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Credit report and credit score - what you need to know


Credit score is generated by an algorthm using your credit report. Its main purpose is to help lenders to decide whther to approve loan application and determine the terms of that loan. In other words they are determining risk, how likely is that you will repay your loan.

Credit report and credit score is not the same but they are connected. There are three major credit report agencies also known as credit bureaus Equifax, Experian and TransUnion that collect information about you and sell it to other companies. Credit reports show what bureaus knowa bout you. They gather information from many sources. Part of their information they get from lenders. Lenders report loans you took to one or all theree agencies. This also means that your credit report might be different in each agency depending where lender reported it. Some lenders don't do reporting so it is important to work with ones that do if you are trying to build your credit. Other part of information comes from public records. This only includes legal judgements related to your finance like tax liens, bankruptcy and foreclosure information. If you have never had credit agencies may use alternative sources to determine your responsability. Besides finance related public records and trade lines that show history of your loans with details bureaus also have your personal informations that help them to identify you like social security number, address etc. and history of inquiries of your credit report. Credit reporting agencies don't make decision they just provide information to the lenders. Lenders can check just one or all three credit bureaus because agencies dont share information they have about you. Even though credit report agencies are not owned by the goverment their work is regulated by fair Credit Reporting Act (FCRA).

Beacuse reading credit reports is time-consuming lenders often rely on credit score. Credit score gives them quick and general idea of your creditworthiness. It is also known as FICO score because it is one of the commonly used scoring tools that calculates your credit score on a scale between 300 and 850 based on information in your credit report. The Fair Isaac Corporation developed and maintaines FICO credit score. Although FICO complies the sore they don't gather the information but use it from one of the credit bureaus. Because of that FICO score is different for every agency. Score is made form several componens; payment history makes 35% and current debt makes 30% which is more than a half so you know that this are the fileds that you must improve in order to build up your credit. Lenght of credit is worth 15% and new credit and type of credit 10%. Algorithm is complex and it is hard to determine which how much each activity affects your score but from the percentage you see that payment history and current debt play major role.

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