Before lending you money, every lender wants to be sure that you will pay it back on time. Therefore, banks and financial institutions only look at your credit score to save time.
A credit score is made up of many parameters, such as credit utilization, and is a number between 300 and 850. The higher your score, the easier it will be for you to get a loan, and the better your terms will be. Typically, borrowers with credit scores of 750 or more will get offers with a 0% interest rates, while loans for bad credit have interest rates starting at 36% APR.
Each lender puts different requirements on borrowers, so if you don’t know your credit score, you could be wasting your time applying to financial institutions that won’t accept your score. Do you want to see your credit report and find your credit score for free? Then read this article to the end.
How Credit Reports are Used?
A credit report is all the information about you as a borrower in one place. It lists all your loans, the current amounts owed, paid and unpaid bills, and overall credit history. A limited number of people have access to your credit report because it stores sensitive information. For example:
- Lenders use it to check your credit history and be sure you are a reliable borrower.
- Insurance companies use it to determine what rates to offer you.
- With your permission, an employer can check your credit report when deciding whether to hire you.
- Landlords can contain information about you through your credit report to decide whether to rent to you.
- Banks may ask for a copy of your report before they open a bank account for you.
- Government agencies may check it upon request to determine if you qualify for government benefits.
It is essential to know what your credit report says because sometimes creditors or credit bureaus can make mistakes. To ensure it doesn’t negatively affect your life, ask for your free report and check it regularly.
Free Credit Score vs. FICO Score
Your credit score is a three-digit number showing how well you can manage your finances. The higher your score, the more trustworthy you are as a borrower, tenant, or employee.
Typically, credit reporting agencies or the three major credit bureaus: Equifax, Experian, and TransUnion, compile your credit report. Then, they check the information in it and calculate your final credit score.
However, 90% of lenders use the so-called FICO score. What is the difference?
The FICO score is a type of credit score. In the late 1980s, the Fair Isaac Corporation developed a scale of 300 to 850 for evaluating credit risk. These calculations are also based on information from the credit report, namely:
- Payment history.
- Credit utilization.
- Credit age.
- Credit mix.
- Credit inquiries.
The most exciting thing is the variety of FICO credit scores. There are more than 30 of them, and the most popular are FICO 8 and FICO 9, used by lenders to make lending decisions.
How to Check Your Credit Report
Once a year, you have the opportunity to get a free credit score from any of the three credit bureaus. However, that’s not the only way to find free credit scores, so we’ll tell you more about them:
- Find your credit card or loan statement or go to your bank account and see if the bank listed your credit score.
- Go to www.annualcreditreport.com and get a free credit score.
- Create an account on the Equifax website and check your free credit reports six times a year, every two months.
- You can also buy credit reports from the three major credit bureaus.
- Several websites can give you free access to your credit score. NerdWallet and CreditKarma are some of them.
Some credit reporting agencies provide your credit reports for free, while others do so for a monthly fee. Choose the right option for you and regularly check to see if your credit history is okay.
Credit Score Ranges
There are only five categories of credit scores. We have created a small table to make it clearer to you which one you need.
| Credit score | Points | Description |
| Poor | 300 to 579 | Users with this number of points can rarely get a new loan; they often have to turn to payday lenders. |
| Fair | 580 to 669 | This category has the highest proportion of borrowers. Lenders often consider them risky borrowers and are less likely to give them loans. |
| Good | 670 to 739 | This category of borrowers can get a loan 90% of the time and quickly get great credit cards or home loans. |
| Very good | 740 to 799 | Users in this category can quickly get loans or credit cards even with 0% APR. |
| Excellent credit | 800 to 850 | These are low-risk borrowers. It’s easier for them to get an outstanding loan at a low interest rate or to rent a home. |
Each bank and credit card company sets a minimum credit score for its borrowers. For example:
- You must have 660 FICO points to get an Apple Card, 670 points for an Amazon Card, and 700 points or more for a Best Buy credit card.
- Those who want to buy a car on credit also need good credit score to get a rate of less than 10% APR.
- The minimum credit score needed to qualify for a mortgage is 620 points. However, if you have a lower credit score, you may apply for Federal Housing Administration (FHA) loans, which can help people with as few as 500 points.
- Your credit score can also make a difference to a landlord when you want to rent a house. Realtors usually recommend having at least a 620 to ensure you have no trouble finding a place to live.
In general, your credit score does not determine your life, as you will still be able to rent an apartment or get a loan even if you have a low FICO score. The only difference is the loan terms. If you have a low credit score, lenders consider you a less reliable borrower and charge a higher interest rate to cover their risk.
Credit Score Factors
Knowing which parameters affect your credit score, you can improve it faster and get loans on better terms. Of course, the specific criteria may vary depending on which scoring model is used. Still, these factors always have an impact:
- Payment history significantly impacts your credit score (35%). This is why you should never miss a payment – even one missed payment can harm your score.
- Credit utilization, the total amount of your credit relative to your total credit limit, is 30% of your score. Experts advise not to use more than 30% of your available credit to keep this figure as high as possible.
- Credit age (15% of your total score) shows lenders how long ago you opened bank accounts and started using credit. As a result, the older your credit history, the higher your credit score.
- Credit mix affects 10% of your final score and shows how well you handle different types of credit products.
- Credit inquiries show lenders whether you have had any recent attempts to obtain new credit. This score is responsible for another 10% of your score.
Request for a Free Credit Report is Denied – What to do?
If you have been denied a free credit report, you are probably requesting it too often. Usually, the federal law in all states allows you to get one free copy of a report within 12 months.
What should you do if you are denied?
- Try requesting a credit report from another credit bureau. You can get one copy per year from one credit reporting company, which means a minimum of 3 from different credit bureaus.
- Order a paid copy from any credit bureaus or companies.
- Sign up for websites like CreditKarma or NerdWallet.
If all of the above ways don’t work for you, you could order free credit monitoring services from a financial institution that includes multiple credit reports.
Negative Information & Errors in a Credit Report
Every action you take related to credit is put on your credit report, and some of them negatively affect your credit score. For example, failing to pay your loan on time or passing on debt to debt collectors can lower your score for seven years unless you negotiate to remove those marks from your credit report.
There are several types of these harmful items:
- Late payments.
- Delinquent credit accounts.
- Charge-offs.
- Debts sent to collectors.
- Bankruptcies.
- And foreclosures.
All of the above credit report negative information affects your ability to get new credit because it shows lenders that you are an unreliable borrower. The good news is that you can remove this information from your report or reduce its impact if you negotiate with the lender.
Fixing errors in a credit report
The easiest way to remove negative marks from your credit report is to prove that there are inaccuracies by sending letters of disputes online. For example, the creditor misstated your bank account information, or the credit bureau made a mistake in your name, all of which can be appealed and cause the negative lead to be removed.
Often users contact credit repair companies to file complaints on their behalf and communicate with the bureaus until they get a result, but you can do it all yourself. You should check your credit report for the following errors:
- Incorrect account status.
- Incorrect information about your payment history.
- A negative mark older than seven years.
- Wrong account numbers or credit accounts.
- Inaccurate credit limits or loan balances.
- Wrong address.
If you find one or more of these errors, you should gather documents to confirm them and send online disputes to the bureaus. The bureau will remove the mark from your credit report if this information is verified.
File a complaint
If you think your credit report is wrong or the credit bureau is violating your rights, you can file a complaint with the Consumer Financial Protection Bureau (CFPB).
This procedure has been in place since 2011 and protects borrowers from problems such as
- Failure to obtain a copy of their credit report.
- Issues with credit protection services.
- Incorrect information on the credit report, etc.
You can file a credit reporting complaint at https://www.consumerfinance.gov/complaint/, call the organization’s number, or send a letter to Consumer Financial Protection Bureau, P.O. Box 4503, Iowa City, Iowa 52244.
Once the bureau sees your complaint, you will get a tracking number and can track the response online at the CFPB website.
What can Hurt Your Credit Score
You will be fine with your credit score if you consistently pay your loans on time. However, there are other indicators that few people know about, but they, too, have a significant impact on your final credit score:
- Using most of your available credit.
This metric is called the debt-to-credit utilization ratio. Let’s consider a $5,000 credit limit on all cards to understand how it works. If you currently owe $4800, creditors will not want to give you new credit. If you use at most $1500, however, you will show the banks that you are managing your finances well and not spending your credit at zero. - Delinquent Payments.
Every late payment is a problem for your payment history and credit score. So always put reminders on your phone for all your due dates to pay your credit and bill payments on time. - Lots of recent credit inquiries.
If a lender sees that you have taken out or applied for several new loans in the last month, they are more likely to deny you a loan. So try to divide up big purchases so that you only borrow once every 2 or 3 months. - Closing a credit card account.
This decision will affect your credit utilization ratio and lower your credit score. So if you want to take out a big loan, try to open a new card with higher credit limits 2-5 months in advance, but use it sparingly.
How Credit Score affects the mortgage rate
Your credit rating significantly impacts the terms of the loans you can get. For example, you can get a mortgage with a 4% APR if you have excellent credit. However, if you have good credit, lenders’ offers will start at 5% APR.
Let’s translate the interest into dollars to clarify what we’re talking about. For example, you want to buy a house worth $500,000 and need a $400,000 mortgage for 25 years. The result:
- If your interest rate is 4%, the loan price over 25 years will be $400,000, and you will give $800,000 total over that period.
- If you have a 5% interest rate, the price of your loan is $500,000, and your total payoff over that period is $900,000, which is $100,000 more than in the first case.
That’s why you should strive to have as high a credit score as possible and get loans on favorable terms.
How Often Should You Check Credit Score?
Experts recommend checking your credit report at least once every 6 to 12 months with a free copy from any credit bureau. In addition, you can request a credit report from the Equifax, Experian, and TransUnion websites at any time. This approach will inform you of your options and ensure you haven’t fallen victim to scammers and no one has obtained credit in your name.
- However, there are situations where you are better off checking your credit report more often:
- You want to take out a loan or open a new credit card. A credit report can help you understand what terms to expect and which lenders to approach.
- Your credit rating has plummeted, and you don’t know why this has happened. If this is the case, get a copy of your credit report and determine why your credit score dropped.
Why can Credit Scores Checks Results be Different?
As we have already mentioned, free credit scores are created by several credit bureaus and companies. For example, the most popular scoring model that most lenders use is the FICO score. This company has made more than 30 kinds of FICO scores, each used for another purpose and can be different for the same person.
Also, your credit reports may differ because only some creditors report to all three major credit bureaus. Because of this, the information in credit reports will be different, and so will your credit scores.
The final reason your final rating affects the day your credit score is calculated. Even if you get information from the same credit bureau a few days apart, your credit report might be updated and contain new data affecting your credit score.
However, these changes are usually insignificant unless you have done something negatively affecting your overall score (such as taking out a debt consolidation loan).
