Your Credit: You Owe It to Yourself to Check It

Feb 2, 2007 by

If you would like to open a credit card account, take out a loan, get a mortgage, or even apply for a job, it is likely that someone will check your credit score. In the United States, there are three large “credit bureaus,” which officially are referred to as “consumer credit reporting agencies.” The big three credit bureaus are Experian, Equifax, and TransUnion. The information that credit bureaus have on file about you is used to determine whether you will receive the credit for which you have applied, and if so, how much (in terms of an interest rate) you will have to pay for it.

Accessing your credit history

 Luckily, it is now possible for consumers to easily learn about their own credit, at no expense. In 2003, the Fair Credit Reporting Act was passed. Thanks to the Fair Credit Reporting Act, it is possible to get a free credit report from each of the three major credit bureaus once a year, by visiting Sometimes, there are inaccuracies in one’s credit history. Fortunately, consumers can now both easily view their credit history, and dispute any inaccuracies.

 What is in your credit history?

Your credit history contains information on when you made your payments on your various lines of credit. It will mention whether your payments have been on time or late, and if so, how late. When calculating your credit score, the bureaus consider the ratio of your used credit to your available credit. The more available credit you have, the better, as it is an indication that lenders trust you. On the other hand, the more of the available credit you use, the worse, as it is an indication that you may have higher debt. As a result, it may hurt your credit score to cancel a credit card, as it reduces your overall available credit. Bureaus also record your home and place of employment. Stability is valued, and having changed residences or jobs in the last two years will have a negative impact. Additionally, when lenders pull your credit to finalize an offer (when you have given them permission; not when they do so as part of an advertisement), it will slightly hurt your credit. This is because having had multiple credit pulls by lenders is an indication that you may be shopping for more credit. Thus, you should only have a lender pull your credit if you are reasonably sure that you may consider using them.

 How is a credit score reported?

A credit score is a number, which may be in one of several units. The most common unit used is FICO, the unit of the Fair Isaac Corporation. According to Wikipedia, FICO scores are calculated with the following weightings:

  • 35%, punctuality of payment in the past (only includes payments later than 30 days past due)
  • 30%, the amount of debt, expressed as the ratio of current revolving debt (credit card balances, etc.) to total available revolving credit (credit limits)
  • 15%, length of credit history
  • 10%, types of credit used (installment, revolving, consumer finance)
  • 10%, recent search for credit and/or amount of credit obtained recently
  • Unfortunately for consumers, the free credit reports mandated by the Fair Credit Reporting Act do not contain FICO scores, or scores in any other unit. However, these scores can be purchased. (The free reports, however, do enable you to read and verify all of the information that is used in determining your FICO score.)


    1. Brian

      One of the things people forget is that quantity sometimes counts over quality. So you had that one credit card that was a bit late, if you have 20 others that have an okay rating, you’ll be fine.

    2. You stated that 10% of the FICO score is from “types of credit” used. Is one kind of credit better than another? I didn’t realize there was a difference.

      Great blog, btw.

    3. Arial

      That’s a nice summary. Another important thing to stress is that people should actively and regularly keep an eye on their credit. Since the Free Credit Report act allows for 3 free reports a year, it’s a good idea to space out each credit report about every four months. Another thing to keep in mind is that bureaus such as Experian and do not give you your true FICO score when purchased. Instead, they will give a score called “Vantagescore”, and it differs from FICO in that it’s inflated.

    4. Jackie, I am not sure whether one type of credit is better than another.

      Note to readers: All Americans are entitled to one free annual credit report from each of the agencies. To get three reports at separate times of the year, as Arial specifies, you must request a credit report from only one agency at a time.

      As I mentioned, there are multiple units in which credit is reported. FICO used to be the old standard, but VantageScore is rapidly being adopted.

    5. Yogi

      If anyone doesn’t get a free copy of their credit report they are missing out on an important financial feature. How could something be in your credit report that doesn’t belong there? Easy, think about who may be inputing the data. How motivated is that person to do a good, quality job. Does that person have the ability to input the data correctly. Just one mis-stroke of the keyboard and you may be the recipient of someone else’s data and it may have a negative impact on your credit. My wife found out that someone had tried to open a credit card in her name but it was turned down. So it is better to be safe and go to the little effort to get the reports than to later find out, when time may be of the essence in purchasing a major item, that something needs to be corrected.

    6. PT

      Great post! It’s amazing how many people don’t even think about checking their credit score. I recommend pulling your score at least once a quarter and checking it for accuracy. It’s also a great way to make sure no one has swiped your identity and is running up charges on your tab.

      I also recommend paying the extra money for a credit monitoring service. It will run you around $50 a year, but will alert you any time: your credit report is pulled, new credit lines are opened in your name, or changes are made to your information.

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