Credit Report and Credit Score Basics
The document that includes information on all of your credit payments and non-payments is called a credit report. The credit score represents the numerical value of the credit report. Creditors and lenders usually use the information from these documents in order to evaluate your creditworthiness and reliability as a borrower.
Either your credit report or the credit score (sometimes both) will be used as a source of information about your credit history when you apply for credit. These will show details on the late payments you have made on your credit cards. Previous loan defaults are also shown on the credit report, which is a factor in evaluating your mortgage reliability.
Information part of your credit report includes:
- Residence place
- Work place
- Way of paying bills
- Bankruptcy information (if such)
- Any judicial process against you (if such)
Almost everyone to whom you have obligation to pay is used as a source for information by the credit bureaus. The bureaus then process the information and calculate your credit score which can range from 300 to 850. The lower the credit score, the riskier the borrower is considered to be.
The final credit report is provided to the businesses that are interested in it. However, the information that is available to the business entities is limited to the permissible purpose rule established by the FCRA (the Fair Credit Reporting Act).
The process of information gathering is not a one-way. Creditors and lenders also send information about your credit status to the credit bureaus. The data sent refers to your creditworthiness, such as monthly payment activity, balance of the credit account and its status. Then the information in your credit report is updated with the new one and provided to the interested parties.
Have in mind that there is more than one method that is used to calculate the credit score. The most widely used credit score model is the FICO score (named after its developer - the Fair Isaac Corporation) and all three major credit bureaus have their own variation of the FICO score. They are as follows:
- Beacon System - used by Equifax
- Experian / Fair Isaac System - used by Experian
- Empirica System - used by TransUnion
It is recommended to check regularly your credit report so that you know what your current status is. A copy of your credit report can be received from one of the three credit bureaus. Additionally, every year a free copy from each of the three credit bureaus is provided upon request. Yet, you should keep in mind that your credit score doesn't come for free with your credit report. Instead you should pay extra for it to the corresponding credit bureau, which issues your credit report.
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