Credit Reports vs Credit Scores...

Interested in how your credit score is calculated? Well, it's not as simple as just paying your bills on time. Your FICO score is based on five different factors... Here's the breakdown:

30%   Available Credit
10%   Number of Inquiries
10%   Type of Credit
35%   History of Credit
15%   Length of Credit

Credit Report vs Credit Score

Think of your credit report  like a class you took in school. Your history are the various grades you received in that particular class. Those might include attendance, participation, turning in homework, pop quizzes, and a final semester exam. Each category holds a different weighted effect towards the outcome of your final grade.

Your credit score is the final grade you received in that class. It takes into account the various individual scores, and summarizes them into one final score.

Your credit score is what lenders look at to determine your creditworthiness. Having a high score will ensure you receive the best rates and terms on loans. The higher the score, the less of a credit risk they will be taking in lending you money.

If your report has some blemishes, it's not the end of the world, though it's not an overnight fix either...

What Helps...and Hurts?

First, look at your credit report to see what is hurting your score. Are you behind on some payments? Are you making your payments, but sometimes make them late? What about old unpaid accounts? These all affect your score.

Also, look at your balance to limit ratio on your revolving credit. Let's say you have a card with a $10,000 limit, and a balance of $6,000. Your ratio would be 60% (6,000/10,000). That's considered high-

However, if you have two cards, each with a $10,000 limit, and a balance of $3,000 on each one of those cards, the ratio has decreased to 30% (3,000/10,000 for each card). That's not too high-

While you still have the same amount of debt, the limit availability has increased. That might sound odd, but the way it can be looked at from a lending standpoint is that you have responsibly not charged the remaining $14,000 that's available to you.

But before you run out and apply for another card to transfer part of your balance on to, be aware there are plenty of other factors to consider. Your credit score is calculated using a variety of algorithms. In fact, the FICO credit score formula hasn't actually been released to the public.

Since your score uses a variety of different pieces of data, it's best to discuss your plans with a financial expert to ensure your good intentions don't backfire.


What's Your Number?

So, where does your score land on the chart? And what has been reported to calculate that score?

My Credit Report - This link will provide information on where you can get a free copy of your report. The Fair and Accurate Credit Transaction Act entitles a consumer to one free report each year from each of the three main credit bureaus.

To maximize your benefits, request one report from one of the bureaus, then four months later access a different one, then another four months...you get the idea. Since you'll only get one report per agency, per year, stretch out the time.

You'll also find some useful tips on how to report credit mistakes, and how to build and repair credit.

My Credit Score - This is a fairly new one I've run across... Most credit card companies offer a free credit score as one of the benefits for using their services. But how can someone that does not have an existing account gain access to a free credit score?

While you can get your credit report for free at Annual Credit Report, it does not provide your credit score. However, Chase Credit Journey is filling in that gap. Just complete the requested information, along with a few security questions, and you'll get your credit score in a matter of minutes.

Staying on top of your credit report and credit score are essential elements of your financial well being. Don't neglect either one-



Michelle Kuehner is a Registered Investment Advisor Representative and Managing Director for Personal Money Planning. She is also a Certified Credit Counselor and Certified Financial Health Counselor, writes Fix Our Budget blog, and has over 24 years of experience in the financial industry.

Results Photo by Stuart Miles. Published on 09 October 2013
Stock photo - Image ID: 100206952

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