Build and Maintain Your Credit Score
July 1, 2021
Maintaining a good credit score is a crucial piece to consider when you are looking to borrow money, as this is used by creditors to determine creditworthiness. The Consumer Financial Protection Bureau (CFPB) offers several articles to help consumers better understand credit and the benefits of maintaining a good credit score. We have included four articles from the CFPB below to explain credit reports and credit scores.
According to the CFPB, a credit score is a predictor of how likely you are to pay back a loan on time. The information used to determine this number is taken from your credit report. However, you do not have just one credit score. Credit reporting companies such as Equifax, Experian, and TransUnion do not use the exact same data to determine credit scores. Some of the factors used to determine a credit score include:
- Bill-paying history
- Current unpaid debt
- The number and type of loans you have
- How long your loan accounts have been open
- The amount of available credit you use
- New applications for credit
- If you have had debt sent to collection, a foreclosure, or a bankruptcy, and how long ago
Another common inquiry about credit scores is where they can be found. The CFPB lists the four most common sources as the following:
- Your credit card or loan statement
- A non-profit counselor
- A credit score service
- Buy a score from a credit reporting company
It should be noted that not every credit card statement or loan statement provides a credit score. If you choose to use a credit score service or buy a score from a credit reporting company, make sure you are aware of the fees that may be associated with attaining it through those means.
Despite their similar names, credit reports and credit scores are two different things. The CFPB clarifies that credit reports contain information about your credit activity, loan paying history, and the status of your credit accounts. Credit scores are then calculated based on that information. It is important to check your credit report for discrepancies, as mistakes can potentially have a negative effect on your ability to use credit.
You are entitled to a free credit report every 12 months from Equifax, Experian, and TransUnion. Although they only provide one free report each year, you can check your report as often as you’d like without it hurting your credit score. According to the CFPB, the only time your credit score is affected by checking your report is when it involves an inquiry about new credit.