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8 things you need to know about your credit report and credit score

Most likely, at some point in your life, you’ll need to borrow money. Whether it’s to buy a home or a car, or maybe to start a business, someday, you’ll need credit. But, before a lender will give you a loan, you’ll need to prove you can pay the money back. The proof comes in the form of your credit report and credit score.

You’ll be evaluated on your creditworthiness during the loan process, and it can be intimidating. But it doesn’t have to be – not if you understand credit reports and credit scores.

Here are eight things to know about credit reports and credit scores:

1.    To get credit, you need to have credit
Nearly everyone needs credit at some point to fund a major purchase like a home or a car. But first, you need to establish a credit history. Otherwise, it may not be easy to get credit when you need it. When you establish a credit history, the major credit-reporting agencies will have a record of you having paid on your accounts on time, making it more likely that you’ll qualify for a larger loan. To establish a credit history, consider opening a store credit card (it’s a good idea to begin with a low credit limit) or buying a smaller item that you need (like a phone) in installments. 


2.    Credit reports and credit scores are not the same
While your credit report and credit score are linked, they are not the same thing. 

Your credit report is created by a credit-reporting bureau and assesses your worthiness to get new credit. Your report is a record of your credit history and lists information like:

  • Your credit accounts

  • How often you’ve applied for credit

  • If any of your accounts have gone to collections

  • Information from public records including judgments against you, liens, and bankruptcies

  • A list of everyone who has asked recently about your credit 

Based on your credit report, the credit bureaus calculate your credit score. The three main credit bureaus have different scoring criteria, but the general range is from 300 and 850. The higher your credit score, the better.


3.   Higher credit scores = better loan interest rates 
You’ll have an easier time getting loans when you have a higher credit score because you’ll be seen as more likely to repay the loan on time. And the interest rate you pay will be lower. Just shaving a tenth-of-a-point off your mortgage interest rate could save you thousands over the loan term.


4.    But what is your credit score based on?
Credit bureaus consider five different categories in scoring your credit.

  1. Payment history – They will consider if you’ve had late payments on existing credit. Late payments create a big hit on your score as payment history accounts for 35% of your credit score.

  2. Credit use – For this category, the credit bureaus look at how much of your available credit you are currently using. Generally, it is best to show the use of 30% or less of available credit. For example, if you have a credit card with a $10,000 limit, they’d like to see you owing $3,000 or less. The 30% threshold consists of all your available credit, so it is ok if one account is higher than 30% if others are lower. This category makes up about 30% of your credit score.

  3. How long you’ve had credit – Credit bureaus like to see older credit accounts because it shows a history of responsible use of credit. If you have a credit card that you no longer use, you may want to keep the account open to increase the average age of your credit accounts. This accounts for 15% of your credit score.

  4. Types of credit – Having a history of a variety of credit accounts such as credit cards, car loans, and home loans demonstrates that you’re responsible and able to manage multiple types of debt. About 10% of your credit score comes from this category.

  5. Credit inquiries – When you apply for credit, the lender pulls your credit report, and it’s listed as an “inquiry.” Lenders may be reluctant to issue more credit if there have been multiple inquiries, leading to a lower credit score. This category makes up 10% of your score.


5.   It’s a good idea to check your credit yearly
You should check your credit report at least once a year. Doing so won’t hurt your credit score, and it may help you spot fraud, inaccurate, or incomplete information. You can get one free credit report a year from  


6.    Credit reports sometimes have inaccurate info, but you have rights 
Federal law, and sometimes state law, gives you specific rights regarding your credit report’s information and its release to others. Many of these rights allow you to control issues that could impact your life. For example, you have a right to ensure that your credit report is accurate, and you can demand that errors be corrected. You also have the right to take your name off solicitation lists compiled from credit bureau files, reducing the number of sales pitches you receive.


7.    Credit scores are individual
Even if you’re married and have only borrowed money jointly, your credit score is yours alone. So, if you add someone with lesser credit to an account, your credit score won’t drop. But, if the person doesn’t make a payment that they are responsible for on your joint account, it will negatively affect your credit score. 


8.    Harmful information on your credit report drops off eventually
If you’ve had some less-than-stellar credit moves in the past, such as missed or late payments, take heart because they will eventually fall off your credit report. Most negative entries will drop off in two to 10 years after they were first reported. Even if the entries remain for 10 years or longer, if the rest of your credit history remains clean, the negative items will account for less and less as time goes on.

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