How Your Credit Reports and Scores are Calculated

The Credit Report and Score Market can be very confusing to the average consumer.  We have broken down the market below in order to explain in simple terms how the market works.  Remember, Credit Scores have a huge effect on your finances by controlling the interest rate you pay on all your debt.  (Mortgages, Car loans, Credit Cards, etc.)

The Raw Information - The Three Credit Agencies and Your Credit Report

Equifax, Transunion, and Experian all collect consumer finance information from creditors.  The creditors can be credit cards, banks, insurance companies, and even your local gym or video rental store.  Some creditors report to only one agency, while others report to all three.  The reason you may have three different credit reports and credit scores is because not all creditors report information to all three agencies.

What About Credit Scores?

This is where things get a bit more complicated.  Based on the information at the three agencies, Fair Isaac calculates a FICO score for the data at each agency.  Perspective lenders such as car dealers and mortgage companies will look at you FICO score before deciding to over you a loan, and even what interest rate to offer you.  The issue is since you have really 3 FICO scores based on the data at each agency, you don't really know which score they are going to pull.  Some lenders use all three and take the middle, while car loan lender might only use one.

Great, what about Credit Score that each agency provides?

Since each agency has to pay Fair Isaac every time you want your score, they have created their own internal "Credit Score".  These scores are an approximation of your real FICO score, however they are not your actual FICO score that a lender will see.  They do this so they can give you a score, but not have to pay Fair Isaac for the real thing.

Great, what about the government annual free credit report?

After consumers made complaints about the credit report market, the government mandated that each agency had to provide a free report to anyone once a year.  However, this report does not contain any credit scores, which you have to pay extra for.  Since we can't calculate much about our score based on our report, this is of limited value to the average person.  You might be able to clean things up on your report, but since you have no idea what your score is you might be wasting your time.

I am really bored with this, what should I do if I want my Credit Report and Score right now?

Well, you have two choices.  You can either pay for a one time view of your credit report and score.  We recommend MyFICO.com - since you get all three credit reports and your real FICO score.

Your other choice is to sign up for a credit monitoring program. Credit monitoring programs charge a monthly fee, however they monitor your credit report and score for any changes and let you know of certain changes. You also get a free credit report and score for trying most services for 30 days. We think the best deal is Citi® Credit Monitoring Service, however, you can compare the rest of the deals here.

I got my Report and Score, what do I do now?

If your score is high, be happy and make sure you keep it high.  Read our tips page to see what a high score is.

If you are not happy with your score, and think there might be mistakes on your credit report, take a look at our free tips page as well for things you can do to increase your score.

Can I get the 5 minutes of my life back that I just spent reading this?

Unfortunately, we cannot offer any time back at this point.  (check back in the future:)  Even though you might not realize this now, we sincerely hope this information will be beneficial to you at some point in the future....