Experian, Equifax, and TransUnion, the three major credit-reporting agencies in the U.S., produce credit reports on individuals for lenders to use as a reference. All three are very similar — they offer consumers credit report checks with various levels of detail scaled to price, a comprehensive report from all three sources, periodic credit checks, ID theft prevention programs and other consumer resources.
All three agencies produce a credit score based on their information, and they submit information to Fair Isaac and Company (FICO) to produce a FICO® credit score, which is by far the primary credit score that lenders use for credit evaluation. FICO® scores range from 300 (highest risk) to 850 (lowest risk).
Beware — not every credit score is a true FICO® score! Other credit scores may be of limited or no use to a lender. The credit scores provided by the three agencies are a useful reference, but they may not necessarily match the credit score supplied to the lender. FICO® scores may be ordered directly from myFICO.com.
To qualify for a credit report, you need to have one open account with 6 months history and have had some activity reported to the credit agencies within that time (verifying an active account). You're entitled by Federal law to one free credit report from each agency within every 12-month period; they may be obtained online at www.annualcreditreport.com or through 877-FACTACT (877-322-8228).
Reports may differ between companies, but will contain:
- Personal information – Your name, date of birth, Social Security number, and current address.
- Accounts Summary – The summary of all credit account activity you have (credit cards, loans, mortgages, etc.).
- Inquiries – A summary of credit report requests on your account within the last 2 years (excluding your own). Multiple credit requests raise flags. Do any loan rate shopping in a short period to minimize the impact.
- Negative Items – Nonpayment of bills, late bills, bankruptcies, and similar events. These may be reported by creditors or collection agencies, or gathered from public records (such as tax liens, foreclosures, garnishments of wages, or bankruptcies).
Incorrect information should be corrected as quickly as possible. All three major agencies have online dispute assistance, but ultimately the correction must be made at the information source. Sources have 45 days to respond.
The agencies consider the following factors in generating your score (percentage values are the general contribution to the score):
- Payment History (35%) – Which kinds of payments are late, how late, how often, and in what amounts? Older credit problems carry less weight if your recent credit history shows improvement.
- Total Debt (30%) - Do you owe too much compared to the other factors in your situation? Are you paying down balances or just interest?
- Length of Credit History (15%) – Are you a good or bad credit risk, or just an unknown?
- New Credit (10%) – What types and volumes of new credit are you applying for? Are there indications that you may be overextending yourself (or conversely, being more responsible with your credit than in the past)?
- Credit Types in Use (10%) - Are you concentrated in any one type (for example, multiple credit cards with high debt)? The best approach is having a few credit cards and installment loans such as a mortgage, and paying them off regularly.
Your credit report is your best asset in securing loans and qualifying for better rates, so it is extremely important to check it regularly. At the minimum, take advantage of your one free report per year from each agency, and check them several months before making large purchases (like a home) to correct errors before you need to apply for a loan.
If you would like to monitor your credit to prevent identity theft and see your credit reports and scores, check out our credit monitoring service.