My Credit Is a Mystery. Where Do I Start?

By Steven Shaw on 8/28/2013

Credit Score

My Credit Is a Mystery. Where Do I Start?


There’s no denying the fact that credit has become a fundamental part of our financial lives. It influences how much we pay in interest on auto loans, mortgages, student loans and credit cards. It also influences our insurance premiums, deposits on utilities and rent, and in some cases, it can even impact our ability to get a job.

Despite the significant role credit plays in our lives, many Americans still struggle to understand the confusing world of credit, and are often at a loss for where to even begin when trying to get a handle on their credit reports and credit scores.

Fortunately, when it comes to earning great credit, knowledge is half the battle.

It All Starts With Your Credit Reports

The first step to demystifying your credit begins with your credit reports. Do you know what your credit report says about you? If you don’t, you’re going to have a difficult time figuring out exactly where to focus your efforts in building and maintaining great credit.

In its simplest form, your credit report is a history of how you manage your credit obligations, with detailed account information that includes your payment history, any outstanding balances, credit limits, the type of accounts, and open and closed dates for each account. It also includes personal identifying information, recent inquiries for credit, collections and relevant public records like bankruptcies, judgments and tax liens.

Your credit reports do NOT include your income, education, gender, national origin, race, religion, marital status, criminal records, medical records, political affiliations or checking and savings account information  — this includes debit cards and prepaid debit cards.

Lenders and creditors rely on the information in your credit reports (in conjunction with your credit scores) to help them determine how likely you are to follow through on your promise to repay a debt, and how much you’ll pay as a borrower if they approve the loan. Reviewing your credit reports beforehand gives you the opportunity to confirm that the information being reported is accurate and up-to-date. And if there are errors, it allows you the time to address them and have them corrected before you apply.

Quick Tip: If the idea of reading and deciphering the information in your credit report sounds overwhelming, the Ultimate Credit Report Cheat Sheet is a great resource that will have you reading your credit report like a pro in no time.

How to Order Your Free Credit Reports 

Thanks to the FACT Act (FACTA), an amendment to Fair Credit Reporting Act (FCRA), we’re all entitled to one free credit report from each of the three major credit reporting agencies – Equifax, Experian and TransUnion – once every 12 months.

Caution: The law does not include access to your credit score, so while your credit reports are free once a year – your credit scores are not. During the order process, the credit reporting agencies will give you the option to add a credit score to your order for a fee. The point of ordering your credit reports is to verify that the information is accurate and up-to-date so it’s best to wait to order your credit scores until after you’ve confirmed that your credit reports are free from errors.

Quick Tip: Instead of paying for your credit score, you can use’s free Credit Report Card to get access to your free credit score from Experian. This free educational tool also provides free monthly credit score updates to help you monitor and track your credit score each month.

A Deeper Dive Into Credit Reports

For a more in-depth look at understanding credit reports, including how to read them, what to look for, and how to correct credit report errors, the following educational resources can be found at

Credit Scores vs. Credit Reports

One of the most confusing aspects of credit is the way the terms credit reports and credit scores are used interchangeably as though they are one and the same — they are not. To clarify, credit reports are a record of your credit history. Credit scores are essentially your credit report’s grade — a three digit numerical calculation derived from the data in your credit report.

Credit scores are designed to do one thing: predict how likely you are to pay your future credit obligations on time. In conjunction with your credit reports, creditors use credit scores to help them determine a consumer’s creditworthiness – or more specifically, whether or not a lender will approve you for credit and at what interest rate and terms.

Credit Scores by the Numbers

One of the most confusing aspects about credit scores is that there is no one score. There are actually numerous credit scores on the market, which can vary not only by version, but also by individual lender – many of which you may never know about. Keep in mind, too, that there are three different credit reporting agencies. That’s three different credit reports and a minimum of three credit scores — one for each credit report. And depending on the credit scoring model, credit score ranges can vary widely.

For example, FICO scores and VantageScore 3.0 range from 300 to 850. The higher the score, the less risk you pose to the lender, and the better your interest rates and terms will be when you apply for a loan. The lower the score, the more risk you pose to the lender. The more risk you pose, the more you’ll pay in interest to offset the risk and in some cases, if your score is too low, a lender may decline your application altogether.

What’s a Good Credit Score? 

In most cases, a FICO score of 750 or higher is golden and will give you the best interest rates and terms a lender has to offer. Generally speaking, however, a good credit score is really any credit score that gets you the best interest rate and terms on a loan. This is going to vary by lender but when it comes to credit scores, you don’t need a perfect score. Lenders aren’t looking for perfect, they’re looking for good credit risks – someone that will pay the loan back in full and on time.

What Counts in Your Credit Score 

What follows is specific to the FICO score model, but it’s important to understand that while all credit score models vary, they all consider the same core foundational characteristics when analyzing your credit reports.

Depending on the credit scoring model, the percentages and how much each category counts will vary slightly. However, to give you a general idea, here’s a look at how the FICO score model breaks down your credit report data:

  • Your Payment History — 35%: Pay your bills on time and you’ll score very well in this category. Late payments, missed payments, charge-offs, collections, judgments, liens, foreclosures, short-sales, settlements and bankruptcies should be avoided if you want to score well in this category.
  • How Much You Owe (debt) — 30%: Paying your bills on time may be the largest factor in your credit score calculation, but how much debt you’re carrying comes in a very close second. Combined, these two categories make up 65% of your score. This category places a significant amount of emphasis on your revolving utilization — the proportion of your balances in relation to the credit limits on your credit cards. Carrying high credit card balances or maxing out your credit cards will hurt you here.
  • Length of Credit History — 15%: The longer you’ve had credit, the better. This category looks at the date each of your accounts were opened and calculates your length of credit history on an individual account-by-account basis, and also on an average total age across all of your accounts.
  • New Credit (inquiries) — 10%: The more inquiries you have in a short period of time, the higher the risk. To score well in this category, you’ll want to avoid applying excessively for new credit. There are a few caveats to this rule, depending on the types of credit you’re applying for — namely auto, student and mortgage loans.
  • Credit Mix (types of credit) — 10%: This category looks at the specific types of credit accounts you carry and wants to see how well you manage a variety of different types of accounts — including revolving accounts (credit cards) and installment accounts (auto, mortgage, and student loans). The more diverse your credit mix, the better for your scores.

A Deeper Dive Into Credit Scores

Understanding the key factors used to determine your credit scores will give you a solid foundation from which to work, but if you really want to delve into the nuances of how credit scores evaluate these core factors, check out the following resources offered by

Need Help Recovering From Past Credit Mistakes? 

This initial guide was designed to help give a core foundational overview of credit reports and scores, and to help consumers get a firm grasp of where to begin to make sense of their credit. However, for consumers looking for in-depth help recovering from past credit mistakes – the following resources take a deeper look at how to start your credit building plan on the right foot:

Image: Wavebreak Media

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Credit Scores vs. Credit Reports
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