By Melinda Opperman, Senior Vice President, Springboard Nonprofit Consumer Credit Management, Inc. Campaign Coordinator, Inland Empire Saves
Your credit report serves as a kind of summary of your financial reputation. Its basic function is to tell lenders if you’ve done a good job of paying your debts on time and meeting your financial obligations.
A credit score is derived from information in your credit report. Your credit report reflects how you have handled your available credit in your past, and your credit score predicts how likely you are to pay your bills in the future based on information in your credit report.
Fair, Isaac, and Company, or FICO for short, is the company most well known for credit scoring and came up with a system to create a numerical score based on certain factors in your credit report. You have three credit scores, one from each national credit bureau: Equifax, TransUnion and Experian.
Your credit score may be different from each of the three national credit bureaus because the score only considers the data in your credit report at that particular agency. If your score from the credit reporting agencies is different, it’s probably because the information those agencies have on you differs.
The algorithm in the computer model generates a score ranking from 300 (not good) to 850 (exceptionally good). FICO has tuned its algorithm to give out a mortgage score, an auto score, a bankcard score, and so on.. Additionally, your score in any of these categories will be different depending on which bureau originated it.
We created a “What is a Good Credit Score?” infographic that breaks down what those numbers mean. Basically, a score over 680 is the threshold for “good” credit, but the higher your score, the better.
What factors into your credit score:
Tips for building a good credit score:
That last point is an important one; 1 in 4 credit reports have errors serious enough to affect the creditworthiness of the subject of the report. Our free Consumer Guide to Good Credit has more information about disputing inaccurate or outdated information on a credit report.
Finally, active duty military personnel can get free credit scores through their nearest PFMP (Personal Financial Management Program) office. And for taking the Military Saves Pledge, servicemembers and military spouses can obtain a FREE myFICO credit score and analysis tool from FINRA Investor Education Foundation and SaveAndInvest.org. Lastly, everyone can get free credit reports from www.annualcreditreport.com.