Credit Score Primer

You’ve surely heard the terms “credit score,” “credit report,” and “credit bureaus,” but, like many Americans, you’re probably not exactly sure what they mean.  Every consumer deserves to know exactly how and why a credit score is calculated.  We’re going to break these concepts down so that you can feel confident in all your credit-related needs.

What terms are important?

Credit report: A credit report is a history of how you’ve used credit.  You can obtain a credit report from each of the big three credit bureaus (Experian, Equifax, and TransUnion) for free every 12 months from

Credit score: Your credit history as outlined in your credit report helps the credit bureaus determine a 3-digit score. The higher the credit score, the better it is.

Credit bureau: These companies are the credit reporting agencies that collect credit histories and calculate credit scores. They are private companies. They include: TransUnion, Equifax and Experian.

How do credit bureaus calculate your score?

Each credit bureau calculates its score differently, so it’s normal to see some variation in the score reported by the bureaus. Generally, though, credit bureaus rely on five criteria for determining your score. They include:

  1. Payment history: This is probably the most important factor in determining your credit score. In order to maintain a good score, you must make payments on time and in the full amount.
  2. Amounts owed relative to limits available: So you have a line of credit available to you, and you’re excited about using it.  Don’t act so quickly!  It’s important for a good credit score to maintain a low debt-to-credit ratio. That is to say, you should never spend your full credit amount, and instead, you should do your best to keep your debt low. 
  3. Credit history length: If you have a long history of responsible credit use, you’ll have a higher credit score. 
  4. Types of credit: This category is less important, but it can be helpful to have a diversified set of credit lines, like car loans, student loans, or mortgages.  Responsible use of these lines can boost your score. 
  5. Frequency of new credit: Opening a lot of credit cards or getting many new loans may signal red flags to lenders. Open new lines of credit sparingly, and exercise caution when using them. 

What if you have an error on your report?

Errors on credit reports happen more often than you think. If you find an error, you can dispute it, and the credit bureau has 30 days to investigate and resolve the issue.  If, at the end of 30 days, the error is not corrected, you may pursue legal action.  

The Consumer Law Firm of Francis Mailman Soumilas, P.C. has helped thousands of clients resolve issues on their credit reports. Call or fill out our online form today for a free case review. If we decide to take your case, you pay nothing out of pocket.