Consumer Credit Score Guide

credit score guide to improve your financial life

Your financial situation is different from anyone else. You should take the time to review this consumer credit score options guide to find the best solution for your needs and goals.

Why Is A Credit Score Important?

Credit scores are extremely important because they affect your ability to borrow money as well as the cost of doing so. Simply put, those with higher credit scores generally receive more favorable credit terms. This will translate into lower payments and less paid in interest over the life of any of your credit accounts. They also play a role in the car insurance premiums you pay. And, unfortunately, bad credit can even make it difficult to find a job or a place to live.

What Is A Credit Score?

Your credit score is your credit history expressed as a number. It is a three-digit number, typically between 300 and 850, designed to represent your credit risk, or the likelihood you will pay your bills on time. You can also think of it as a grade for how responsibly you have managed loans, lines of credit and other financial obligations over the years.

Credit scores are calculated using information in your credit reports, including your payment history, the amount of debt you have, and the length of your credit history. Higher scores mean you have demonstrated responsible credit behavior in the past, which may make potential lenders and creditors more confident when evaluating a request for credit, like a loan or a credit card.

Your Financial Report Card

A credit score is a statistical summary of the information contained in a consumer’s credit report usually graded on a scale ranging from 300 to 850. Your credit score represents your financial reputation. It is used by lenders, landlords, employers and others to determine your level of credit risk, responsibility, and overall character.

Credit scores are calculated using information in your credit reports, including your payment history, the amount of debt you have, and the length of your credit history. Higher scores mean you have demonstrated responsible credit behavior in the past, which may make potential lenders and creditors more confident when evaluating a request for credit, like a loan or a credit card.

Here is a general look at credit score ranges:

  • Excellent – 800-850
  • Very good – 740-799
  • Good – 670-739
  • Fair – 580-669
  • Poor – 300-579

Credit scores may vary according to the scoring model used and which credit bureau furnishes the credit report used for the data. That is because not all creditors report to all three three nationwide credit bureaus (Equifax, Experian and TransUnion). Some may report to only two, one or none at all. Also, lenders may also use a blended credit score from the three major credit bureaus.

The types of credit scores used by lenders and creditors may vary based on their industry. For example, an auto lender might use a credit score that places more emphasis on your payment history when it comes to auto loans.

Since everyone’s financial and credit situation is different, lenders may also have different criteria when it comes to granting credit, for example, including your income as a factor.

What Affects A Credit Score

Credit scores are based on the information in our major credit reports. They represent a numerical weighting of different categories found in a credit report. There are two major providers of credit score reports in the US: FICO Score and VantageScore. While the credit scores may be calculated a bit differently, they will likely produce very similar results for you.

Your credit score is calculated only from the information in your credit report. However, lenders may look at many things when making a credit decision, such as your income, how long you have worked at your present job, and the kind of credit you are requesting.

If you have good marks in each of the following credit categories (using FICO Score as reference), your credit should be good no matter which credit score report is used. These percentages are based on the importance of the five categories for the general population. The importance of these categories may vary from one person to another.

Payment history is the most important part of any credit score. The first thing any lender wants to know is whether you have paid past credit accounts on time. This helps a lender figure out the amount of risk it will take on when extending credit.

Having credit accounts and owing money on them is the second most important category of a credit score. It is an indicator of whether your spending habits are sustainable and if you are likely to face serious financial problems in the future. If you are using a lot of your available credit, this may indicate that you are overextended-and banks can interpret this to mean that you are at a higher risk of defaulting.

In general, a longer credit history will increase your credit report. The length of time using loans, credit cards and lines of credit is important in accurately forecastig a borrower’s future risk behavior. However, even people who haven’t been using credit long may have credit scores depending on how the rest of their credit report looks.

This category measures your mix of different types of credit accounts (credit cards, retail accounts, installment accounts, auto and mortgage loans) and how recently you have used them. The types of credit you have used shows how experienced a borrower you are. It is not necessary to have one of each.

On a credit score, this category emphasizes your recent financial performance. This is one of the best predictors of your future financial activities. Research shows that opening several credit accounts in a short period of time represents a greater risk, particularly for people who do not have a long credit history. If you can avoid it, try not to open too many accounts too rapidly.

Improving Your Credit Score


Improving your consumer credit score is like losing weight. If your credit score is good to excellent, you will simply focus on maintaining your positive financial behavior. Otherwise, to improve your credit score, you will need to make changes in your financial life. It is really that simple.

Similar to a crash weight diet, quick fix efforts to improve your credit score will likely not produce the results that you desire. It simply takes time to manage credit responsibly.

If you haven’t used credit well in the past, you should review your credit reports to determine whether you need to repair your credit history before you see credit score improvements. The following guide will help you do that. This is based on improving the data the credit bureaus collect which is then used to calculate your credit score. Good credit data in, good credit score out, with time.

Credit Reports | Credit Scores

There are three major US credit bureaus: Experian, TransUnion and Equifax. The credit bureaus maintain records of your credit data and other identifying information. These are your consumer credit reports.

There are two major US credit score providers: FICOScore and VantageScore. FICOScore is the market leader and are used in over 90% of US lending decisions. These are your consumer credit scores.

When you get a new loan or credit card, make or miss a payment, apply for a car loan, etc., your lenders will report this information to the credit bureaus. Since it is up to your lenders what information they report to the credit bureaus, and which credit bureaus they report to, it is not uncommon for your credit reports to be slightly different at each bureau.

And since your credit scores are calculated from the credit data on your credit reports, it is also common for your credit scores at each credit bureau to be slightly different. Yes, you have multiple credit scores. And, different lenders use industry specific credit scores when evaluating your credit. For example, there are credit score versions for auto, home mortgage and credit cards.

All consumer credit reports contain the same four categories of information.

Personal Information – Your name, address, Social Security number, date of birth and employment information. This information is NOT used in calculating your credit score.

Accounts – Your credit accounts, organized by type (bankcard, auto loan, mortgage, etc.), date opened, credit limit or loan amount, account balance and payment history.

Inquiries – Requests for your credit report within the last two years. There are two types of inquiries: hard inquiries and soft inquiries. A hard inquiry occurs when a lender or other third party checks your credit report or score when you apply for credit with them. A soft inquiry typically occurs when your credit reports and scores are pulled without you applying for credit (like when a credit card issuer sends you a pre-approved offer), or when you pull your own credit reports. Your credit scores only consider hard inquiries.

Negative Items – Delinquency information from missed payments that have been reported by lenders. This also includes information on overdue debt from collections agencies, and public record information (bankruptcies and foreclosures).

How Credit Reports Are Calculated

payment history – 35% FICO SCORE

How you have paid your bills in the past, whether on time, late, or missed payments is an important factor in your credit score. The more severe, recent and frequent the late payment information, the greater the negative impact. Your credit score reflects payments history from:

Different Types Of Accounts

  • Credit Cards
  • Retail Accounts
  • Installment Loans (e.g., car loan)
  • Finance Company Accounts
  • Mortgage Loans

Public Records and Collection Items

  • Bankruptcies
  • Foreclosures
  • Suits
  • Wage Garnishment

Details On Late Or Missed Payments

  • How late were they?
  • How recently did they occur?
  • How many are there?
  • How much was owed?

Amount OF DEbt – 30% FICO SCORE

The amount of credit you are using and how much debt you owe is an important factor in your credit score. The total balance owed, how many accounts have balances and how much of your available credit you are using are some of the specific factors considered.

Total Amount Owed Across All Accounts – The sum of all your last credit account statements.

Amount Owed On Specific Account Types – This would be revolving or installment accounts, in addition to your overall amount owed.

Number Of Accounts With A Balance Due – Too many accounts with a balance could indicate a higher risk of over-extension.

Credit Utilization Ratio On Revolving Accounts – This indicates how much of your available credit you are using.. It is an important factor since if you are reaching your account limits, you might have trouble making payments in the future.

Remaining Amount Owed On Installment Loans – Consistently paying down installment loans indicates that you are able to manage and repay debt.

Length Of History – 15% FICO SCORE

Your credit score takes into consideration how long your credit accounts have been established.

The Age Of Your Oldest Account

Your Average Age Account

The Age Of Specific Types Of Accounts – For example, credit cards, auto loans, mortgage, etc.

new credit – 10% FICO SCORE

Your credit score takes into account several factors when considering your amount of new credit. Opening several new credit accounts in a short period of time indicates greater credit risk.

The Number Of New Accounts – How many new accounts and what type.

Time Since You Last Opened A New Account

How Many Recent Requests For Credit – Credit requests will prompt inquiries, which remain on your credit report for two years.

Whether You Are Rate Shopping – Multiple loan applications that commonly involve rate shopping (mortgage, car loan or student loan), are counted as a single inquiry, if they all fall under a typical shopping period.

credit Mix – 10% FICO SCORE

Your credit score considers the different types of credit accounts being used or reported, including credit cards, retail accounts, installment loans and mortgage loans. Credit mix will be more important if your credit report doesn’t have a lot of other information to base a credit decision.

Different Kinds Of Credit Accounts – Your overall credit picture when determining the impact of Credit Mix on your credit scores.

Things To Improve Your Credit Score

As mentioned, the process to improve your credit score is a combination of fixing your credit reports (if needed) of any disputable negative items and changing your financial behavior to better manage your credit and debt accounts. This process takes patience, discipline and time. Here are specific areas that you should focus on:

  • Improving your credit accounts payment history.
  • Reducing the amount of debt that you owe.
  • Minimizing the opening of new credit accounts.

Consistently making your credit payments on time is one of the biggest contributing factors to your credit scores. Set up payment reminders to avoid forgetting when credit payments are due. If your bank or credit account provider offer a means to automate this process, consider this. Avoid however simply making minimal payments to your credit accounts.

When a company extends you credit, you increase the amount of debt that you need to pay back. This is easier said than done, but reducing the amount that you owe is going to be a far more satisfying achievement than improving your credit score.

The first thing you need to do is stop using your credit cards. Put them away. If you find that you need to use your credit cards to survive the month, then you need to revisit your budget to see if it is realistic or whether you lack the discipline to adhere to it.

Use your credit report as a financial tool to make a list of all of your accounts. Then go online or check recent statements to determine how much you owe on each account and what interest rate they are charging you. Work out a payment plan (your financial budget again) that assigns most of your disposable debt payment budget for accounts with the highest interest rate first, while maintaining minimum payments on your other accounts. An alternative strategy is to focus on paying off the smallest accounts initially. This provides a physiological incentive of accomplishment. You then repeat the process, selecting the next largest account.

If you find that that the financial planning and budgeting process is too complicated, you might investigate Credit Counseling. They are generally non-profit and can provide analysis of your financial situation and can help you create a financial budget. Additionally the credit counselor can also propose a Debt Management Program to coordinate the process of paying your creditors. Seeking assistance from a credit counseling service will not hurt your credit scores.

Delinquent account payments, even if only a few days late, and collections can have a major negative impact on your credit scores. If you have missed payments, get current and stay current. The longer you pay your bills on time after being late, the more your credit scores should increase. As your credit accounts age, older problem accounts carry less negative weight in your credit scores calculation. Your new consistent account payments are, of course, positive for your credit reports.

If you have any credit accounts in collections, even once you have paid off the account, it will not be remove from your credit report for seven years.

Note that closing an account doesn’t make it go away. A closed account will still show up on your credit report and may be considered by a score.

This category contributes 30% to your credit score’s calculation and can be easier to clean up than payment history. It does however require financial discipline and planning. Since this is measuring the amount of debt you have versus the amount of available credit, the lower your credit utilization ratio, the better for your credit reports. Your primary focus here is how you manage the use of your credit cards.

  • Keep balances low on credit cards and other revolving credit.
  • Pay off debt rather than moving it around.
  • Don’t close unused credit cards as a short-term strategy to raise your scores.
  • Don’t open a number of new credit cards that you don’t need, just to increase your available credit.

While this category contributes only 15% to your credit score’s calculation, if you have a limited time using credit, it will affect you more than the general population. You have limited credit information available for a lender to judge. You should not open many new accounts quickly, since a new account will lower your average account age and you will appear to be a greater credit risk. Your primary focus should be properly managing the use of your existing credit accounts.

COnsumer Credit Repair Process

By law, information reported about you to credit bureaus must be fair, accurate, relevant, substantiated and verifiable. Consumer Credit Repair involves fixing inaccurate, misleading, unverifiable, untimely, biased or incomplete information listed on your credit report.

In order to fix these errors, the national credit reporting bureaus require you to work through a series of formal dispute letters and complicated online disputing systems. The importance of fixing errors on a credit report is that they will result in lowering your credit score.

Basically, third-party credit repair services will examine your credit reports and help you with disputing items that are unfair, inaccurate, and unverified in order to help you have a fair and accurate credit report.

There are four basic steps to improving the quality of your credit report and resulting credit score:

Obtain your credit report from the three major credit bureaus to collect information on your full credit history. Each credit bureau’s report is different and all need to go through analysis. You focus on the negative items that are affecting your credit score and you create a disputing plan.

If you choose to use a third-party credit repair service, their legal team assigned to your case reviews your negative items and drafts and sends the appropriate dispute correspondence to the creditors or credit bureaus. The disputes need to be done in writing and sent to the credit bureaus via certified mail for bureau accountability.

If a negative item requires more care to remove, the dispute is escalated to include legal representation (if you use a third-party credit repair service). The Fair Credit Reporting Act and other laws are used to ensure your credit rights are accurately represented.

As disputes are processed, the credit bureaus need to be tracked to ensure compliance with the dispute resolutions.

Thoughts On Improving Your Credit Score

Improving your credit score is more about fixing errors in your credit history (if they exist) and then following the guidelines above to maintain consistent, good credit history. Raising your scores after a poor mark on your credit report or building credit for the first time will take patience, discipline and time.

Credit Repair | Identity Theft

Frequently Asked Questions

Consumer Credit Score

Credit scores for married couples are treated separately. They do not have joint credit scores. Each has their own individual scores. If you are unmarried you only need to worry about your credit habits and profile. However, if you are married your spouse’s credit habits and profile have an impact on yours. For example, if you have a credit card in both of your names and it does not get paid on time, that can adversely affect both of your credit scores.

A credit score minimum requirements, in order to qualify to receive one, your credit report must have:

  • At least one account opened for six months or more;
  • At least one account reported to the credit bureau within the past six months
  • No indication of deceased on the credit report

Credit score changes, in general, do not change that much over time. Your credit score is calculated each time it is requested;. This can be a lender request or by you. Each time your credit score is calculated it takes into consideration the information that is on your credit report at that time. As the the information on your credit report changes, your credit score can also change.

There can be delays by your creditors in reporting information to the credit bureaus. Also, the type of changes in information will affect your credit score. For example, opening a new credit card account will be more significant a change than simply having paid your bills on time the previous month. Also, something dramatic like a bankruptcy judgement will have a significant impact in the calculation of your credit score.

Credit scores are different between the national credit bureaus. In the U.S., the three national credit bureaus compete to capture, update and store credit histories on most U.S. consumers. While most of the information collected by the three credit bureaus is similar, there are differences.

All of your credit information may not be reported to all three credit bureaus. The information on your credit report is supplied by lenders, collection agencies and court records. You should not assume that each credit bureau has the same information pertaining to your credit history.

A bankruptcy affects credit scores negatively. It will always be considered a very negative event by your credit score. The negative impact it will have on your score will depend on your entire credit profile. For example, someone with a high credit score could expect a huge drop. Alternatively, someone with many negative items already listed on their credit report might only see a modest drop in their score. Also, the more accounts included in the bankruptcy filing, the more of an impact on your credit score.

Does spending less improve credit scores? It depends. If the money saved goes into your bank account, this will not improve your credit scores. Your credit scores do not consider the amount of disposable cash you have at any given time.

However, if the money saved is used to consistently payoff your credit accounts, you will notice an improvement in your credit score. Your credit score factors in the balance on your revolving credit accounts such as your credit cards. As you pay the balances down, your debt versus credit (credit utilization ratio) should decline, which is positive for your credit scores.

Do inquires affect credit scores? Yes they do. Credit inquiries are requests by a “legitimate business” to check your credit. These inquires are reported to the credit bureaus which are then included in your credit reports. There are two types of credit inquiries that are classified as either “hard inquiries” or “soft inquiries.” Only hard inquiries have an affect on your credit scores.

Soft inquiries are all credit inquiries where your credit is NOT being reviewed by a prospective lender. These include inquiries when you are checking your own credit reports and credit checks made by businesses to offer you goods or services.

Hard inquiries are credit inquiries where a potential lender is reviewing your credit because you have applied for credit with them. For example, when you have applied for an auto loan, mortgage or credit card. Each of these types of credit checks count as a single credit inquiry. The exception is when you are “rate shopping” for the best deal on a loan. In this case all all inquiries within a 45-day period for a mortgage, an auto loan or a student loan are classified as a single credit inquiry.

Most likely your credit report has errors.

The Federal Trade Commission reported in a study conducted in 2012 that 26% of the credit reports they analyzed had errors. Of those with errors, 5% who disputed these errors increased their credit scores at least 25 points. That is a significant change in a credit score.

You should not assume that your credit reports are completely accurate.

No. Your credit report is independent of your spouse. The same is true of your credit scores. However…

A lender will likely take into consideration both of your credit reports when deciding on a home mortgage, for example. If your credit report is bad and your spouse’s good you may find that the loan, if approved, has a higher interest rate than if both were good.

It certainly can. Many employers will do a credit check of a potential employee to determine the stability of the job candidate. For job positions that entail financial responsibility, it is most likely you would experience a credit report check.

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Consumer Credit Repair

The Fair Credit Reporting Act (FCRA) was written in 1970 as an amendment to the Consumer Credit Protection Act. The FCRA provides additional measures of consumer protection in the areas of fairness, accuracy, and privacy of the information collected by the credit bureaus. It also allows you to personally engage in credit repair and maintenance processes, verifying that the information in your credit report is correct.

A credit bureau – sometimes called a “consumer reporting agency” – is a business that collects relevant consumer information from creditors and courthouses, and then sells that information to interested parties such as potential lenders. Such information is sold in the form of a credit report. In the U.S., the three major credit bureaus are TransUnion, Experian, and Equifax.

Normally negative items will remain on your credit report for seven years, with the exception of bankruptcy (ten years). You may choose to dispute a negative item, but if it is accurate, the dispute will be rejected and the item will remain on your credit report. However, if the negative item violated consumer protection laws, it may be removed.

When an account is unpaid for more than 180 days, a creditor usually writes off the debt as a loss on their financial statements. This is known as a charge off. Once a debt is charged off, it is either transferred to an in-house collections department or sold to a third-party collection agency who will likely contact you in attempt to recoup the balance.

The time it takes to repair your credit is completely dependent upon your personal situation. Six months should be your guide if you have many issues with your credit report.

It is a common myth that negative items must remain on your credit report for a minimum number of years. In fact, there is no minimum time-frame. Creditors control the information they provide to the credit bureaus. They can also choose to remove negative items as well. The Fair Credit Reporting Act requires all reported information to be fair, accurate, and substantiated. If these conditions are not met, the credit bureaus are required to remove it.

Credit Repair is actually the process of removing inaccurate, unfounded, out of date, false, and erroneous information from your credit report.  Your credit report dictates your credit score.  The 3 major credit bureaus collect information from lenders, creditors, and debt collectors and apply it to your credit report.  Based on that information, your credit score is determined.  This information could include the balances on loans or credit cards, credit inquiries, debt to income ratio, and most importantly, credit utilization (the percentage of debt you have to available credit)

This is determined by what your goal is.  Perhaps you are trying to buy a house.  If this is the case, you might want to get started at least 6-9 months before you plan on purchasing.  If you plan on purchasing a car, then you might to get started in 2-3 months.

You have the ability to dispute any information on your credit report you deem as inaccurate, unfounded, or incorrect.  However many consumers have tried doing this themselves only to find out that the process takes too long, is confusing, and full of challenges they deem too stressful to deal with themselves.  A third-party credit repair company can take the burden of disputing off your hands and have the ability to speed up the process through their experience.  Think of a third-party credit repair company like you would think of a Tax preparer, Legal Service, or even a plumber.  You could probably do it yourself, but perhaps not with the same end results. We highly suggest that all of our clients and prospective clients take some time to learn about their credit, credit reports, as well as the process of repairing their own credit.  You may feel doing it yourself is the better route for you and your situation.

A good credit score helps you obtain low interest rates and long term loans, like home loans or car loans. Lenders may charge high interest rates or impose undesirable repayment plans for you. Given the stakes and the consequences involved, it is clearly to your advantage to work toward recovering from a bad credit rating.

Credit Bureaus are companies that maintain records of your credit lines and performance. Records can go back for up to ten years, in the case of bankruptcy data. Creditors, banks, mortgage companies and other financial institutions supply this information to the credit bureaus. The credit bureaus then compile this data into your a credit report. A credit report has details of how you have managed credit in the past, so other lenders can judge your credit worthiness.

Most likely your credit report has errors.

The Federal Trade Commission reported in a study conducted in 2012 that 26% of the credit reports they analyzed had errors. Of those with errors, 5% who disputed these errors increased their credit scores at least 25 points. That is a significant change in a credit score.

You should not assume that your credit reports are completely accurate.

No. Your credit report is independent of your spouse. The same is true of your credit scores. However…

A lender will likely take into consideration both of your credit reports when deciding on a home mortgage, for example. If your credit report is bad and your spouse’s good you may find that the loan, if approved, has a higher interest rate than if both were good.

It certainly can. Many employers will do a credit check of a potential employee to determine the stability of the job candidate. For job positions that entail financial responsibility, it is most likely you would experience a credit report check.

When you are initially contacted by a debt collector regarding an unpaid debt, you have the right to request proof of the debt within 30 days of initial contact. This is called debt validation. Unless the debt collector can validate that you are responsible for the debt, they must stop all further collection efforts.

The debt validation letter from collector needs to include: 1) Proof the debt exists; 2) Proof that you are responsible for the debt; and 3) Proof that the debt collector has legal right to collect on the debt.

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