? Do a credit freeze
Did you notice fraudulent activity on your credit report? Then a credit freeze could be worth considering. It’s free to freeze your credit with each of the three CRAs.
- Freeze your Equifax credit report online here or by calling 800-349-9960.
- Freeze your TransUnion credit report online here or through their app available on the App Store or Google Play.
- Freeze your Experian credit report online here or by calling 1-888-397-3742.
Follow a few simple rules of thumb
Going forward, there are a few habits you can adopt to improve and maintain your credit.
- Make all payments on time.
- Keep your credit utilization below 30%.
- Avoid multiple hard credit inquiries within a short amount of time.
- Don’t close unused credit cards.
- Apply for new credit sparingly.
How does your credit stack up?
Now that you know how to check your credit score, read your credit report, and resolve any errors you may find, let’s take a look at how your credit stacks up to the average.
According to 2019 data from Experian the average American has:
- a VantageScore of 682
- a FICO score of 703
- 3.1 credit cards with an average balance of $6,629
- 2.5 retail credit cards with an average balance of $1,942
According to a 2019 study by OnePoll and LendingPoint:
- 1-in-8 Americans don’t know their credit score
- 45% have been denied a loan because of bad credit
- 43% have been given unfavorable loan terms and higher interest rates because of bad credit
The Bottom Line
By regularly checking your credit report and staying on top of your credit scores, you can maintain your credit health and increase your chances of getting approved for new credit with the most optimal terms.