Sometimes I hear friends and family use credit reports and credit scores interchangeably. While they are definitely related, there are differences. I want to share how you can improve your credit report and how your credit score is determined.

Why is it important to be familiar with them? If you plan on getting mortgage, having a car loan, or even are shopping for car insurance, your credit report and score will most likely be checked. You want to have the best record you can have to get the best interest rate and deals.

Your Credit Reports

Your credit report is basically a record of your history of payments and helps lenders determine your credit worthiness. You technically have 3 credit reports, one with each credit bureau.

Credit Agency Contact Numbers

• Equifax: (800) 685-1111
• Experian: (888) 397-3742
• TransUnion: (800) 888-4213

In theory, they should have the same information, but sometimes you can have inaccuracies in any or all of them.

Get Free Credit Reports

The Federal Trade Commission has one site where you can really get your credit reports for free at annualcreditreport.com. If you do not have Internet access, you can also call 1-877-322-8228 to order your credit reports.

You should at least see if there are any mistakes on your credit report and fix them, as they can lower your credit score or put you in a bad light with lenders.

Your Credit Scores

Your credit score is a number between 300-850 that each of the credit agencies assign based on the information on your credit report. I wouldn’t get too hung up on credit scores, as leach bureau has their own little system. I would just shoot for 720 or higher.

By the way, you can’t get your credit scores with the Annual Credit Report site. They are completely separate. You can either buy your score from the credit agencies or you can use a service like myFICO.

If you want a general idea of your credit score, you may want to check out Credit Karma. It was in the ballpark when I tested it out.

Fixing Your Credit Score

While we don’t exactlyhow Fair Issac calculates your score, we do know what factors they take into account. Here’s how your score is broken down:

• 35% – Paying your bills on time: If you’re late with your payments, not only can you get a late fee charged to you, but after 30 days, it ges reported to the credit bureaus.
• 30% – Debt you owe and the amount of available credit: This measure how much of your lines of credit you are using. If you only have a $200 balance on a $1500 card, that’s better credit score-wise than having $200 balance on a $500 card.
• 15% – Your credit history length: This is basically keeping track of how long you’ve had your accounts. If you’re a new credit card holder, this will naturally improve the longer you have a solid history.
• 10% – New credit applications: A small part of your score is determined by how many accounts you’ve opened up recently.
• 10% -Different Types of Credit: I’m not crazy about this since it encourages several different types of debts. I think the less you have, the better. A mortgage and or a student loan already seems like more than enough debt.

It does take some time for improve your score, but it’s completely doable.

Your Thoughts on Credit Scores and Reports

Have you checked your credit reports recently?

Sometimes I get questions sent to me through the email that I thought would be a good topic for a post. I love to hear from readers and appreciate that you took the time to email me. Please feel free to contact me anytime.

I received a question yesterday from a gentleman about to get married.  It was regarding credit scores and reports, so I’m including a post for others to pitch in their advice and ideas.

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Reader Question

My fiance has a pretty low credit score (505 as of July) and I have a pretty high score (780 as of July).

She was irresponsible about 4 years ago when it came to money with about $4,000 of debit she racked up with bills, and credit cards. When she met me we settled with the collection companies and she has no outstanding personal debit.

However, she had an injury while in college through athletics and the school’s insurance is in the process of paying the medical bills, but some are on her credit report as of June. I disputed that they had been paid and they were marked as paid but still remain on her report. However, she still has some including a $10,000 bill that is in the process of getting paid by AIG.

So now that you have some background here are my questions.

1) what can I do about her credit report? are the things on there supposed to stay on there even though it was medical related and insurance was supposed to pay it?

2) should I add her to my credit cards and an authorized user in order to let her piggy back off of my score?

I don’t want mine to go down, but will hers go up as a result? I added her as an authorized user on the family cell phone plan in July and am interested to see if the account will show as good standing on both of our credit reports.

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Addressing Errors on Your Credit Report

First off, I’m going to say that I’m not a financial professional, so most of my information will be resources I found helpful and personal experiences.

Federal Trade Commission points you to the genuinely free link at annualcreditreport.com.

The three nationwide consumer reporting companies have set up one website, toll-free telephone number, and mailing address through which you can order your free annual report.

If you do not have Internet access, you can also call 1-877-322-8228.

Double check to see if there are any mistakes on your credit report and fix them.He mentioned that his fiance’s college is paying them, so I would suggest adding a note on her credit reports explaining that situation. Some people may not know this, but you can add comments to your records to explain blemishes. It will not remove it (accurate blemishes stay on for 7 years), but it can help.

Fixing Your Credit Score

While we don’t know the exact method of how Fair Issac calculates your score, we do know what they consider. It does take some time for it to improve, but this is how you raise your credit score. Here’s how your score is broken down:

• 35% – Paying your bills on time: If you’re late with your payments, not only can you get a late fee charged to you, but after 30 days, it ges reported to the credit bureaus.
  • How to fix it: Make sure you get current on all your bills and start paying them on time. Make sure you don’t have any accounts in collections. As you pay on time month after month, year after you, your FICO score will go up.
• 30% – Debt you owe and the amount of available credit: It’s not just how much debt you’re carrying, it’s how much of your available debt you’re taking advantage of. Another reason why it may not be a good idea to cancel unused credit cards.
  • How to fix it: If you don’t want to take a big hit on your credit score, don’t cancel too many credit cards at the same time, as it can have an adverse effect. You can also pay down your credit card debt and improve the debt/available credit ratio.
  • Don’t open an account JUST to increase your credit limit. Instead focus on paying down the debt.
• 15% – Your credit history length: This is basically keeping track of how long you’ve had your accounts.
  • How to fix it: This is easy to do, but it takes time. You just have to keep being responsible
• 10% – New credit applications: This considers how many accounts have been opened up recently.
  • How to fix it: Another simple one to improve, just don’t open too many accounts at once. Also remember that some banks pull your credit report so keep that in mind.
• 10% -Different Types of Credit: Having a mix of installment loans like a mortgage
  • How to fix it: This shouldn’t be a huge problem, so be aware of the accounts you have. DO NOT get a car loan so you can have an installement. Getting into debt to build a record is not a smart move.

It can be satisfying improving your credit score, but know that it won’t change overnight.

Your Thoughts

Do you have any tips for our reader?

As we’ve been going through the process of buying a house, I noticed I became more and more aware of my FICO score. I wanted to make sure we were raising our credit scores by choosing sound financial habits.

What’s a “Hard Pull” on a Credit Check?

Basically a “hard” pull is a credit check that can affect your credit score.  Hard pulls are visible to anyone who is checking your credit report, while soft pulls, like when you check your own report, are only visible to you.

FICO’s site explains a bit more on hard credit inquiries:

There are a few important considerations to keep in mind about inquiries:

1. All hard inquiries do not impact one’s score, as sometimes a single inquiry can impact it and sometimes you can have three or four that don’t.
2. When a hard inquiry impacts your score, the effect is usually only a few points.
3. While inquiries remain on your report for two years, the scoring formula only considers them for the first year.

To answer your question, inquiries are taken into consideration by the FICO scoring formula because research has shown that consumers who have recently taken on new credit obligations are more likely to be late on future payments than those who haven’t. And inquiries are the earliest indicators that new credit is being sought out.

Looking at this information, I’d play it safe and not have too many hard credit checks done; there is a chance that my credit score can be lowered. Please remember, though, if you’re making a purchase like a house or a car, this will not be an issue, as lenders expect to shop around for a good deal.

When Can I Expect a Hard Credit Check?

If you’re opening a credit card or you’re opening a line of credit, you’ll probably have a hard credit pull on your record. You may check with a customer service representative if you decide to open a new bank account, as some banks do a hard credit inquiry.

Get Your Free Credit Report

Make sure your credit report has correct information on it. If you want to check your credit report for free (completely free, not a free trial), then go to AnnualCreditReport. This can help you see if there are any errors on your credit report that you have to fix. it’s worth a look, since fixing errors can raise your credit score.

Photo Credit: liewcf