February 17
Category: Playbook
What Is a Credit Report?
When you apply for credit, the lender first checks your credit report before making a decision. The three major credit reporting agencies—Equifax, Experian, and TransUnion—play a central role in this process. These agencies, also known as “bureaus,” actively gather and report financial information about consumers.
Importantly, your credit report includes:
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Your name and Social Security number
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Both current and previous addresses
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Your employment history
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A summary of opened and closed accounts or loans
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Public records like bankruptcies, judgments, or liens
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A list of companies that have accessed your credit report
Altogether, this information creates a comprehensive picture of your financial habits and includes a rating called your FICO Score.
What Is a FICO Score?
In short, the FICO Score is a system developed by Fair Isaac Corporation to assess a person’s creditworthiness. All three bureaus—Equifax, Experian, and TransUnion—use this scoring method to evaluate your financial behavior.
How Does the FICO Score Work?
To generate your score, a computer model compares your credit data with that of many other consumers. It reviews your credit card usage, balances owed, mortgage and loan records, as well as late payments and bankruptcies.
As a result, your score reflects both your current status and your credit history. Moreover, the model considers how much credit you have, how much you’ve used, and whether you repay on time.
Eventually, the system assigns a score based on this analysis.
How Is Your Score Calculated?
Here’s the breakdown of the FICO scoring formula:
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35% – Payment history
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30% – Total debt compared to your available credit
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15% – Length of credit history
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10% – Types of credit used (e.g., revolving, installment)
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10% – New credit inquiries and accounts opened
Clearly, payment history and total debt weigh heavily on your score.
Understanding the Score Range
You can receive a score between 300 and 850 points. Generally, a higher score gives you better opportunities. For instance, lenders may offer lower interest rates, higher approval chances, and better loan terms.
On the other hand, a lower score can limit your financial options. Consequently, it may prevent you from qualifying for loans or credit cards.
Our Game Plan
Raise your score and WIN the game! With a higher FICO Score, you gain an edge in today’s credit-based economy. Therefore, it’s wise to manage your credit responsibly, pay bills on time, and review your reports often.