Credit smarts: What’s a credit score and how do I get my credit report?

It’s National Financial Awareness Day, and we’re celebrating by kicking off a monthly series about all things credit. In this series, we’ll try to answer some of the questions we hear most often about credit scores, what goes into them, and how you can establish credit history.

Today, we’re starting with credit scores and credit reports: what they are and how to check yours.

What is a credit score?

According to the Consumer Financial Protection Bureau (CFPB) a credit score “predicts how likely you are to pay back a loan on time.” But your credit scores are used for more than just loans or credit cards.

Many companies will request to see your credit report (more on those below) when you apply for a loan or credit card, rent an apartment, apply for a job, or take out insurance. Having a good credit score increases your chances of being approved, and often results in better interest rates and terms. Utility and phone companies may also check your credit score to determine if they will ask for a new customer deposit.

The first credit scoring system was created in 1958 by Fair, Isaac and Company (known today as FICO®). In 1989, FICO released the scoring system that is now the industry standard. Since their inception, credit scores have been used to demonstrate financial health and creditworthiness. FICO credit scores typically range from 300 to 850. In general, the higher your score, the better your credit.

Where do credit scores come from?

Credit scores are based on information in your credit report which is put together by credit bureaus. Credit bureaus are companies that collect data relating to things like your bill payment history, current unpaid debt, the number of open accounts, and new applications for credit.

Many companies you pay bills to may report payments and other activity to credit bureaus. This allows the bureaus to update your information regularly and create an overview of your credit history. This overview is the basis of your credit report. Credit bureaus use your credit reports and complex scoring models to calculate your credit scores.

Fun fact: You may have more than one credit score, and they probably aren’t the same. Because different credit bureaus have different methods for calculating your score and use different sources of information, you’ll likely notice some variation between one score and another.

So, how do I check my credit score? Credit score scale. Your credit score is determined by information in your credit report.

Checking your credit scores and reports is extremely helpful to understanding your financial health. Each of the three nationwide credit bureaus—Experian, Equifax, and TransUnion—are required by law to provide you with a free copy of your credit report every year at your request. You can check your credit report at AnnualCreditReport.com. Later in this series, we’ll take a look how to read your credit report and correct any mistakes you might find.

There are also a number of apps and tools that provide credit monitoring services. Many of these products advertise themselves as free, but be careful—some charge automatic monthly fees after an initial trial period. Before you sign up, make sure you read the fine print.

What if I don’t have a credit score?

You’re not alone. In 2015, the CFPB published a report showing that 26 million Americans don’t have a credit history with one of the top three nationwide credit bureaus. On top of that, 19 million people have such little credit history that they are considered “unscorable” by the bureaus. All in all, 45 million adults in the United States have no credit score.

Luckily, there are a number of things you can do to start establishing your credit history. One easy way is to make sure any lenders you’re using report to the national credit bureaus. Banks and some lenders, like Oportun, report your loan and payment history to the bureaus. Many alternatives, like payday lenders, do not. When your lender reports your activity and you make your payments on time, you can begin to establish the credit history you need for a car, a home, or whatever comes next.

Next month, we’ll take a look at some of the other options for establishing your credit history and getting on the road to financial success.

Establish your credit history with the right loan

Consider a situation like this: When they first were married, Mike and Carla lived with family members. Now, through their hard work, they are ready to move out and start a family. When they went to look for an apartment, they were turned down because they don’t have a credit history or a credit score.

The Consumer Financial Protection Bureau (CFPB) reports that 45 million people in the United States either don’t have a credit history or it is insufficient. And the example of Mike and Carla reflects the reality that many people face: Establishing a credit history can be difficult.

Options for people with no credit history

Folks like Mike and Carla can find it hard to get a loan from a bank, a place to rent, a credit card, maybe even a cell phone. Without a credit history, they face options such as having to ask a family member to co-sign their rental application, or needing to take out a higher cost payday loan.

But it doesn’t have to be this way. 

How to establish your credit history with Oportun

At Oportun, customers are not required to have a credit history or score to be approved for a loan. And Oportun reports customer accounts (payments and non-payments) to two of the three major credit bureaus to help customers establish their credit history.*

How a loan from Oportun helps your family’s financial future

While the word “debt” can sound like a bad thing, that is not always the case. Debts handled the right way — by making payments on time and not borrowing more than you can pay back — can help you pay for unanticipated expenses. It can also help you establish your credit history, which can help your family’s financial future.

A loan from Oportun offers affordable monthly payments. As you make your payments on time, over time you can establish your credit history.  Having a good credit history could put you in a better position to rent that apartment. Also, you could even buy a house for your family, purchase a car, get cell phones for your children, and much more.

There are times when asking for a loan is a wise decision. And paying your loan on time benefits you and your family by helping you build your future together.

*Oportun reports account payment histories to credit bureaus. Late or missed payments may have a negative impact on credit history or credit score. If you do not have a Social Security number, the credit bureaus may not be able to report your credit history completely and accurately.  

This blog is an advertisement and is not meant to provide personal financial advice. Please speak with your accountant or financial adviser for personal financial advice.  

What is a credit score and why does it matter

Building your family’s financial future is a labor of love. One important aspect is your credit score. Here we can help you understand what a credit score is and why it matters in your daily life.

What is a credit score?

A credit score is a number assigned to you by a credit bureau that is designed to “predict how likely you are to pay back a loan on time,” according to the Consumer Financial Protection Bureau (CFPB), a U.S. government agency.

Your credit scores are based on factors such as your “bill-paying history, your current unpaid debt, the number and type of loan accounts you have,” and other factors in your credit report, as explained by the CFPB.

Why does your credit score matter?

Many lenders use credit scores to decide whether to approve credit applications, such as a loan or credit card. In fact, your credit score is used to make several types of decisions that may affect your family’s life:

  • Personal loans, auto loans, home loans: Lenders (like banks and credit unions) may consider your credit score when deciding whether you qualify for a loan. It can also affect how much you qualify for and what the interest rate will be.
  • Insurance (for example, auto and home insurance): Insurance companies may look at “credit-based insurance scores”. These special scores include many, but not all, elements of the common credit scores. Lower scores are associated with more claims, so insurance companies could charge a higher insurance rate.
  • Utility companies: They can consider your credit score “to decide if a new customer has to make a deposit for service”, according to the Federal Trade Commission.
  • Cell phone companies, landlords: Cell phone companies and landlords can also look into your credit score before giving you service or renting an apartment to you.

A good credit score can provide you with better rates on loans and credit cards. It can also help you with many aspects of your daily life and with planning your family’s finances.

Tips from Oportun:

  • Before you choose a loan, ask whether the lender reports customer accounts to the credit bureaus. That way, your on-time payments may help your credit history and credit score.
  • Checking your credit report enables you to see your credit history. You should report any incorrect information that could affect your score. By law, you can get one free copy of your credit report every year from each of the three major credit bureaus – Experian, Equifax and Transunion. Request your free credit report at https://www.annualcreditreport.com.

This blog is for informational purposes only. It is not meant to provide personal financial advice. Please speak with your accountant or financial adviser for personal financial advice.

Credit reports: What are they and why do I need one?

According to the Consumer Finance Protection Bureau (CFPB), a federal government agency, a credit report is a statement that shows financial information about you and how you have used credit. Credit reports are generated by credit reporting companies, also known as credit bureaus.

Financial companies like banks and creditors, and some utilities and landlords provide information about your finances and payment history to the credit bureaus so they can create the credit reports about you.

There are three major credit bureaus: EquifaxExperian and TransUnion. You are able to obtain a free credit report from each of these credit bureaus each year to double check the information about you for accuracy, reporting errors, or fraud such as identity theft. According to the CFPB, there are other reasons that you might be able to get additional free reports, such as being denied credit or insurance. You can also check your credit score – a number that represents the information in your report. Learn more.

Oportun reports customer accounts to Equifax and TransUnion so you can establish a credit history (the information inside your credit report about how you have used credit). Making your loan payments on time and in full can help you establish a good credit history, which could help you obtain other credit, such as a car loan or credit card, or rent an apartment! Missed or late payments can have a negative impact on credit history and credit scores.

You can request free credit reports:

The CFPB says that credit reports contain other information such as:

PERSONAL INFORMATION:

  • Your name and any other name you use or may have used in the past in connection to a credit account.
  • Current and former addresses
  • Birth date
  • Social Security number
  • Phone numbers

CREDIT ACCOUNTS:

  • Current and past credit accounts, including the type of account (such as mortgage, auto loans, student loans, installment, revolving, etc.)
  • Credit limit or amount
  • Account balance
  • Payment history
  • The date the account was opened or closed
  • The name of the creditor

COLLECTION ITEMS:

  • Outstanding debts that were sent to collections

PUBLIC RECORDS

  • Liens
  • Foreclosures
  • Bankruptcies

INQUIRIES

  • Companies that accessed your credit report (a prospective lender, employers, and your own request for an annual report).

Credit reports & credit scores: Learn the difference

Credit scores are generated using information inside your credit report.

credit report is a statement that shows personal information about you and how you use credit. It shows the number of credit accounts you have, account statuses (open, late, current, paid off, etc.), and payment history among other things.

credit score is based on the information in your credit report and, using proprietary software, each credit bureau generates a three-digit number (score) that represents the likelihood that you will repay a debt. A higher score means you are more likely to repay a debt.

You have multiple credit reports, created by different credit bureaus which possibly have different financial information about you. You also have multiple credit scores, which may differ depending on the type of score (such as VantageScore® and FICO®) which credit bureau calculated your score, since they might have different information about you and use a different scoring model.

Credit reporting data:

A credit score is generated from data on file with a credit reporting agency, like one of the three major bureaus Equifax, Experian, TransUnion, or other credit reporting agency. Each may have slightly different data since companies that report data do not all report to all of the agencies. For example, Oportun reports customer accounts and payment histories to two of the three major bureaus, TransUnion and Equifax.

Timing:

Scores are not fixed and can vary over time, depending on:

  • When data is updated at the credit reporting agency
  • When your score is actually calculated, since the score formula is updated regularly

You may consider checking your credit reports before you apply for a loan to make sure that the information it is accurate. Errors on your credit report can affect your credit score, which in turn can affect your ability to get a loan or the loan’s terms. Learn how to get a free credit report.

What is a FICO® credit score and what goes into it

We are used to seeing scores on sports channels. However, when we refer to a credit score, we are talking about a very different type of game: The personal finance game where getting a good “score” represents how likely we are to be reliable borrowers and re-payers. That is exactly what a FICO® score tries to estimate, the likelihood we will pay our debts back on time.

There are many types of credit scores developed by different companies. The FICO® score, developed by Fair Isaac Corporation, is one of the most commonly referenced scores, and we will examine this particular one in this post.

How is a FICO® score calculated?

Your FICO® credit score is calculated from your FICO® credit reports (learn the difference between a score and report). The FICO® score is composed of three digits (between 300 and 850), and it is calculated by a math formula that takes into account the following factors:

  • Payment history (35%)
  • Amount owed (30%)
  • Length of credit history (15%)
  • Credit mix (10%)
  • New credit (10%)

It deserves a mention that the importance of each factor varies per person, their credit record, and other external factors.

An installment loan with Oportun can provide you with more than just money. We report customer accounts and payment histories to the credit bureaus, so our loans could help you establish credit history, if you make your payments in full and on time.

An explanation of each concept:

  • Your payment history This is one of the most important factors and it takes into account if you have paid past credit accounts (loans) on time.
  • Amounts owed FICO® points out that “owing money in a credit account does not necessarily mean you are a high-risk borrower with a low FICO® Score.” Everything will depend on the amount of credit you use compared to the amount you could use (called the “credit utilization ratio”). The best option, according to FICO®, would be “using a low percentage of your available credit.”
  • Length of credit history In general, the longer your credit history, the better, according to FICO®. However, “even people who haven’t been using credit long may have high FICO® Scores, depending on how the rest of the credit report looks.”
  • Credit mix in use FICO® scores will consider your mix of credit cards, retail accounts, installment loans, finance company accounts and mortgage loans. At only about 10% of importance to your overall score, this is not the most important factor but it could be relevant if your credit report does not have a lot of other information on which to base a score. (It may take 6 months or more to establish your credit history and get a FICO® score.)
  • New credit Research shows that opening several credit accounts in a short period of time represents a greater risk – especially for people who don’t have a long credit history. Your FICO® Scores look at how many new accounts you have by type of account.

 

Improving your credit score: Amounts owed

Around 30% of your FICO® credit score is calculated based on the total amounts you owe.*

An important factor in calculating your FICO® score has to do with how much you owe on all your lines of credit.

For revolving credit lines, like a credit card, FICO® may compare how much you owe to your credit limit. A high debt-to-eligible credit ratio could  indicate higher risk. If you owe $100 on your credit card and your credit card limit is $500, you have a low debt-to-eligible credit ratio on your credit card ($100 to $500).

With an installment loan, they compare how much you owe to the original borrowed amount.  The more you have paid off, the more likely it is to improve your FICO® score.

What is a FICO® credit score and what goes into it?

A credit score is a calculation that indicates how likely you are to pay back debts. The FICO® score is the most common type, and is a three digit number (between 300 and 850), where a higher score means more likely to pay back a debt. It is calculated by a math formula that takes into account the following factors:

Learn more

Two ideas to reduce the amount of money you owe:

  1. Pay off your credit card bill in full every month. While credit cards do allow you to carry a balance, it’s extremely expensive to do so.
  2. Don’t open new lines of credit to increase your eligible credit. While this might shrink your debt-to-eligible credit ratio, it doesn’t help you pay off money that you owe. This tip comes straight from FICO®, and is a good one.

The best way to reduce the amount you owe is to avoid credit card debt.

*FICO® is solely responsible for its credit score calculation. Information contained on the FICO® website is its own content and is not managed, sponsored or endorsed by Oportun. Oportun does not require a credit score to qualify for its products nor does Oportun rely on this score.

Improving your credit score: Length of credit history

The length of your credit history affects about 15% of your FICO® credit score.*

The longer you’ve been building your credit history, the better it looks to the credit bureaus. They assume that a person with 15 years of recorded on-time payments is more likely to continue making on-time payments than a person with 1 year of on-time payments.

Here’s an idea for improving your length of credit history, without having to wait several years.

Don’t open several new accounts in a short time periodYour FICO® credit score considers the average age of your accounts. If you open a number of accounts at the same time, your average age will be younger.

What is a FICO® credit score and what goes into it?

A credit score is a calculation that indicates how likely you are to pay back debts. The FICO® score is the most common type, and is a three digit number (between 300 and 850), where a higher score means more likely to pay back a debt. It is calculated by a math formula that takes into account the following factors:

Learn more

*FICO® is solely responsible for its credit score calculation. Information contained on the FICO® website is its own content and is not managed, sponsored or endorsed by Oportun. Oportun does not require a credit score to qualify for its products nor does Oportun rely on this score.

Improving your credit score: Credit mix and new credit

Credit mix and new credit make up around 20% of your FICO® credit score*, combined.

Credit Mix

Around 10% of your FICO® credit score is from your credit mix.

  1. Having different types of credit, such as a credit card account and installment loan, like an auto loan, could be good for your score. Responsibly managing different types of credit demonstrates your ability to pay off future debts.
  2. Only open lines of credit that you need. Do not apply for or open new accounts just to have a better credit mix. The value to your credit score is less than the value of only having credit accounts you need.

New Credit

The amount of new credit you have makes up about 10% of your FICO® credit score.

  1. If you need a new credit account, do all your research within 45 days.FICO® considers hard inquiries into a single type of loan as rate shopping and will group the credit pulls as a single inquiry, which is better for your score.
  2. Try to avoid opening a number of new accounts within a short period of time. When you do, credit bureaus are concerned that you take on too much debt in too short a time period, and they see you as a risk.

What is a FICO® credit score and what goes into it?

A credit score is a calculation that indicates how likely you are to pay back debts. The FICO® score is the most common type, and is a three digit number (between 300 and 850), where a higher score means more likely to pay back a debt. It is calculated by a math formula that takes into account the following factors:

Learn more

*FICO® is solely responsible for its credit score calculation. Information contained on the FICO® website is its own content and is not managed, sponsored or endorsed by Oportun. Oportun does not require a credit score to qualify for its products nor does Oportun rely on this score.

Improving your credit score: Payment history

Your payment history is an important factor in your FICO® score.*

Your past payment history is the biggest factor affecting your FICO® credit scores, according to Fair Issac Corporate, which generates FICO® scores. Making full payments on time, every time, is one way to improve your FICO® credit score. When you miss a payment, you may see a drop in your score and it can take time to restore.

What is a FICO® credit score and what goes into it?

A credit score is a calculation that indicates how likely you are to pay back debts. The FICO® score is the most common type, and is a three digit number (between 300 and 850), where a higher score means more likely to pay back a debt. It is calculated by a math formula that takes into account the following factors:

Learn more

Here are three ways to help ensure your payments are paid in full and on time:

  1. Make the payments you commit to, and don’t commit to things you can’t pay. Missing payments hurts your financial reputation. If you’re struggling to make your payments, develop a plan to resolve it. There are many non-profit financial counselors that may be able to help.
  2. Set up payment reminders. If you owe money to the same business on a repeating schedule, find out if they offer payment reminders. Often, they’ll send you an SMS text message, email, or a telephone reminder. Many banks also offer payment reminders—check your account settings.
  3. Set up automatic payments. If you have a bank account, many banks allow you to set up recurring payments through a tool called bill pay. Some businesses also allow you to connect your bank or credit card to your business account to make automatic payments. Check your online-portal, or call your bank or the business to ask.
    Making payments on time, every time is the most reliable way to build and maintain a good credit score. So spend a little time up front to make making payments as easy as possible in the future.

Struggling with your monthly budget? Do some research to find out if there are cheaper phone plans. Try calling your cable company to get a lowered bill. Your electricity company might be able to connect you to financial aid. Or, check out our database for local help from non-profits and government organizations that can get your finances on track (grocery assistance, employment training, counseling, and more).

*FICO® is solely responsible for its credit score calculation. Information contained on the FICO® website is its own content and is not managed, sponsored or endorsed by Oportun. Oportun does not require a credit score to qualify for its products nor does Oportun rely on this score.