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Credit histories are tracked by three companies in the U.S. Experian, Equifax and TransUnion are the three credit bureaus that track credit and evaluate credit scores. Creditors may report payment histories of customers to one, two or all three credit bureaus. Lenders subscribe to at least one of these three agencies. Large lenders, such as those who offer mortgages, often subscribe to all three companies.
According to MyFico.com, the website created by the company that created the FICO score, the credit report consists of four types of information: Identity information, trade lines, credit inquiries and public/collection records.
- Identity Information
An individual’s credit history is generally tracked using their name, social security number and addresses. This information identifies each unique individual to ensure that his or her credit history is accurately tracked. When someone’s identity is stolen, this means that an identity thief has gained access to the person’s identifying information that is tracked by the credit bureaus. Using this information, the identity thief may open credit accounts, assume the person’s identity to steal money out of existing accounts or perform other activities, such as obtaining types of identification documents. This is why it is important for everyone to check their credit report with all three agencies on a regular basis. Identity theft has become a multi-billion dollar problem in the U.S. Keeping track of all of the accounts listed on a credit report is one way an individual can ensure that no one has gained access to their identifying information.
- Trade Lines
The trade lines section on a credit report lists each credit account. The company name, the account number and a history of payments is listed for each credit account. The information also includes the data the account was opened and if any payments have been late or missed. The Trade Lines section is the section that is most important to lenders and others who check the credit histories of individuals. The Trade Lines section tracks every payment due, every payment made, every late payment, every missed payment and every charged-off account for the individual. However, not all creditors report their trade line data to all three credit reporting agencies. This is why credit reports differ in the information that is tracked for one individual.
- Credit Inquiries
Each time a potential lender, a potential employer, an insurance agency or another company requests an individual’s credit report, the request is recorded on the individual’s credit report as a “credit inquiry.” Excessive credit inquiries can affect the individual’s credit score, which is why many financial experts recommend that people be conservative when allowing inquiries about their credit reports.
- Pubic and Collection Records
Public information that is collected by credit reporting agencies include information such as judgments, liens and bankruptcies. When an individual files for bankruptcy, the filing remains on their credit report for as long as 10 years. However, if a Chapter 13, or a reorganization of debt, is filed, certain accounts may be paid off over the course of several years. These payments will be reflected in the individual’s credit report.
Credit reporting agencies also list all accounts that are listed with collection agencies. Accounts that have been turned over to collection agencies are particularly troublesome for lenders. However, if an account is submitted to a collection agency, the individual is often able to work with the agency to pay a reduced amount to clear the debt. Once the debt is paid, this information is recorded on the credit report.
Credit bureaus evaluate the credit histories of individuals and assign scores based on their payment histories, amount of debt, number of accounts and other factors. The FICO score is the most common credit score assigned to credit records and used by lenders. The FICO score implements a proprietary formula to assign a number between 300 and 850 to an individual’s credit record. When someone refers to “the credit score,” the person is generally referring to the FICO score. However, lesser known scores are also available for creditors and evaluators to use to determine an individual’s creditworthiness.
The Vantage score was developed in 2006 by all three credit bureaus to compete with the FICO score. However, the FICO score is still considered to be the gold standard in credit scoring formulas. The Vantage score is the second-most popular credit scoring formula next to the FICO score. However, only 10 percent of credit score consumers use the Vantage score. Other credit scoring methods are available, though not widely used. The PLUS score was developed by Experian. This score is meant to be used as an educational tool. The PLUS score is the score that is freely available to individuals by visiting FreeCreditScore.com. The CreditKarma score is also an educational score that is based upon an estimate of an individual’s FICO score. The CreditKarma score is also free and people can visit CreditKarma.com to see their score.
FICO Score Ranges
Very few people have FICO scores over 800. On the other hand, very few people have credit scores below 400. The vast majority of Americans have FICO scores between 600 and 720. Generally, a FICO score over 630 is considered to be “good credit.” A FICO score in the 800s or upper 700s is generally considered to be “excellent credit.”