Understanding Your Credit Report and Score


Last Updated: July 6th, 2020

Regardless of where you are in life, it's becoming increasingly important to understand your credit report and score. In addition to determining whether or not you can get a loan, the contents of your credit report can also affect your interest rates, insurance premiums, cell phone plans, getting an apartment, a job, passing a background check, and more.

In this article, we're going to give a basic overview of how it all works. We'll talk about:

  • What a credit report is
  • Why we have them
  • What goes in them
  • Who maintains them
  • How a credit score is calculated (we'll tackle credit scores in more detail in a separate article).

What is a Credit Report?

Basically, your credit report is a history of your use (or misuse) of borrowed money. In a nutshell, whenever you apply for a loan, credit card, lease, make a payment, miss a payment, and so forth, your lenders report it back to one or more credit bureaus. The credit bureaus collect this information from all of your lenders, then organize and compile it into your credit report.

In other words, a credit report is basically a personal profile that shows, in tremendous detail, how consistent and responsible someone is with paying back borrowed money.

Why Do We Have Credit Reports?

The main reason credit reports came about was to help lenders see how financially responsible somebody was before lending them money. Let's use an example to illustrate:

An Example: Lending to Greg

Let's say you own a small bank and I come in and ask you for a $500 loan to help me cover car repairs, promising to pay you back $550 in a year. You want to give me the loan, but you also have no idea who I am or how likely I am to pay it back as promised.

So... you call your buddy, who tells you that I borrowed $250 from him a year ago and never paid it back. Knowing this, you're probably less likely to lend me the money, right?

However, if your buddy instead tells you that I borrowed $1,200 a year ago and paid it back on time, you're probably more likely to trust me to pay back the $500. And if you were to keep calling around and find more people vouching for my ability to repay, you're even more likely to feel comfortable giving me the loan, because I've demonstrated through past behavior that I am creditworthy.

The problem is, you don't have time to call every single one of your buddies every time someone needs a loan, otherwise you wouldn't get anything done. So instead, you just call your buddy at the credit bureau who keeps track of all of my loans and payments in my credit report which can quickly tell you whether or not I'm a safe bet.

So for banks and other lenders, a credit report provides a quick and reasonably accurate way to determine creditworthiness without having to call a zillion other lenders or references.

What's in a Credit Report?

Depending on how long you've been using credit, your report could have an enormous amount of information on you. Let's take a look at the four major pieces of information you'll find in your report:

Personal Information

First, your credit report contains personal information used to identify who you are as a person, such as your name, birthday, social security number, employment, address etc which is reported based on what you put on your past loan/credit applications.

Your Credit Accounts

Whether it's a car loan, a house payment, credit card, lease, or some other form of credit, it's probably listed in your credit report as an account. Typical account information includes when you opened the account, how much you owe (your balance), how much you've paid, when you paid it, your credit limit (on credit cards), missed payments, and so forth.

Public Records, Collections

Bankruptcies, foreclosures, suits, judgments, garnished wages, overdue collections, these all show up on your credit report as well. Much of this information is gathered from court records.


Finally, whenever someone pulls your credit (typically to determine your creditworthiness), like when you apply for a loan or a new credit card, it shows up on your credit report as an inquiry.

Who Maintains My Credit Report?

There are three credit bureaus, also known as credit reporting agencies: TransUnion, Experian, and Equifax. Even though we call them credit bureaus, they are not government institutions, they're private sector, for-profit enterprises.

Each of these bureaus maintains a report on you. So whenever someone pulls a copy of your credit report, like when you're applying for a mortgage, lease, or credit card, they reach out to one of these companies and pull their report on you.

So you actually have three credit reports, one with each bureau. And while the bureaus are supposed to share a lot of information... sometimes there are major differences between these three reports. In some cases, whether you get approved or denied for a loan can depend on which credit bureau the lender got your report from!

What is a Credit Score?

Basically, a credit score is a 3-digit number that represents your creditworthiness based off of what's in your credit report.

Banks use complicated mathematical formulas to weigh different parts of your credit report to arrive at this number, and it is often a major factor in determining whether or not you'll be approved for a loan (along with the interest rate you qualify for if you're approved).

The vast majority of major lenders use what's referred to as the FICO® score, short for Fair Isaac Corporation, the company that first created it in 1989. FICO® scores range from 300 to 850. Generally speaking, a score over 720 is considered "good" credit, but each lender has its own benchmarks for determining what scores qualify for the best rates.

Although we know a lot about how it works, the exact formula for determining your FICO® score is a closely guarded secret that constantly changes over time to adapt to consumer credit behaviors.

Finally, as we mentioned before, since you have three different credit reports (one with each credit bureau), you also have three different credit scores, one for each report. For example, when I was looking at apartments earlier this year, I had a 724 with Equifax, a 720 with TransUnion, and a 728 with Experian.

How to Raise Your Credit Score

Entire articles could (and will) be written on improving your credit score, but the nutshell version is to borrow responsibly across multiple types of credit (credit card, installment loans, mortgages) pay back your loans on time, keep your credit card balances low, avoid late payments, bankruptcies, etc. And most importantly, do all of these things consistently over a long period of time. We'll tackle this in greater detail in a separate article.


We've only scratched the surface of credit reports and scoring, but hopefully we've given you enough of an idea of how it works to feel confident in pulling your own reports, taking a closer look at them, and getting to work on improving your credit.

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