Understanding Your Credit

Understanding Your Credit

Understanding Your Credit

We hear a lot about credit — credit reports, credit scores, credit freezes, credit monitoring. What does it all mean for you? Your credit matters because it affects your ability to get a loan, a job, housing, insurance, and more. It’s important to understand what your credit is and how to protect it.

What’s Your Credit, and Why Does It Matter?

How Do You Know If Your Credit Is Good?

How Can You Protect Your Credit?

What’s Your Credit, and Why Does It Matter?


What’s Your Credit, and Why Does It Matter?


When people talk about your credit, they mean your credit history. Your credit history describes how you use money. For example:

 How you handled your money and bills in the past will help lenders decide if they want to do business with you. Your credit history also helps them determine what interest rate to charge you.


Lenders, landlords, insurance companies, and potential employers are a few examples of who might look at your credit history. Your credit history can make a big difference when you apply for a loan or credit card, look for a job, try to rent an apartment, try to buy or lease a car, try to get rental or home insurance. Because  lenders, landlords, and others care how you handle your bills and other financial decisions, you might want to care about your credit, too.


Usually not. Companies that promise to repair your credit can’t remove true information. But negative information does go away over time.

Most negative information will stay on your report for seven years, and bankruptcy information will stay on for 10 years. And in some cases — like when you’re being considered for a job paying more than $75,000 a year, or you’re trying to get a loan or insurance valued at more than $150,000 — a credit bureau may include older negative information on your report that wouldn’t show up otherwise. 

How Do You Know If Your Credit Is Good?


How Do You Know If Your Credit Is Good?



“Good” or “bad” credit is based on your credit history. You can find out what your credit history looks like by checking your credit report. 


Your credit report is a summary of your credit history. The three nationwide credit bureaus — TransUnion, Equifax, and Experian — collect credit and other information about you. In your credit report, you’ll find information like your name, address, and Social Security number, your credit cards, your loans, how much money you owe, if you pay your bills on time or late, if you filed for bankruptcy. Businesses pay the credit bureaus to use that information to check your credit. They run a credit check, for example, before they decide whether to lend you money, give you a credit card, or rent you an apartment. TIP: The credit bureaus must make sure that the information they collect about you is accurate. The Fair Credit Reporting Act (FCRA), a federal law, requires this. But you want to check your credit report regularly to be very sure the right information is there. If you find mistakes.

You have the right to get a free copy of your credit report every year from the three nationwide credit bureaus: TransUnion, Equifax, and Experian. Some financial advisors suggest staggering your requests over a 12-month period to help keep an eye on your reports and make sure they have accurate information. The best way to get your free credit report is to

In addition, the three bureaus have permanently extended a program that lets you check your credit report from each once a week for free at AnnualCreditReport.com.

And everyone in the U.S. can get six free credit reports per year through 2026 by visiting the Equifax website or by calling. That’s in addition to the one free Equifax report (plus your Experian and TransUnion reports) you can get at AnnualCreditReport.com. 



A credit score is a number that’s calculated based on the information in your credit report. It helps businesses predict how likely you are to repay a loan and make the payments when they’re due. You’ll see lots of different scoring systems, but most lenders use the FICO score. To calculate your credit score, companies first pull information from your credit report, like how much money you owe, whether you’ve paid on time or late, how long you’ve had credit, how much new credit you have, whether you asked for new credit recently. Then, using a statistical program, companies compare this information to the credit behavior of people with similar profiles. Based on this comparison, the statistical program assigns you a score. Usually, credit scores fall between 300 and 850. A higher score means that you have “good” credit: businesses think you’re less of a risk, which means you’re more likely to get credit or insurance — or pay less for it. A low score means you have what businesses see as “bad” credit, which means it will be harder for you to get a loan or a credit card — and you’re more likely to pay higher interest rates on credit you do get.

Unlike your free annual credit report, there is no free annual credit score. Some companies you do business with might give you free credit scores. Other companies may give you a free credit score if you sign up for their paid credit monitoring service. This kind of service checks your credit report for you. Sometimes it’s not always clear that you’ll be charged for the credit monitoring. So if you see an offer for free credit scores, check closely to see if you’re being charged for credit monitoring.

TIP: Before you pay to get your credit score, ask yourself if you need to see it. Your credit score is based on what’s in your credit history — if you know your credit history is good, your credit score will be good. It might be interesting to know your score, but you can decide if you want to pay to get it. For more on credit scores, see the article Credit Scores.   

How Can You Protect Your Credit?


Freezing your credit


A credit freeze (or security freeze) is a free way to limit who can see your credit report. If you’re worried about someone using your credit without permission — like an identity thief or a hacker after a data breach you might want to place a freeze on your credit report. A freeze makes it harder for someone else to open new accounts in your name. It also means you’ll need to temporarily lift the freeze if you apply for credit, since many banks and lenders do a credit check before approving new accounts.

Some things to keep in mind about credit freezes:

 

TIP: Even with a credit freeze, a thief can make charges on your existing accounts. You still need to monitor your bank, credit card, and insurance statements for charges or changes you didn’t authorize.

To place a free credit freeze on your credit report, contact each of the three nationwide credit bureaus: 


Because your credit report affects your ability to get loans, jobs, apartments, and more, you want to make sure there aren’t mistakes, and that no one has been misusing your personal information. You can do this in several ways:

If you find something on your credit report that shouldn’t be there, take steps to fix it. See the section below, “Fixing mistakes in your credit report.” 

TIP: Whether you monitor your credit yourself, get free credit monitoring, or pay a company to do it for you, it’s important to check in regularly to avoid any surprises. Find out more about credit monitoring in What To Know About Identity Theft. 


The information in your credit report affects your ability to get a loan, an apartment, and many other important things in your life. You want to make sure that what’s on your report is right. If you find mistakes on your credit report, both the credit bureau and the person, company, or organization that put the wrong information there are responsible for correcting it. But there are steps you need to take first:

Second, contact the company that reported the wrong information to the credit bureau. Do this in writing. Tell them that you’re disputing an item in your credit report. Get more information and sample dispute letters.

For reference, https://consumer.ftc.gov/articles/understanding-your-credit