What is a Credit Score?

  • A credit score is a three-digit number based on a borrower’s bill-paying history and debt profile and statistical information about other borrowers that lenders use to determine the likelihood of certain credit behaviors, including whether you will pay on time.
  • Your credit score is key information that you need to have a complete understanding of your credit profile.
  • Your credit score will have an important impact on the interest rate you will pay to borrow money.
  • Knowing your credit score allows you to question the accuracy of the score and to negotiate the best rates with lenders.
  • A credit score is not included in a consumer credit report and must be purchased separately.
  • A consumer credit reporting agency must sell you a credit score but can charge you a reasonable fee.

Increasingly, credit scores are being used for purposes other than determining whether you will default on a loan or make late payments. For example, some insurers are using low credit scores as indicators to identify individuals they believe are more likely to make claims against their insurance policies. These insurance companies maintain that there is a correlation between poor credit and filing multiple insurance claims. There have been challenges to these practices and legislative attempts to ban this practice. Nonetheless, the practice persists. An accurate credit score can make the difference not only in interest rates charged on loans, but also on the availability and cost of insurance, an important essential for most families.

How can I get my credit score from a lender?

In some cases, you are eligible to receive your credit score for free. If you are applying for a home loan after December 1, 2004 your lender is required to give you your credit score for free if the lender uses credit scores.

If you are not eligible for a free credit score from a home lender, you may purchase your credit score directly from the consumer credit reporting agency.

You may contact the three major consumer credit reporting agencies at:

800 685-1111
http://www.equifax.com
P.O. Box 740241
Atlanta, Ga.
30374-0241

888 322 5583
http://www.experian.com
P.O. Box 2002
Allen, Texas 75013

800 888-4213
http://www.transunion.com
P.O. Box 1000
Chester, Pa. 19022

Am I eligible for a free credit score with my free annual consumer credit report available under the FACT Act?

No. While the FACT Act requires the consumer credit reporting agencies to provide you with annual consumer credit reports free of charge, they are not required to give you your credit score for free. They are allowed to charge you a “fair and reasonable fee” for your credit score, as determined by the Federal Trade Commission. The amount that consumer credit reporting agencies can charge you for your credit score must be set by the FTC and as of this date has not been published.

We recommend that you request and pay for your credit score when you request your free annual consumer credit reports. Upon request, consumer credit reporting agencies must provide credit scores and information on up to four key factors (or five factors if the number of inquiries was a factor and not among the four key factors) negatively affecting your credit score. You should purchase your credit score alone, not as part of a credit monitoring package.

To decide how many credit scores you should buy, we recommend that you first review your consumer credit reports from all three major reporting agencies. If they contain the same information about you, then order your credit score from only one consumer credit reporting agency. If your consumer credit reports vary, order your scores from all three, since it is important that your credit scores from each of the three agencies be consistent. You do not want to be denied credit or charged more for credit simply because one consumer credit reporting agency reported a score that was not based on accurate and complete information. See below for more about credit scores.

How is my credit score calculated?

Your credit score is calculated by using mathematical models that analyze your creditworthiness. The models consider the amount and types of debt you owe and then analyze and compare your repayment history with thousands of other consumers to arrive at a credit score.

Some of the most important factors in determining your credit score include your previous payment behavior, how much you owe, how long you have held outstanding credit, whether there are a lot of inquiries in your file from prospective lenders (except if you are shopping for an auto loan or a mortgage within a short period of time), the type of credit you use, and how much credit is available to you.

One of the most important factors in your credit score is how much of your available credit you are using. Your credit scores can be lower than they should be when credit card companies do not report the credit limits on your accounts. When credit limits are missing, most credit scoring systems substitute the highest balance for the missing credit limit. This will lower your credit score because it will appear that you are using all of your available credit even when that may not be true. Make sure that you deal only with credit card companies that report credit limits on your accounts.

What do the scores mean? The higher the score, the better your credit rating. In general, a credit score can range from 300 to 850. Most scores fall within the 600s and 700s. The boundary between a standard loan and a higher cost loan, also known as a subprime loan, is generally considered to be a credit score of 620. A higher credit score generally means you will have an easier time obtaining credit and you should be able to get credit on better terms and at a lower cost than someone with a lower score.