Credit History 101: The ABCs of Credit Reports and Credit Scores

If you’re like many consumers, you probably have questions about what goes into your credit report and who uses it. Here is an overview that we hope will address many of your questions and concerns.

What is a credit report?

A credit report is a summary of your financial reliability?for the most part, your history of paying debts and other bills. It is prepared by credit bureaus (also known as credit reporting agencies) primarily for use by lenders, employers and others who, under the federal Fair Credit Reporting Act (FCRA), have a legitimate need for the information, such as when you apply for a loan, insurance policy, apartment or job. The wealth of information gathered by credit bureaus, coupled with the speed of today’s computer systems, explains why consumers can quickly get loans and other services, including approvals of certain credit applications in minutes.

What is a credit score and why is it important?

A credit score is a number calculated by a credit bureau, a lender or another company intended for use in making a decision on a loan application or other product or service. (For example, many lenders use a system developed by Fair Isaac and Company called the “FICO score.”) Think of credit scoring as a point system based on your credit history, designed to help predict how likely you are to repay a loan or make payments on time. Everyone with a credit record also has a credit score. Different lenders and other companies may use different scoring systems, so your score (and the products or services you’re offered as a result) may vary significantly from one source to another.

In general, the better your credit score the better your chances are of getting a loan with an attractive interest rate. Alternatively, a poor credit score may mean you can only qualify for a “subprime” loan?one with a higher interest rate and higher fees than those offered to applicants with “prime” credit records. So when it comes to getting a good loan, it’s important that your credit report?the basis for your credit score?is accurate, complete, and in the best shape possible.