The 4 Essential Steps to Understanding Your Credit

Updated: Apr 5

Your Credit Score and History Report Explained


What is Credit?


View your finances through the lens of a student in school. You have many different assignments and classes and certainly ups and downs. Your credit is your school transcript, showing all your official grades and ranking you on a set scale. This is how banks assess your buying power, how interest rates are determined, and how many employers assess your professional reliability. Your credit is the canonized story of your financial self.


This article will walk you through the 4 essential steps to understanding your credit score and starting your journey towards financial wellness.


  1. How to Get Your Credit Report

  2. What is a "Good" Credit Score?

  3. How to Build Credit

  4. How to Improve Credit


Credit Score vs Credit Report


Let's continue the analogy that your credit functions like grades in school: Your credit report represents your report card, detailing your histories, such as late payments, discharged accounts, and outstanding loans. Your credit score, however, is more like a GPA, a simple number to quickly summarize the whole report.


A credit score is the numerical value based on your credit history. A credit report is a summary of your history of paying debts and other bills.


Are There Different Kinds of Credit Reports?


In the United States, there are three major reporting bureaus from which you (as well as lenders) can receive a unique credit report. While they most often contain the same information it is important to check all three as one could contain errors that the others do not. Lenders often consider a "score" based on all 4 bureaus.


The three bureaus are:

  • Experion

  • Equifax

  • Trans Union


Step 1: How do I get my Credit Report?



Every credit reporting agency is required to provide a free copy of your credit history report every 12 months. There are three major credit bureaus Experian, Equifax, and TransUnion. It is recommended to start with just one report so you can track your progress by checking the others at 4-month intervals. You can request each individually on the reporting agency's website or visit annualcreditreport.com to request all three. You can also request your reports by phone: 877-322-8228.


Each person is entitled to a full credit report from each of the three major reporting bureaus each year.


AnnualCreditReport.com is the only authorized online source for this service. from there you can select which reports you want to see and view them in full after verifying your identity

Or you can request your credit report directly from each reporting bureau.


Request Experian Report

Request Equifax Report


Request TransUnion Report





Alternatives:


Credit Karma - If you don't want to use up your free yearly report (or you already have) there are other less extensive and easier ways to see an estimated score. The most popular of which is Credit Karma. Sites like credit karma do not count as your free yearly report or show as an inquiry or "pull" on your credit. However, the information may not be as complete or as accurate as your full

report.


Professional Credit Service - Most professional credit repair services offer a free credit report as well as a credit evaluation. Repairing, or removing errors, from your report is a great and easy way to boost your credit score and clean up your credit history. We recommend checking out Lexington Law or Creditrepair..com


Credit Monitoring - Transunion, one of the three major credit bureaus offers credit monitoring and protection to help safeguard your score and protect your identity. Get your free evaluations with TransUnion to see your credit score and report. Learn more here.


Does Checking My Credit Report Hurt My Score?

Checking your own score or requesting one of your yearly free credit reports does not harm your credit and does not appear as a "hard pull" among your credit inquiries.


What is a Hard Pull?

a hard inquiry or "pull" is a credit lending term referring to when someone, usually a lender, requests and views your credit report, this can cause a small negative impact on your score. Inquiries on your report can become a problem if you request and are denied for many loans or accounts. The impact when shopping reasonably is usually negligible. in addition, FICO will typically record multiple credit inquiries as only one if they are no more than 14 days apart.



Step 2: What Is a "Good" Credit Score?



There are two scores that a lender may consider to determine your buying power. Your FICO score and your VantageScore, although they consider much of the same information your score can appear slightly different.


FICO Score VantageScore


Exceptional 800-850 Excellent 750-850

Very Good 740-799 Good 700-749

Good 670-739 Fair 650-699

Fair 580-669 Poor 550-649


While your specific history may be more powerful than your numerical score, many lenders prefer a score of 620 or higher for conventional loans. A credit score can often be deceiving because it does not always accurately represent someone's odds of approval. There are many 670s will no installment loan payments on their report, who could not get approved for the same car as a 570 who has several loans under their belt.


What Is The Average Credit Score?


The average credit score can vary widely by state but when we view national averages we see that there is high entropy among credit scores. Do not feel bad if your credit is less than perfect because you are not alone!











FICO Score vs Vantage Score



What Determines My Credit Score?


Your FICO score is determined by a number of factors, the largest of which (35%) is determined by payment history. Installment payments on loans such as an auto loan, is one of the fastest credit-building tools. Other factors include your employment history, debt-to-income ratio, and your housing stability.



How Does my Credit Affect Me?


Your credit score and history is the number one factor that will determine the amount of interest you pay on any loan. The key to financial prosperity is to avoid interest at all costs, as you will never see a return on interest paid. Making a small improvement to your score can save you thousands on long-term interest payments.



Step 3: How to Build Credit


some may have low credit scores or be turned down for loan opportunities, not because they have made mistakes, but because they simply have a limited credit history. Those with little or no credit history may be intimidated by breaking into the credit world, but you will find that many lenders and institutions give newcomers the benefit of the doubt.




My Score is Not Bad: Why Can't I Get Approved?


An inflated or "ghost score" is credit lending jargon referring to someone who has a deceptively high score while having no or very little credit history. This is why credit reports are important, because a high credit score may not represent great buying power. This phenomenon can be common among those who may have credit cards or small listed transaction but does not have the installment payment history to back up their high score.


Credit history from variable sources such as credit cards is known as "revolving credit" because the amount each month changes. Installment credit is payment records that are paid in uniform amounts on a set schedule, such as auto loans. While credit cards can help improve your score Installment credit has much more influence in determining your buying power than revolving credit.



Your First Auto Loan


Those with no credit are surprised to find the wealth of institutions that offer "First-time buyer" programs. Many dealerships and major manufacturers offer such programs in order to approve those who have little to no credit history. once you have an auto loan you are making installment payments. Having on-time installment payments on your credit history is the fastest and most surefire way to improve buying power. Many buy-here-pay-here lots and dealers that offer in-house financing will also report to the credit bureaus, allowing those who cannot get approved for traditional bank loans to build their credit.



Step 4: How to Improve Credit


If you have a low credit score or have made mistakes in the past you may want to seek the help of a credit repair service that can find mistakes and negative reports that are damaging your score. Credit repair can be an easy and cost-effective way to boost your score and get the financing you need. See our Top 5 Credit Repair Services.


How Long Do Negative reports Stay on My Credit?


Credit Inquiries- 2 Years or Less

Repossession - 7 Years or Less

Bankruptcy- 10 Years or Less

Tax Liens - Indefinitely



What Is Credit Repair?

Credit repair or restoration is the process of identifying erroneous or negative reports that may be preventing you from improving your credit score. If you are interested in improving your score through a credit repair check out our recommended services or our DIY credit repair guide.


Best Credit Repair Services:


-Lexington Law

-Creditrepair.com

-The Credit Pros

-Credit Fix Guy

-Credit Firm


Getting a Loan with Bad Credit.


Due to changing economic conditions, more and more auto dealers are employing credit forgiveness or credit amnesty programs these special finance programs can get the average person approved for an affordable auto loan even with poor or little credit. Bad credit or "sub-prime" auto loans account for much of the used car market today. People who have experienced repossession, discharges, or bankruptcy can still get approved for a qualified auto loan.


Personal loans, home loans, and credit cards can be difficult to get approved for with less than perfect credit if you have a poor or limited credit history auto lenders tend to be much more flexible by offering access to a wide array of finance options. To see how you qualify you can begin the process online with our 3-minute application.