Understanding Credit Reports

A credit report is simply a report that details your credit history. It contains information pooled from anyone and everyone that has lent you money and reported it to a credit bureau. This can be credit grantors such as retailers, credit card issuers, banks, finance companies, credit unions, doctors, etc. There are three main credit bureaus, Experian, Equifax and TransUnion. Lenders will typically report to one of or all and will typically do so on a monthly basis. Credit Reports, in addition to financial information, can contain personal information such as name, address, Social Security Number and your public record which includes information such as bankruptcies, tax liens and judgments.
Credit reports show such things as:


• who has extended credit to you
  
• beginning balances, high balances and current balances
  
• what type of credit you possess (secured, unsecured or revolving)
• how long your accounts have been open
  
• how many accounts you have and
  
• whether you've paid your bills on time
  

It is important to note that all pieces of your credit report must be viewed together to have a clear picture of your credit performance. This full picture is now interpreted as a number, known as your "Credit Score".

A credit score is a number generated by a mathematical equation taking into account all aspects of your credit report. The equation takes into account your credit history (have you paid your bills on time or not and statistical information about how you pay your bills - 35%), the amount you owe ( balances of all money lent to you, whether secured or unsecured, and are you are close to maximum credit availability or not - 30%), length of credit history ( how long have you had credit 15%), new credit ( how many of your accounts are new, are you applying for new ones - 10%) and types of credit used ( secured or unsecured, fixed or revolving - 10%). It's important to note that your score helps lenders identify the risk in lending you money. The higher your score, the less risk you are which translates into lower or higher interest rates, or larger amounts of money or higher credit lines offered to you. Based on how you rate in the percentages above, you will be given a score anywhere from 300 to 850.

There is one generic formula that the bureaus typically use which is called the "FICO®" score. This is the basic mathematical equation used. There are other credit bureau scores, although FICO scores are by far the most commonly used. Other credit bureau scores may evaluate your credit report differently than FICO scores, and in some cases a higher score may mean more risk, not less risk as with FICO scores. They will either use it alone to determine your risk, or they will use the score along with a formula of their own to generate a number they feel more comfortable depending on what type of credit is being determined. Below are the names of the scoring systems the credit agencies use:


Credit Reporting AgencyFICO Score
EquifaxBeacon®
ExperianExperian/Fair Isaac Risk Model
TransUnionEMPIRICA®


Your score will most likely be different at all three agencies. It is important to realize this and when applying for new credit, your lender will typically pull all three scores if they don't use just one to determine your risk. It is also important to know that your score is not a static number. Considering that your lenders typically report every 30 days, your score will change just as much and is only generated when a score is pulled. In other words, your score could be different tomorrow from today.