How credit scores work, explained without the jargon

Reports vs scores

Your credit reports are records kept by the three major consumer reporting companies, Equifax, Experian and TransUnion. They list your credit accounts, balances, limits, payment history, some public records and the inquiries made when you apply for credit. Your credit score is a number calculated from a report by a scoring model. Different models and versions exist, and each report can be slightly different, so you have many scores, not one. That is why a score in your card app can differ from the one a lender sees.

What goes into a score

Scoring models weigh information differently, but they look at the same broad areas. The table orders them roughly by how much they usually matter:

Starting with no credit

If you have never borrowed, you may have no score at all, called being credit invisible or having a thin file. Common first steps:

1. A secured credit card: you put down a deposit that usually becomes the limit. Use it for a small regular bill and pay the statement in full.
2. Becoming an authorized user on a trusted family member's well-managed card, if the issuer reports authorized users.
3. A credit-builder loan from a credit union or community bank, where your payments are held in savings and reported.
4. A student card or starter card with no annual fee.

It usually takes several months of reported activity before a score appears. Patience and on-time payments do most of the work.

What hurts a score

• Late payments, especially 30 days or more past due, which can be reported and stay on reports for years.
• High card balances compared with limits.
• Collections, including unpaid medical or utility bills sent to collectors.
• Many applications in a short time, each creating a hard inquiry.

Checking your own credit does not hurt your score. Neither do pre-approved offers you did not ask for.

How long negative information lasts

Credit reporting companies can generally report most negative information for up to seven years, and bankruptcies for up to ten. The effect usually fades as the information ages and new positive history builds on top of it. A single late payment from three years ago matters less than consistent on-time payments since.

Check your reports

You can get free credit reports from each of the three companies at AnnualCreditReport.com, the site authorized by federal law. Read each one for accounts you do not recognize, wrong balances, late payments you did not make and addresses you never lived at. Dispute errors with the reporting company and with the business that supplied the information, and keep copies of what you send.

Avoid credit repair scams

Nobody can legally remove accurate, current negative information from your report. Be wary of companies that charge up front, promise to erase bad credit or tell you to create a new identity. You can dispute errors yourself for free.

Where scores show up besides loans

Credit information is used for more than loans and cards. Landlords may use it in tenant screening, insurers in many states use credit-based insurance scores to price policies, and utility or phone companies may ask for a deposit if you have no history. Good habits pay off in all of these places.