Financial Literacy: Credit Reports and Credit Score


Understanding Your Credit Report and Credit Score

Credit Report

Your credit report is a detailed record of your credit history. It shows how you have used credit over time, including the number of accounts you have open, as well as closed accounts, your payment history including on-time and late payments, when you have applied for new credit, and any accounts that are in collections.

Credit Score

Your credit score is one of the main things financial institutions look at when considering whether or not to approve you for a loan. A good credit history, including things like keeping credit balances low and making on-time payments, will keep your score higher, and a higher credit score makes it more likely for a bank to approve your loan. According to the FDIC, these are the five factors that influence your FICO credit score:

  1. Payment History: Reported payments account for 35 percent of your total credit score. Late payments will affect your score negatively, so it is important to consistently make payments on time.
  2. Credit Utilization: How much of your credit is in use makes up 30 percent of your score. If you reach the credit limit on your credit cards, it lowers your credit score. Do your best to pay down credit card balances and keep them low.
  3. Length of Credit History: How long you have been using credit and making payments, as well as the amount of time each of your credit accounts have been open, accounts for 15 percent of your total credit score. If you are trying to raise your credit score, closing accounts may not necessarily be the best move. Every person’s situation is different, but it might be better to pay off your accounts and keep them open to maintain long-standing accounts.
  4. New Credit: New credit accounts make up 10 percent of your credit score. Opening too many new accounts in a relatively short period of time could hurt your score.
  5. Credit Mix: The remaining 10 percent of your score is based on the variety of credit accounts you have. Having a mix of revolving credit accounts (e.g., credit cards) and installment loans (e.g., auto loans and student loans) with positive payment histories shows that you can manage different types of credit and will increase your score.

Keep It Up

Here are the FDIC’s top tips for maintaining a good credit score:

  1. Pay your loans and other bills on time. Even if you fell into trouble in the past, you can rebuild your credit history by beginning to make payments as agreed. Paying your debts on time will have a positive effect on your credit score and can improve your access to credit.
  2. To help show that you have not borrowed too much, try to minimize how much you owe in relation to your credit limit. Don't automatically close credit card accounts that have been paid in full and haven't been used recently because that may lower your available credit. However, you may want to close a card with a zero balance if you pay a monthly fee for the card.
  3. If you believe you cannot repay your creditors, contact them immediately and explain your situation. Ask about renegotiating the terms of your loan, including the amount you repay. Reputable credit counseling organizations also can help you develop a personalized plan to solve your money problems, but less-reputable providers offer questionable or expensive services or make unsubstantiated claims.

For more information on credit reports and credit scores, and other financial resources, visit the FDIC’s Consumer Resource Center.