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Our family member was at VMC for cirrhosis at 67. They decided to just give up and send him home with...

Financial health: Credit reports and credit scores

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By Len Rhodes

Sunday, January 15, 2017

Given the importance of your credit report and credit score, it is important to know a little bit about each. Banks, finance companies, insurance companies and even employers look at your credit report or your credit score. Your score is derived from information gathered from your credit reports. Your credit report is literally a report from one of the credit bureaus or reporting agencies with financial and demographic information about you.

Although there are several reporting agencies, the three largest and most used are EquifaxTM, ExperianTM, and TransunionTM. Information that is gathered for your credit reports come from credit and banking agencies voluntarily reporting information about you and your credit habits to one or more of these agencies. In addition, some public record information about you is collected such as any judgments or liens.

Credit reports are like report cards about your financial life. Your name, address, and Social Security number are all collected, in addition to information about your loan amounts, your payment history including on-time and late payments, and when your accounts were opened. Other companies or agencies, such as the utility company or the IRS, may report information about you, particularly if you fall behind on your payments.

Your three credit reports may look somewhat different from each other. This is because the reporting of your information is technically voluntary as not all companies report to all three major credit bureaus. It is important that you check all three credit reports at least once per year to make sure the information is up to date and correct. You can get access to each report for free once per year by going to www.annualcreditreport.com. This is the only source for your free credit reports as authorized by Federal law. In addition, anytime you are denied credit due to information gathered from a credit report, you have the right to see your credit report to ensure that it is accurate.

The difference between your credit report and your credit score is a credit report has all the information available about you from a financial perspective. Your credit score is all that information distilled down into a single number based on a formula that is owned by the credit agency. Think of your credit score as your financial GPA. It is a single number between 300 and 850 that is derived from all the financial information on your credit report. Just as your GPA is calculated from all the grades and credit hours on your transcript, your credit score is calculated from all the information on your credit report. Your credit score is the number that determines your credit worthiness.

While standards can adjust at any time, a score of 760 or above has historically been considered best. There is really no advantage to raising your score above 760 as most lenders lump you in the same category as the people with an 800 or above. With a 760 credit score you are viewed as a safe risk by most lenders and should receive the best loan terms and interest rates. Scores between 620 and 759 may have you paying more interest for a loan. It is worth the effort to raise your score above 759. A score below 620 is a problem. It is time to take action if your credit score is below 620.

Len Rhodes is the director of Technology, Information and Operations in the College of Business at East Carolina University.

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