Your Credit: Why Credit Reports and Scores Matter to Your Financial Health

Your credit health impacts your financial well-being and ability to achieve long-term financial goals. By regularly checking your credit report and score, and increasing your financial literacy, you will know what areas to focus on to develop a strong credit profile.

Why Credit Reports and Scores Matter

A credit report compiles information that details your history managing debt accounts, such as credit cards and loans. It shows the opening date of each account, the credit limit or loan amount and monthly payment history for up to 10 years. Your payment history will reflect payments made on time, as well as those made 30, 60 or 90 days late. You will also find credit inquiries from lenders and other entities that requested to view your credit profile, any bankruptcies, and collection accounts.

If you have a history of taking out loans and using credit cards, you will likely have credit reports with all three major consumer credit bureaus: Experian, TransUnion and Equifax. Credit scoring companies FICO® and VantageScore® use the information in your credit report to calculate your credit score. Your credit score may influence your ability to:

• Qualify for a credit card, personal loan, private student loan, auto loan or mortgage
• Rent an apartment or buy a house
• Set up utilities in your home without paying a hefty deposit
• Secure lower interest rates and more favorable terms
• Get a job offer

So, you want to know what’s in your credit report and where your credit score stands to develop a strong credit profile.

How Do You Get Your Credit Report and Score?

There are several ways to get your credit report and score for free. Visit AnnualCreditReport.com to get your credit report for free from all three credit bureaus. Experian also offers a free credit report and FICO® credit score to consumers.

You can also try contacting your bank or other financial institution and ask if they offer free credit reports and scores to account holders. Credit card companies and lenders also will typically provide your credit score if you request it.

Credit scores can differ depending on the credit report a score is based on, and among banks and credit card companies that provide your score. But don’t be alarmed. Not all lenders report payments to all three bureaus, and scores are often calculated at different times. Plus, credit scoring companies FICO and VantageScore publish several variations of their credit scoring models. So, slight differences in your credit scores are likely—but generally will show a similar pattern of how you manage debt.

If you practice sound credit management, such as making all your payments on time and keeping credit card balances low, you’ll likely have a strong credit profile. But if you don’t manage credit responsibly, your scores will reflect that as well.

What Is Considered Good Credit?

Knowing what’s in your credit report and where your credit score stands is just the first step. You’ll also want to understand the significance of good credit and how to build a good credit history, which will help boost your credit scores.

FICO credit scores, used by 90% of top lenders, range from 300 to 850. Here’s how credit scores are categorized: 

• Poor: 300 to 579
• Fair: 580 to 669
• Good: 670 to 739
• Very good: 740 to 799
• Exceptional: 800 to 850

A good, very good or exceptional credit score can unlock the door to many opportunities and help you meet your financial goals. You’ll likely qualify for lower interest rates and better terms on credit cards and loans, such as a mortgage or auto loan. A healthy credit score can also help you access additional housing options, discounts on auto insurance premiums and waivers on security deposits for utilities. The bottom line? A good credit score can save you a substantial amount of money over time.

How to Improve Your Credit Score

You can improve your credit health by understanding what factors impact your credit score. Here’s how your FICO Score is calculated:

• Payment history (35%): Payment history is the most important factor in your FICO Score and shows how you’ve managed your debt payments over time.
• Amounts owed (30%): FICO Scores focus on your credit utilization, or the amount of revolving credit you use, especially with credit cards. It’s best to keep your revolving credit balances under 30% of your credit limit for each credit card and across all your card accounts. Those with top FICO Scores typically have utilization rates in the single digits.  
• Credit history length (15%): Credit history considers how long you’ve held credit accounts. A longer credit history typically helps credit scores. 
• Credit mix (10%): Responsibly managing different types of credit, such as installment credit (student loans and car loans, for example) and revolving credit (credit cards and other credit lines), generally helps your credit score.
• New credit (10%): Recently opened credit accounts and the inquiries lenders make to review your credit count as part of new credit. Too much activity in this area can be a sign of risk, and could hurt your credit score.

If your score isn’t where you want it to be, follow these tips to help give it a boost:

• Make timely payments on all your credit cards and loans. A single 30-day-late payment can cause your score to drop significantly.
• Keep your credit card balances low. Avoid using too much of your available credit on credit cards. Always keep balances under 30% of your limit, and try for under 10%.
• Avoid too many credit applications in a short period. Several credit card inquiries in a brief window could ding your credit score. (Note: It’s OK to rate shop for home, auto and student loans—do it within a couple weeks, and only one inquiry will appear on your credit report and have little if any effect on your score.)
• Aim for a balanced mix of credit. Lenders like to see that you can responsibly manage both revolving and installment credit accounts.
• Become an authorized user. Ask a friend or relative to become an authorized user on their credit card. Your credit could improve if they use the card responsibly.
• Try Experian Boost™: This free service allows you to add utility, phone and streaming service payments to your Experian credit report. You could see an instant FICO® Score increase with the added on-time payment history.

You also want to ensure the information in your credit report is accurate. Review your credit reports from the three bureaus and contact your lender if you feel information has been reported incorrectly. Learn more on how disputing works with the credit bureaus.

Take Control of Your Credit Health

Your credit reports and scores are important because they play a significant role in your ability to reach financial goals, such as buying a home. The first step in understanding credit is to check your own credit, to see how your financial decisions have impacted you. Once you see what has been impacting your credit, you can take steps to maintain and achieve healthy credit behaviors