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How are credit scores calculated? There are various scoring methods that are used to calculate credit scores. However, the most popular method is the one developed by FICO or the Fair Isaac Corporation. The FICO score ranges from 300-850. However, each of the credit bureaus, namely, Equifax, TransUnion, and Experian calculate the credit scores following their own methods. Equifax provides the BEACON score, TransUnion provides the EMPIRICA score, and Experian provides a Fair Isaac Risk Model score. There are certain factors which determine your credit scores. A credit score generally depends on 35% on your payment history, 30% on the amount of debt you owe, 15% on the length of your credit history, 10% on the different types of credit, and 10% on new credit accounts. |
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What is a good credit score?
There are certain factors which determine your credit scores. A credit score generally depends on 35% on your payment history, 30% on the amount of debt you owe, 15% on the length of your credit history, 10% on the different types of credit, and 10% on new credit accounts.
What is the role of a credit bureau?
The credit bureau keeps record of an individual's credit history. A credit bureau prepares an individual's credit report that contains every payment detail for that individual. A credit report also contains an individual's personal information such as, the name, residential address, official address, etc.
There are 3 credit bureaus - Equifax, TransUnion, and Experian that prepare credit reports. The credit bureaus receive information from creditors/lenders, debt collection agencies, courts, etc. After receiving this information, the credit bureau compiles it into a credit report, which then reflects the creditworthiness of an individual. These reports are checked by the lenders before they extend credit.
Am I entitled to get a free credit report?
Yes, you are entitled to get a free credit report every 12 months under the Fair Credit Reporting Act (FCRA). You can pull your credit report from the credit bureaus.
How can I order a free credit report?
You can order a free credit report in 3 ways:
- By visiting annualcreditreport.com that is a website established by the three credit bureaus to provide you with a copy of the credit report.
- You can also call the toll free number : 1-877-322-8228
- You can fill out the Annual Credit Report Request Form and mail it to the following address:
Annual Credit Report Request Service
P.O. Box 105281
Atlanta, GA 30348-5281
What happens if I find inaccurate information on my credit report?
If there are any kinds of disputes or inaccurate information recorded on your report, under the Fair Credit Reporting Act (FCRA), you can report it to the bureau and request the information be changed.
How do inquiries impact my credit score?
Inquiries affect your credit negatively. The more inquiries listed on your credit report, the more credit points you will lose. Basically, there are two types of inquires. They are:
- Hard inquiry - When you apply for a loan or credit, the creditor pulls your credit report to find out your creditworthiness. This type of inquiry stays on your report for about 3 years and affects your credit score negatively.
- Soft inquiry - This is an inquiry made by creditors or lenders who are not authorized to pull the credit report. These inquiries take place when a creditor wishes to extend credit to a person without his consent. This is also known as unauthorized inquiry. This type of inquiry does not hurt a credit score much.
Do employers check credit report?
Employers sometimes check credit reports of potential employees to learn about the person's financial situation. A credit report contains all the details about credit, loans, mortgages, and any kind of credit card transaction. Through your credit report your employer can also determine whether you are a financially responsible person.