Q. Can you provide an explanation of a personal credit score?
A. Credit bureaus gather information about your previous payment history and use formulas to rate the likelihood of you paying a new obligation, like a loan.
Q. How do they establish my credit score?
A. Credit agencies each define your credit score in their own way, but most credit scores incorporate some or all of these elements: number of late payments, how long in terms of time a payment was late, ratio of available credit to credit used, total credit available, length of time your credit has been established, types of credit you have established, length of time since you missed a payment or had a bad credit event, number of open credit accounts, major negative court filings like bankruptcy, judgment or foreclosure, recent credit activity like new credit applications establishment of new credit or even a business trying to find your credit score or getting your credit report.
Q. What range of values can a personal credit score fall into?
A. The high score you can achieve on a credit report tops out at 850, but anything above a 650 most lenders consider a good score, above 720 a high score. Some would categorize credit scores under 550 as a low credit score while others might determine poor credit scores only those under 500.
Q. You mean not everyone looks at credit scores in the exact same way to figure which scores rate as excellent, good, fair or poor?
A. Not at all, each lender or credit provider maintains their own scale for what is a good credit score when trying to approve you for a loan or a credit card.
Q. So what’s a good credit score range and what is bad credit?
A. Figure excellent credit might range from a 620 to 850 credit score. Good scores vary from 550 to 650, fair from 500 to 620, poor from 300 to 580, it all depends on who is looking at the credit scores. For people with a low score you might want to read an article dedicated to understanding what is bad credit.
Q. Why do some of those ranges overlap?
A. I’ll say it again, what is a good credit score or what is will take to be approved for a particular loan or credit card will depend on the credit grantor looking at the score. For example a score of 620 might be viewed as excellent by one company and only fair by another.
Q. You talked about credit reporting agencies. Are the credit scores from each of these credit report bureaus the same?
A. No, not exactly. They each have their own system for calculating credit score and all of them keep the exact formulas a secret. In addition, to a certain extent, each credit bureau may be starting with different data on which they base their credit score number.
Q. Who are these credit scoring companies?
A. Equifax, Trans Union and Experian.
Q. Those are not the names I hear about associated with credit scores, what are those?
A. Some credit reporting bureaus have their own names for their credit score product, others make use of third party calculations. The most well known credit score calculation comes from the Fair Isaac Corporation, who calls the results of their analysis a FICO score. While no one uses the name of their credit score product as much as FICO ( which may be because FICO scores come from Fair Isaac, not from Experian who makes use of the FICO score ) the score from Trans Union may get referred to as an Empirica score and Equifax as a Beacon score. Behind the scenes some say Fair Isaac has a hand in the other calculations too.
Q. Do I need to get all three of my personal credit scores?
A. No one ever said you NEED a credit report score at all.
Q. Why might I WANT to know my credit report score?
A. When you know your credit score you can plan your financial future better. For example let’s imagine you need a car loan. Over the years many people came to me with a story about how they could not get an auto loan. They gave up on the idea after a few turn downs and lived with an old car or without a vehicle at all. Sometimes the root of the problem lay not with their credit but more with knowing their credit score and in turn understanding how to get a loan with bad credit score.
Q. Explain how I might help myself get a loan if I knew my credit report score?
A. First you would adjust where to apply for a loan or credit card based on your credit score. For example major banks generally do not approve auto loans for borrowers with bad credit. Limiting loan applications to banks with poor credit usually just wastes time and brings on depression from all the loan denials.
Q. How could a potential borrower be helped by knowing their credit report score before applying for a loan?
A. Often one of the first things you will be asked by a car dealer or lender is “Do you know your credit score?”
Q. Can’t lenders just look up my personal credit score?
A. Yes, but each time they do it knocks your score down just a little. If you have a low score to begin with you do not want to lose any points.
Q. Is there a limit to how far my credit score can drop from these credit inquiries?
A. Yes, at a certain point the credit bureaus figure you must be rate shopping for a particular purchase at a specific time and they limit the negative hits to your credit score.
Q. So if I know my own credit score I can save the inquiries?
A. Initially yes. In cases where you know you have a credit score of 550 one lender may say they can not grant a loan. You just saved both time and a credit check that could bring down your credit score. Another lender may say if your score really comes out at 550 they would make the loan. At some point if you decide you want that particular loan the lender will still need to run your credit and see the report for themselves, but by knowing your score you saved time and excessive credit checks.
Q. Why else would I want to know my own credit score?
A. In cases where you need to rebuild your credit score it helps to know where you started from and where you want to get to. Getting your credit score through the process help to make sure your credit improvement plans remain on track and that you have your credit score moving in the right direction.
Q. What is the difference between a credit score and a credit report?
A. A credit score represents a numeric rating of you credit as described above. A credit report lists each and every item that makes up the personal data used to calculate the credit score, the raw data not the formulas.
Q. Can I get my personal credit score for free?
A. No, you might be able to estimate it, but for an official accurate credit report score you will need to pay one of the credit reporting agencies.
Q. How much does it cost to get my credit score?
A. Less than $20, which will likely include a copy of your credit report from one credit bureau too.
Q. Can I get my credit score online?
A. Yes, you can get your credit score online and get the report online too. In fact, you can usually get it all done almost in real time. You input your personal data and pay, and you can see your credit score and credit report almost instantly.
Q. I see all sorts of options when I try to buy my credit score online and that doesn't even start to get to all of those offers on TV including the ones for a free credit score, what is the best way to obtain my credit score?
A. You are correct, the consumer faces many options. I wrote a whole article dedicated just to the topic of the best way to learn credit scores.
Q. How fast can I improve my personal credit report score?
A. If you work hard at it you should see improvement in months as opposed to weeks or years.
Q. What if I have questions about the report itself?
A. Many sites online deal specifically with understanding the items in your credit report.
Q. Do I need my credit score from all three of the credit reporting agencies?
A. Not most of the time. When you apply for a loan the lender will get that. For some mortgages loan parameters require your “middle” score to have a certain minimum rating. Without knowing all three you cannot know what the middle score is.
Q. I thought Congress passed a new law so consumers could see their own credit report?
A. That applies to credit reports not credit report scores.
Q. If I am turned down for a loan or credit card because of my credit does the lender have to tell me what my score was?
A. No, in fact the credit bureaus would say they specifically should not reveal your personal credit score to you. They do, however have to give you a notice that your loan request got turned down because of your personal credit, which credit bureau credit reports they used to establish their decision, and that triggers the right for you to get a free copy of your credit report. Once again, the personal credit report, not the credit report score.
Q. I am checking for someone who cannot get online, do you need to get online to get your credit score?
A. No, you should be able to do it via the phone too if you have no online access.