Understanding what your credit data includes and means – Financial Facts

Understanding what your credit data includes and means

A credit report contains information such as Personal identifying information: Includes your name, address, Social Insurance Number, and so on Record of credit accounts: Details when each account was opened, the latest balance, your payment history, and so on Bankruptcy filings: Indicates whether you’ve filed bankruptcy in recent years Inquiries: Lists who has accessed your credit report because you applied for credit Your credit score, which is not the same as your credit report, is a three-digit score based on the report.

Lenders use your credit score as a predictor of your likelihood of defaulting on repaying your borrowings. As such, your credit score has a major impact on whether a lender is willing to extend you a particular loan and at what interest rate. FICO is the leading credit score in the industry. FICO scores range from a low of 300 to a high of 850. Most scores fall in the 600s and 700s. As with university entrance examinations, higher scores are better.

(In recent years, the major credit bureaus — Equifax, Experian, and TransUnion — have developed their own credit scoring systems, but many lenders still use FICO the most.) The higher your credit score, the lower your predicted likelihood of defaulting on a loan (see Figure 2-1). The rate of credit delinquency refers to the percentage of consumers who will become 90 days late or later in repaying a creditor within the next two years. As you can see in the chart, consumers with low credit scores have dramatically higher rates of falling behind on their loans. Thus, low credit scorers are considered much riskier borrowers, and fewer lenders are willing to offer them a given loan; those who do offer loans charge relatively high interest rates.
The median FICO score is around 720. You generally qualify for the best lending rates if your credit score is in the mid-700s or higher.

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