By AMY M. CARLES
Your credit report and credit score affect your financial life, but in very different ways. It is important to understand the differences.
A credit score is a three-digit number that measures how likely you are to repay a loan on time.
The credit score is sometimes called a FICO score, named for the Fair Isaac Corp., which developed it.
FICO analyzes debts against limits, history of on-time and late payments, the number and types of accounts, the length of credit history, and the amount of new credit being applied for.
FICO is not the only credit score available, and generic scores vary depending on the specific credit report and scoring model used, as well as the time when the score is computed. You could obtain generic credit scores from several different sources, and the scores could all differ.
The higher the score the better. Scores using the FICO and VantageScore 3.0 scales, which range from 300 to 850, are usually considered good if they are over 700.
Since generic scoring varies, it is important to see where your score falls on the scale of the score’s system.
A high credit score is the equivalent of getting an “A” in credit use and earns you better terms on new loans, and insurance, and makes it easier to rent an apartment and obtain utility services.
A poor credit score will cost you significantly in loans, and too low of a score can make financing virtually impossible, as well as make getting insurance difficult.
It takes much longer to raise a low score than lower a high one.
The impact on the amount of change in a credit score depends on individual credit files.
You usually have to pay $8-$15 to obtain your credit score. However, there are some instances in which you are entitled to your credit score for free, such as if you are denied a loan on the basis of your score.
Some credit card companies offer your credit score at no charge. However, be sure you will not be charged a fee for credit monitoring, and that it is not an estimated credit score.
A credit report, different than your credit score, is an explanation of your credit history, much like a report card on your debt history. The credit report is only one part of how your credit score is determined.
The credit report states when and where you applied for credit, from whom you borrowed money, whom you still owe, if you have paid off a debt, and if you make monthly payments on time.
It also lists your personal information, including name, address and Social Security number.
Information can stay on your credit report for seven to 10 years. Lenders use the data to predict the risk of you not paying that loan back.
You are entitled to one free copy of your credit report from each of the three credit reporting bureaus, TransUnion, Experian and Equifax, once every 12 months. It costs $14 for an additional credit report within a year of the free one.
You can check your credit report at www.annualcreditreport.com. You should check one credit reporting bureau at a time at different times throughout the year instead of checking all three at once.
Check your credit report at least once a year to review for accuracy.
Job hunters should also be aware that potential employers often check credit reports.
You can improve your credit score by correcting inaccuracies on your credit report, reducing the amount of money you owe, paying your bills on time, and making up missed payments and remaining current.
Credit repair companies will generally just end up costing you more, and do little to “clean up” your credit.
You are responsible for correcting errors on your credit report. Do so by notifying the credit reporting bureau in writing.
Also dispute the inaccuracy in writing with the creditor or information provider. Contact information will be on the report.
Carles is the Ohio State University Extension program coordinator for Hancock Saves.
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