Dallas Credit Repair Blog and Articles

What is a Credit Score?

Credit Reporting Agencies

Most information about credit reporting agencies — also known as credit bureaus — lists only three agencies. These agencies are Experian, TransUnion and Equifax. In reality, there are five agencies that provide access to your credit report, but only those three are mandated by law to provide a free annual credit report to any consumer who asks.

Experian, TransUnion and Equifax each provide you with a free credit report upon request. This credit report will give you a detailed history of your credit, what factors go into its calculation and your credit score itself.

You can also request your credit report from the other two companies, Innovis and PRBC. These companies have a less streamlined process, and they operate slightly differently from the big three. PRBC, for example, allows consumers to enroll directly as reporters. This allows the average person to report certain expenses and payments that would not otherwise be reported, or that might be reported differently and inaccurately. The benefit to your credit score is questionable, but it fluffs up a credit report and makes it look more enticing.

What is a Credit Score?

Credit Score definitions from the three major credit bureaus – Experian, Equifax and TransUnion.

Experian

  • “A credit score is a number lenders use to help them decide: ‘If I give this person a loan or credit card, how likely is it I will get paid back on time?’”
  • “A credit score is a number a lender uses to decide if you’d be a good credit risk for credit cards, auto loans or home mortgage loans.”
  • “A credit score is simply a number that represents the likelihood that you will repay a debt as agreed. Credit scores are calculated using information from your credit report at the moment it is requested by a lender.”

Equifax

  • Basic Definition – A credit score is a rating used by a lender to help determine whether or not you qualify for a particular credit card, loan, or service. The credit reporting companies apply an in-depth mathematical model (called an ‘algorithm’) to the information in your credit file to yield your credit score. Most credit scores estimate the risk a company incurs by lending you money or providing you with a service — specifically, the likelihood that you’ll fail to make payments in the next two to three years.”
  • “Credit Scores are a Snapshot of Your Credit… A credit score is arrived at by applying a mathematical equation to a borrower’s credit history, which results in a score that indicates what kind of credit risk that borrower represents.”
  • “A credit score is a rating used by a lender to help determine whether you qualify for a particular credit card, loan, or service. Based on information in your credit file, the credit reporting company analyzes your information using a complex mathematical model to yield your credit score.”

TransUnion

  • What is a credit score? A credit score is a number used by lenders as an indicator of how likely you are to repay your loans. Your credit score is generated by a mathematical formula utilizing the data from your personal credit report.”
  • “A credit score is the result of advanced analytical models that take a ‘snapshot’ of the consumer’s credit report and translate it into a three-digit number representing the amount of risk a consumer brings to a particular transaction, such as financial, insurance or even employment.”
  • “Your credit score is a snapshot of your creditworthiness. Credit grantors use the score to assess your default risk at a specific point in time.”’

Checking Your Credit Report

In order to check your credit, you will need to contact one or more of the agencies above. You can visit their websites individually and request a credit report. Alternatively, you can visit AnnualCreditReport.com and request your report from one or all of the big three. You are entitled to one free credit report each 12-month period from each of the three agencies. You can request your report again within that period, but you may be charged a fee.

Once your have your credit score, what does it mean? People talk about good credit and bad credit, but rarely do they list the actual numbers involved. Here is an idea of what the credit score range looks like. Keep in mind that most credit scores range from 300 to 900.

  • Under 500: This is the lowest of the low. It is difficult to get a credit score this low, and once it has reached this point, it is difficult to fix it. You will have a had time getting any loans, and those you do will come with interest rates akin to the worst payday advances. If your score ever reaches this point, you would do well to visit a credit repair agency for assistance
  • 500-580: This range is considered bad credit. You will still be able to secure financing, home loans, auto loans and other borrowing. However, you will find high interest rates across the board. At this stage, a credit repair agency can help quite a bit
  • 580-619: While still considered poor credit, this particular range is more acceptable. You will still encounter high interest rates, but you won’t suffer as much from denied financing. Diligence and monitored financing can improve a score from this level without the aid of a repair agency, but you can still benefit from their help if you have a particular debt or nuisance pulling down your score
  • 620-680: This is a fair credit score, and you won’t have much trouble financing any purchases. You can, however, still benefit from improving your score
  • 680-720: At this range, your credit score is about as high as it will go without detailed monitoring and impeccable financial responsibility.
  • Above 720: At this point your credit score is excellent. No loan will be a challenge and you will have amazing deals with interest rates. This is the level everyone should aspire to reach, despite how much work it entails.

What goes in to your credit score?

  • Payment history. Paying bills on time will raise your credit, while late payments and unpaid bills will lower it
  • Debts. If you have outstanding credit card debt, loan balances or owe money to other institutions, it will affect your credit
  • Length of history. It takes time to build a credit history, and a short credit history is a warning sign to many agencies
  • Age and number of credit accounts. Opening up several new loans or credit cards in a short period of time can negatively affect your credit score
  • Types of credit. If your entire credit history stems from credit cards, you will see different numbers than if you had loans or mortgages on record as well

Your credit score is entirely an indicator of financial health. It does not contain any demographic information — no company can look at your credit score and see your race, religion, age or gender. Credit counseling, credit repair, employment history and interest rates are all ignored by your credit score as well. This means that if you have bad credit, contacting a credit repair agency will not hurt your score.

Consequences of Bad Credit

How bad is bad credit for you? The answer is almost shockingly bad. You might not even realize how bad it can be until it happens to you. Interest rates are the biggest, most obvious factor. Think about anywhere that you have to pay interest. Mortgages. Car loans. Private loans. Credit card debt. Every one of these interest rates will go up as your credit score goes down.

Approval for lines of credit and loans is the other major area. If you want to buy a new car, you need to take out an auto loan. If you want to own a new home, you need a mortgage. If your credit score is low, you might have trouble finding a low interest rate. If your credit score is even lower, you’ll have trouble finding a financial institution that is willing to lend you money at any interest rate.

Much of this is a cycle of destruction. A bad credit score leads to higher interest rates on credit card debts. Higher interest rates means it takes more to pay, and it becomes harder to pay on time. When you don’t pay on time, that fact is reported and your credit score goes down.