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Financial Planning: Credit Scores

What is a Credit Score?

A credit score is a numerical value, between 300 and 850, that credit bureaus use to determine your trustworthiness in repaying debt.

There are three major credit agencies - Equifax, Experian, and TransUnion. Each agency calculates your score from your credit history, which they collect for a credit report. All three use a scoring model called FICO (developed by the Fair Isaac Corporation). Each agency calculates your score using different statistical models based on FICO, so your score will slightly vary between the agencies. The agencies generally pay attention to five major factors in calculating your score.

  • Your payment history -- whether you pay your debt consistently and on time, or not
  • Your debt -- how much money you currently owe to lenders, through loans, mortgages or credit card debt
  • Your credit history -- how long you have been paying off debt
  • Your lines of credit -- how many credit lines and of what type you have, along with any outstanding loans
  • Your new credit -- any new credit you have obtained, or attempted to obtain, in the last year or so

Paying your debt consistently will improve your score. Acquiring new debt may not improve your score, even if you are making your payments. A rule of thumb is that using less than 30% of your credit card's limit will give you a much better credit score than anything more than that. Missing or late debt payments will lower your score considerably, as will opening more than one credit line in a year. Credit checks from employers or landlords, offers of "pre-approved" credit cards, and your request for the annual free copy of your credit report will not affect your score.

If you want to maintain a consistently high credit score, it is best to pay your monthly debt on time, spend money within your means, and only acquire debt that is necessary or important (such as a student loan, or a mortgage).

What Is a Credit Report?

Lenders use credit reports to decide if they will offer you a loan, and to set the interest rate. They may use your latest credit report to change the terms of the loan (such as raising or lowering the interest rate). Businesses and landlords often use credit reports in deciding to offer insurance, phone or internet service, or apartment rentals.

A credit report will include your basic information, such as your name, current address, social security number, and birth date. It will also have your basic credit history within the past few years, such as:

  • Current and historical credit accounts, including the type of account (mortgage, installment, revolving, etc.)
  • The credit limits on those accounts
  • Your outstanding account balance at the time of the report
  • Your payment history
  • The date the account was opened and closed
  • The name of the creditor

Any liens, bankruptcies, foreclosures, overdue child support or civil suits will also be included in the report, and used to calculate your credit score.

Correct Errors on Your Credit Report

Potential lenders generally use only one of the three credit agencies to obtain your credit score, and it's impossible to know which one, so it is a good idea to obtain a copy of your credit report every year to make sure the report is accurate, and to look for any signs of identity theft (such as a line of credit opened in your name that you do not recognize).

If you do spot errors in your report, you can and should contact the credit agency regarding the error and request that any misinformation be removed. The agencies are diligent in making sure every report is as accurate as possible. You generally only need to provide information that was missing or incorrect on your application for a free credit report.

If you are unable to resolve your dispute with the agency, file a complaint to the Consumer Financial Protection Bureau online or by phone at 1-855-411-2372. 

External Resources

Obtaining Your Credit Report

You have the right to obtain a free copy of your credit report from the three agencies, once every twelve months.
Request your free credit report:

Online: Visit

By Phone: Call 1-877-322-8228. Deaf and hard of hearing consumers can access the TTY service by calling 711 and referring the Relay Operator to 1-800-821-7232.

By Mail: Complete the Annual Credit Report Request Form and mail it to:

Annual Credit Report Request Service
PO Box 105281
Atlanta, GA 30348-5281

The Major Credit Agencies

You can contact each credit agency directly to dispute and correct any information on your report.

CFPB's Video Guide to Credit Reports and Scores