Credit reports are track records noting the money you’ve borrowed and how you have paid it back — or not — over the past decade or so. Credit bureaus crunch that data to assign you an overall credit score. Lenders check both your credit report and your credit score to determine if you’re a safe bet for a loan. Both credit scores and credit reports fluctuate due to changing algorithms, federal credit reporting laws, and your fiscal activity. Many turn to credit monitoring services to keep tabs on their report and keep their scores healthy.
Lenders offer the most advantageous loans (those with the best terms, like low interest rates) to borrowers who seem like good bets. But how can a lender tell?
They look at two separate credit history telltales to determine whether a borrower is a sound investment: credit reports and credit scores.
What is a credit report?
A credit report is a comprehensive record that tracks your financial behavior (as both a borrower and consumer) over the past seven to ten years.
Lenders and collection agencies feed your credit history and activity to the three national credit bureaus — Equifax, Experian, and TransUnion — that, in turn, generate the reports.
A credit report (see a sample here) lists information like:
Payment history (including payment and non-payment on loans and lines of credit, plus any debts reported to collection agencies)
Lenders you’ve borrowed from
The maximum amount of your lines of credit and outstanding balances related to each
Credit accounts closed by lender due to default
Foreclosures and repossessions
Bankruptcies
Credit reports don’t include your bank account balances, line-item credit card purchases, or income. Liens and garnished wages also don’t get reported. However, unpaid lenders might note those and other court-ordered paybacks in the records they share with the bureaus.
Add everything together, and a credit report gives a lender a good feel for your financial behavior, economic health, and current fiscal standing.
What is a credit score?
A credit score is a three-digit number that suggests whether you are a safe bet for a loan.
The credit reporting bureaus mostly rely on two software analytic companies — FICO (Fair, Isaac and Co.) and VantageScore — to generate scores. VantageScore also issues letter grades to borrowers.
Each analytics company calculates an overall credit score (the one you see when you check your credit report) based on the same range of possible scores: 300 and 850. A high credit score implies you have an established track record of paying your debts on time and in full. A low credit score implies that you don’t pay off your debts.
A “good” score on the FICO scale ranges between 670 and 739. Credit report agency Experian reported that, in 2023, 21 percent of Americans scored above that level.
How credit scores are calculated
While credit bureaus don’t reveal their precise credit scoring formulas, FICO and VantageScore don’t consider all data points on your credit report as equal. That plays into both your overall credit score and any customized credit scores lenders may request based on the type of loans you seek.
It makes sense: Lenders who issue bigger loans, like mortgages and auto loans, need to weigh specific data points differently than a credit card company might.
Fortunately, both FICO and VantageScore spell out how they weigh the information on your credit report.
Payment history: 35 percent
Credit limit to credit balance ratio: 30 percent
Number of years you’ve been a borrower: 15 percent
Variation in your credit portfolio (loans, credit cards, utilities): 10 percent
New credit behavior (are you getting new lines of credit to pay off previous credit balances?): 10 percent
Payment history: 40 percent
Juggling loans of different lengths and amounts simultaneously: 21 percent
Your outstanding balance divided by current available credit: 20 percent
Total current balance owed: 11 percent
Recent activity (new accounts, number of recent hard inquiries into your credit): five percent
Current credit available: three percent
Why your credit score may vary
Like your life story, your credit story changes day to day, month to month, year to year.
Federal laws regulating what goes on credit reports, how long past settled debts remain on the record, and more also change. Credit score scales and algorithms change. Businesses turn financial records over to credit reporting bureaus at different intervals and at different times of the month and/or year.
Add in your own ebbing and flowing credit activity, balances, and accounts, and it makes sense that your credit standing fluctuates. That’s why lenders and credit bureaus look at nearly a decade of your financial doings to determine your status as a borrower.
How to keep up with changing credit score and report
Monitoring your credit standing while living your life can be tough. However, services like our credit monitoring help you keep tabs on your credit score and get alerts for changes.
If your score drops or your report includes something that puts you in a bad light, don’t panic. Use your score and report as bumpers, guiding you back to a better place.
A sudden drop in your credit score, unfamiliar debt collections, unauthorized charges, or unexpected public records could also signal identity theft. If you're a member and notice something unfamiliar on your credit report, reach out to us right away and we'll help you get to the bottom of it.
