A credit report shows your past fiscal behavior, and is designed to predict your risk to potential lenders. Meaning, the higher your credit score, can be the difference between getting approved or denied for a loan or a line credit.
Companies look at your credit score to see how likely you are to repay a debt in full and on time.
There are a variety of sources that contribute to your credit score and credit report information. Banks, credit card companies, government credit reports and collection agencies all provide information to create an extensive credit history report.
What Is A Credit Report vs A Credit Score?
Credit reports and credit scores may seem to be related, but they both are used for different purposes. A credit report details your credit history from the past year, made up of a collection of raw information and data of past transactions and loans.
Whereas, your credit score is a three-digit number based on the standard FICO® Score formula. Ranging from 300 to 850, your FICO score allows lenders and financial companies to assess whether you qualify for a loan or financial assistance. Generally, the average credit score for an account in good standing is above 700. It is recommended to check your credit score every month since any small change can impact your FICO score.
Understanding What Your FICO Score Means
Based on your payment history, credit report agencies determine your financial ranking on the credit score scale. Your credit report information is then used as the main factor to judge how reliable you will be in making payments.
Determining your level of financial responsibility is based on the following criteria:
- 35% Track Record and Payment History – if you have made payments on time, and if you have made any efforts to lower your current debt.
- 30% Total Amount Owed – based on the total amount of credit you have borrowed.
- 15% Length of Credit History – the amount of time you have each account, from the time you opened the account to your most recent action.
- 10% Amount of New Debt – lenders look at how many lines of credit you have opened in the past year.
- 10% Types of Debt – having a good mix of revolving credit and loans makes you seem like less of a risk to lenders
The formula above will give lenders a comprehensive look at your ability to pay off a new loan or line of credit, based on your FICO score.
FICO score ratings:
- 750-850 – Excellent
- 700-749 - Good
- 650-699 - Fair
- 550-649 - Poor
- 300-549 - Very Poor
Note: According to FICO, people who have the highest score tend to utilize only 7 percent of their total credit card balance.
Due to the impact credit scores can have on your life, credit score monitoring should be an integral part of your financial planning. From rental credit checks influencing your choice of residency to business credit scores impacting an owner's ability to expand, credit scores are critical to economic success. Some businesses have even begun to include credit checks for employment during the hiring process.
Viewing Your Credit Score and Credit Report
There are a multitude of websites where you can find your credit score online, but due to the importance of your credit score, it is crucial to use a safe and secure service. DMV.com advises using ClickYourScores to view your credit score and report since your credit will be monitored 24/7. Round-the-clock monitoring ensures that no sudden changes affect your current standing. ClickYourScores service is committed to keeping your credit score and report up to date and accurate.
Frequently checking your credit score can have long term benefits. There may be potentially damaging errors on your report that may cause you to get denied by a potential lender. There is also less of a risk of identity theft and fraud if you frequently check your score.
Improving Your Credit Score
There are several steps you can take to improve your credit score.
- First, check your credit score to make sure you know where you stand. You can check you score at ClickYourScores.com
- Then, we recommend downloading a comprehensive report that outlines what has been negatively impacting your credit. You can get a simple and easy to understand report at CreditKarma.com
- The third step would be to monitoring your credit regularly using a monthly service.
- If you find errors on your report you can consult a credit repair company.
- And finally if you find yourself in too much debt, to improve your credit you can consolidate your debt with LoanUSADirect.com
There is no easy way to repair credit scores once they have been damaged. The best way to improve credit history scores is by utilizing credit monitoring services like ClickYourScores. In addition to providing free credit score and credit history reports, ClickYourScores also offers professional services that include:
- Monthly credit reports/scores.
- 24/7 credit monitoring.
- Credit score analysis.
- Reports on how your current activities are affecting your credit.
- A credit timeline, complete with key events.
- Credit report comparisons.
- Identity theft protection.
If your credit score has already dropped due to a few mishaps in your payment past, monitoring alone will not repair your credit history. Credit report repair is an industry in itself, with many different methods for improving credit scores depending on individual circumstances.
The primary method for improving credit is to remove as much outstanding debt from your credit report as possible. Once you have brought your accounts up to date, you can clean up credit reports by continuing to pay your bills on time. At this point, monitoring your credit report will help to fix credit issues before they become a problem.
Consolidating Debt To Repair Your Credit Score
Can debt consolidation help repair your credit score? In long-term, yes it can help if you have credit cards with high balances, using an installment loan that has fixed monthly payments could help your credit rating. This will allow you to start paying off the balance without high interest rates. The down side, the loan may cause your credit score to drop in the interim.
Paying down your debt will have a huge impact on your credit score. Continuously monitor your credit score to be in good standings with potential lenders.