Understand your credit

Understanding credit can be complicated, but it doesn’t have to be. Find out how your financial decisions can impact your credit report and credit score.

What is a credit score?

A credit score is a three-digit number, typically between 300 and 850, which is designed to represent your credit risk, or the likelihood you will pay your bills on time. In general, a higher credit score represents a higher likelihood of responsible financial habits. Credit scores are one of many factors used by lenders when determining your likelihood of paying back a loan.

Credit scores are calculated using the content of your credit report. Each of the three major credit bureaus uses a slightly different method of determining your score.

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The main factors involved in calculating a credit score are:

  • The number of accounts you have
  • The types of accounts you have
  • Your used credit vs. your available credit
  • The length of your credit history
  • Your payment history

If you look at your credit scores based on data from each of the three major credit bureaus – Equifax, Experian, and TransUnion – you may see three different scores. This is completely normal. Your scores may not all be the same because not all creditors and lenders report to all three bureaus. Many creditors report to all three, but you may have an account with a creditor that only reports to one, two, or none.

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There are many different scoring models used to determine a credit score. Here is a general breakdown of the factors used to calculate your Equifax credit score:

  • Payment history: 35% - Your credit history includes information about how you have repaid the credit you have already been extended. It includes the number and type of credit accounts that you paid on time, details on late or missed payments, and how many of your credit accounts are delinquent in relation to all of your accounts on file. It also includes details on public record and collection items, including bankruptcies, foreclosures, wage garnishments, and any delinquencies that were reported to collection agencies.
  • Used credit vs. available credit: 30% - Your credit score analyzes how much of your total credit amount is being used, and how much you currently owe.
  • Type of credit used: 15% - Your credit score reflects the different types of credit accounts you have, including revolving debt (such as credit cards) and installment loans (such as mortgages, home equity loans, auto loans, student loans, and personal loans). Lenders and creditors look at how many of each type of account you have, to see that you’re able to manage multiple accounts of different types.
  • New credit: 10-12% - Your credit score reflects how many new credit accounts you’ve opened compared with the total number of accounts in your credit report. It takes into account how many recent requests for credit you initiated, as indicated by inquiries by creditors to credit reporting companies. Your credit score does not take into account requests a creditor has made for your credit report in order to make a preapproved credit offer, or to review your account you already have with them, nor does it take into account your own request for a copy of your credit history. Your credit score will factor in the length of time since creditors made credit report inquiries.
  • Length of credit history: 5-7% - This section details how long you’ve had your credit accounts. The credit score calculation includes both how long your oldest and most recent accounts have been open. In general, creditors like to see that you’ve been able to properly handle credit accounts over a period of time.

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Credit card companies, mortgage lenders, and insurance companies pull credit scores to use as one of the factors to determine your creditworthiness or credit risk.

Financial services companies tend to group borrowers into segments according to their credit score. These credit score ranges may determine how much you’ll be charged for your insurance coverage, the interest rate you will pay on your mortgage, student loan, or automobile loan, or the type of credit card you’ll be offered.

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What's in a credit report?

Credit reports are a summary of your credit history, reported to credit bureaus by lenders and creditors. They contain personal information to identify you; information about your credit accounts, like credit cards, mortgages, student loans, and vehicle loans; and bankruptcies. Credit reports are used by lenders as one factor in helping determine your creditworthiness.

Your consumer credit reports are available from the three major credit bureaus — Equifax, TransUnion and Experian.

A credit report is a summary of your credit history, and certain other information, reported to credit bureaus by your lenders and creditors. Your Equifax credit report contains four types of information:

  • Identifying information. This includes personal information, such as your name, address, Social Security number, and date of birth.
  • Credit accounts. Your Equifax credit report lists your current and past credit accounts as reported by your lenders and creditors. They are listed by type of account (for example, credit card, mortgage, student loan, or auto loan), the date you opened the account, your credit limit or loan amount, the account balance, and your payment history.
  • Inquiry information. Inquiries are recorded when a company requests information from your credit report.

    Soft inquiries may include your own requests for your credit report, inquiries by companies extending you preapproved offers for credit cards, or inquiries made by your current creditors who wish to perform a review of your credit (also known as “account monitoring”). “Soft” inquiries are only visible to you and not to potential lenders or creditors, and do not impact your credit score.

    Hard inquiries occur when a potential lender reviews your credit history because you have applied for credit such as a new loan or credit card. These may remain on your Equifax credit report for 24 months. ”Hard” inquiries do impact credit scores.

  • Bankruptcies and collection information. Bankruptcies and past-due accounts that have been turned over to a collection agency, including accounts with doctors, hospitals and cable companies, could also be included in your Equifax credit report.

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There are time frames for how long different types of information may remain on your credit report.

  • Negative information, such as late payments or collections, stay on your credit report for approximately seven years, as do most other types of negative information, including paid tax liens. Bankruptcies and unpaid tax liens can stay on your credit report for up to 10 years.
  • Positive information generally remains on your credit report for a longer period of time. Credit accounts that you pay as agreed may stay on your credit report for up to 10 years from the last update we receive from the lender. Revolving credit accounts, such as credit cards that have been paid as agreed, may stay on your credit report as long as you keep the account open.

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There are a few ways to get your free credit reports, but the easiest is to visit annualcreditreport.com. By law, you are allowed to get one free copy of your credit report every 12 months from each of the major credit bureaus — Equifax, Experian, and TransUnion. These reports do not include credit scores.

Another way you can receive a copy of your free credit report from the three major credit bureaus is if you meet one of the requirements listed below, as outlined in the Fair Credit Reporting Act. This law indicates that if you meet one of these requirements, you are entitled to one additional free copy of your credit file during any 12-month period:

  • People who are unemployed and intend to apply for employment within 60 days;
  • People receiving public welfare assistance;
  • People who believe their consumer file contains inaccurate information due to fraud; and
  • People who have been the subject of adverse action, such as denial of credit or insurance, within the past 60 days.

If any of these situations apply to you, you can request your additional free copy of a credit report from Equifax by contacting us.

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