Advertiser Disclosure

Advertiser Disclosure: We may have financial relationships with companies listed on our site. We may receive compensation for placement of sponsored products or services and this may affect our decision about who to promote and where to promote them. We make every effort to be authentic and accurate with every article we write.

Credit Scores

Understanding Credit Reports

Credit plays a critical role in our ability to make good financial decisions throughout life, for our families and ourselves.  Without it, many of us would not be able to purchase the things we need and want and our opportunities would be limited.  Whether credit is needed immediately, or at some other time in the future, establishing and maintaining a good credit reputation is important for every consumer.      

Credit History

A consumer credit history refers to the record each of the three credit bureaus keeps of our past and present credit accounts.  Lenders, landlords, prospective employers and insurance companies all base decisions on the past payment history of individuals. This includes the number of revolving credit accounts that are currently open, the balance of each account, and the number of days a payment is late.  Any loans or lines of credit, and the history of each of these is also recorded in a consumer credit history.   

Credit Reports–What’s In Them?

Credit reports contain a great deal of information pertaining to a consumer’s personal credit record.  Information contained in a credit report includes all credit accounts, loans, judgments, repossessions and foreclosures.  The bill paying history of consumers is important since creditors base their decisions about whether to loan money on this. 

Credit reports are either single bureau reports or three-in-one reports.  Single bureau credit reports originate from just one bureau, while three-in-one reports are compiled from each of the three major credit-reporting agencies.

Credit Reporting Agencies—Their Role In Lending

There are three major credit-reporting agencies that service consumer accounts in the United States, Equifax, Experian, and TransUnion. These credit-reporting agencies, also known as credit bureaus gather specific information on consumer accounts from banks, card companies, retail stores and U.S. courts of law.

The credit providers, in turn, use information provided to them by credit bureaus to make decisions about whether to extend credit to consumers as well.  Since each of the three major bureaus may collect information on different consumer accounts, it is important for consumers and lenders to examine all three credit bureau reports before making financial decisions.

Free Credit Reports For Consumers

In accordance with the Fair Credit Reporting Act (FCRA), each of the three major bureaus are required to furnish credit reports free, to consumers every 12 months,  While many websites advertise free credit reports or free scores, they are not authorized to dispense credit reports free of charge for the federal government. 

Many of these sites direct the consumer to offers for credit-related services or trial offers that expire unless cancelled by the consumer.  Only the official website, allows consumers to receive a free credit report with no strings attached.

Credit Scores

Credit scores, also known as credit ratings represent the creditworthiness of consumers and are used by lenders to determine whether or not to extend credit to individuals.  Creditors also base interest rates for credit cards and loan terms on credit score ranges as well.  Although there are many different credit scores created by other companies, the most widely used is the FICO score developed by the Fair Isaac Corporation.  These scores range from 300-850 and are based on five general areas of an individual’s credit history.   

Though the exact formula for credit score calculation is only known to the FICO Corporation, the scores generally take into consideration the following information:

Payment history—35% of the score is calculated based on how well the consumer has paid debt in the past.  Any negative information such as late payments, charge-offs, repossessions, or foreclosures will contribute to this category.  The age of the negative item and how recently it was reported is weighted in the formula as well.

Debt –30% of the FICO score is based on current debt.  The credit score will reflect the amount of debt currently carried and the type of debt owed.  Certain types of credit, such as finance company loans may lower credit scores.  FICO breaks debt down into three main categories; revolving debt which includes all credit cards, installment debt that refers to loans, and open debt that must be paid off at the end of each month.  Each of these three types of credit is weighted differently within the debt category as well.

Time in file—15% of the score relates to the age of an individual credit file.  This is determined by averaging the opening dates of many types of accounts.  The older the line of credit, the better score that is assigned in this category.

Account Diversity—10% of a credit score is determined by credit mix.  Greater diversity in the types of credit used such as, revolving cards, installment loans, and mortgages adds weight to this particular category.

Credit Inquiries—10% of the score is based on the number of times a lender or retail store requests information from the consumer file.  This is an indication of how frequent the consumer has applied for credit and can lower the overall scores.

Credit Score Scale

A credit score scale places consumer credit scores in ranges that make it easier for creditors to make lending decisions.  Consumers can also see how their individual scores are evaluated within the industry.  FICO reports   their credit score ranges from 300 to 850. 

350-600 is considered a bad credit score.  Generally consumers will have difficulty obtaining any type of loan.

600-640 is a poor credit score, however consumers can still generally obtain credit, but will pay very high interest rates.

641-680 is considered a fair credit score.  Consumers can obtain credit with this score, but will not get the most desirable interest rates available.

681-720 is considered a good credit score.  It will be easy to obtain credit with this score and interest rates should be desirable at the higher end of the range.

720 and up is an excellent score and allows consumers to open accounts and borrow money at the best interest rates available.

How does credit repair work?

Many consumers consider credit repair as an excellent option to increase credit scores.  Old, inaccurate, or unverified information contained in a consumer credit report can cause credit scores to fall.

Sometimes creditors report information incorrectly.  Other times, credit bureau entries can be old and may negatively impact credit scores. By disputing erroneous or outdated information, you can increase your credit score by several points.

All three major credit bureaus, Equifax, Experian, and TransUnion accept disputes in writing and online. In addition to removing inaccuracies in consumer files, credit repair professionals also advise consumers about which accounts to pay off first and what lines of credit to open to build credit scores quickly.

Credit Counseling

The purpose of credit counseling is to educate consumers in the best way to pay down debt balances and manage personal finances.   Counseling also helps consumers create a workable budget where they learn skills to better manage their finances and pay bills on time.  Working within the financial resources available to individuals, counselors assist consumers in understanding the role credit can play in their finances as well.

With so many loans and credit cards offered at enticingly low interest rates, there’s never been a better time to finance.  Learning how credit reports work and the way scores are determined can help you make better financial decisions for you and your family.  At we give you the information you need, so you can get the best deals on financing in the industry.  Life is about opportunities, why should you have to wait?    

Photo of author

Jeff Dunphy

Jeff Dunphy has years of experience in the field of borrowing. He is the founder of a website that teaches consumers about credit cards, credit scores, loans, and credit repair.
Want to Say in the Loop?

Get the latest updates we offer about all things "Money" by signing up for the CashBlog newsletter.

As Seen on

The content on is for informational and educational purposes only. It is not financial advice and we are not certified financial advisors. strives to keep its information accurate and up to date, but it may differ from actual numbers. We may have financial relationships with companies listed on our site. We may receive compensation for the placement of sponsored products or services. We work hard to write authentic and accurate articles.