We believe that having great credit is essential for true financial stability and success. Unlike many conversations about money, personal finance isn't something you usually talk about amongst your peers and they definitely didn't teach us this stuff in high school. We created this FAQ to answer all of the most common asked credit questions you may have.
These easy answers can help you understand your credit better so you can maximize your score and clean up what's holding you back to help you maintain a healthier score.
A credit score is a 3-digit number that lenders use to evaluate your credit worthiness. It helps lenders and creditors assess your risk as a borrower. The FICO credit score is the most widely used. FICO scores range from 300 to 850. The higher your score, the easier it is to get approved for financing. Other scores you may most commonly see are from the Vantage 3.0 and FICO 8 scoring systems.
Most credit scoring models use five basic factors to calculate consumer credit scores. Each factor carries a different “weight” for how much it impacts your score.
A credit report is a profile of your life as a credit user. It captures the loans and credit lines you’ve maintained throughout your life. By law, positive and neutral information can remain indefinitely, while negative information is removed after set periods of time.
The information contained in your report is what the credit bureaus and creditors use to calculate your credit score. Anytime you apply for a new loan or credit card, you authorize the company to run a credit check. This means they review your credit report to determine your risk as a borrower.
Each credit bureau (Experian, Equifax and TransUnion) maintains its own proprietary version of your credit report. This means you actually have three reports instead of just one. Your reports generally contain the same information, although the way it’s reported in each version is different.
Credit monitoring is a financial service that tracks changes in your credit. It allows you to build credit effectively and maintain a high score. The service also alerts you to changes in your credit report that may impact your score, either positively or negatively. Monitoring allows you to proactively build credit while avoiding actions that lead to a bad score.
Although your credit reports should contain the same information, they may have discrepancies. These may be caused by differences in reporting or mistakes that should be removed. That gives you reason to monitor the reports from all three credit bureaus. However, recognize that 3-report monitoring is usually more expensive.
It’s important to recognize that any type of credit can be included in your profile.
This includes credit cards, as well as loans, in-store credit accounts and even public debts, such as back child support or alimony. If you opened any of these types of credit, even if the account is closed, you should have a report. Therefore, you have reason to check and monitor your credit. The type of ongoing monitoring you need depends on your goals.
Credit repair (also called credit restoration) is the process of disputing mistakes in your report. Between your creditors and the credit bureaus, errors can occur in reporting. This is the financial process of disputing those mistakes. If the information cannot be verified it must be removed.
The timeline for correction depends on the number of mistakes you need to dispute. Credit bureaus have 30 days from the date they received your dispute to verify the information. In some cases, they may request follow up information which means the process may take longer, depending on how quickly.
There are different levels of credit repair services. You can actually complete the process yourself with minimal cost. There is software available for purchase that can assist you. Finally, you can hire a third party licensed attorney in your state to make disputes on your behalf.
If you chose to go through the credit repair process yourself, it’s relatively free. You may incur small charges if you use registered mail, return receipt to send your disputes to the bureaus. However, you can obtain and review your reports entirely for free through annualcreditreport.com. In most cases though, if someone or some piece of software assists you with the process, there will be a cost.
Federal law requires that any consumer has the right to dispute mistakes that may appear in their credit report. That means credit repair, itself, is 100% legal no matter where you live. You are also allowed to retain a third party to represent you and make disputes on your behalf. That party must be an attorney licensed in your state. Credit repair is illegal if the company you hire to correct your credit does not have a licensed attorney. They would not have the authority to make disputes for you.
States also have laws that build on the federal protections granted to you.