Learning About Credit Scores
Credit scores display all of a consumer’s credit activities – it lists all credit card accounts, loans, balances, and payment histories. Consumer reporting agencies are responsible for collecting information about consumer’s credit activities and issuing credit scores. They obtain consumer information from parties who have previously granted credit, such as department stores, credit card companies and banks. Generally, each consumer score agency is a for-profit credit corporation that gathers and sells credit information to clients. However, they are also governed by the Fair Credit Reporting Act. Under this act, all consumers are allowed to receive one free credit score from each of the three major credit scoring agencies – TransUnion, Experian and Equifax. Consumers should take advantage of receiving a yearly credit score to avoid unwelcome surprises since errors in credit scores are common. Identity theft can also be detected through credit scores if any suspicious activities are listed. Don’t forget to put a credit freeze on your credit file if you suspect anything.
Credit Score Content
Credit scores provide four types of personal information – identifying, credit, public records, and recent inquiries information. Identifying information provides a consumer’s full name, other names, current and previous addresses, social security number, birth date, past and current employers, and similar information about their spouses. Credit information found on a credit score displays consumers’ bank, credit, utilities and retail accounts, and other lenders. Accounts are categorized by type of loan, the date each account was opened, credit limits or loan amounts, loan co-signers, and payment patterns. Public record information shows consumers’ bankruptcy, tax liens or monetary judgments records. Non-monetary judgments may be listed as well, depending on the consumer reporting agency. Recent inquires displays the names of those who have obtained copies of consumers’ credit scores within the last year or two. All of the above information stays on consumers’ credit scores for seven years, and if consumers file for bankruptcy, that remains on their credit scores for ten years.
Credit scores also contain consumers’ credit ratings, which display their creditworthiness. Credit ratings specifically display consumers’ likelihood of paying their debts, which in turn, gives credit lenders evaluations of potential risks posed by lending a specific consumer credit.
How Credit Ratings are Determined
Credit ratings are calculated using a mathematical formula that is based on a consumer’s credit score, which is then compared to millions of other consumers’ information. Lenders may use one of several different types of credit scoring models to determine a consumer’s creditworthiness, and different models can generate different scores. However, the most popular credit rating score is the FICO score
The FICO score runs from 300 to 850, and a consumer’s average score is usually between 600 and 800. If a consumer’s score is 720 or higher, then they will receive the most favorable mortgage and loan rates available. Below contains a FICO credit rating chart:
| 700 and above | Excellent |
|---|---|
| 499 and below | Worst |
| 680-699 | Good |
| 620-679 | Decent |
| 580-619 | Low |
| 500-580 | Bad |
Each of the three credit bureaus – TransUnion, Experian, and Equifax – have their own version of the FICO score. Equifax has the BEACON score, Experian has the Experian/Fair Isaac Risk Model and TransUnion has the EMPIRICA score. Each of the three credit bureaus come up with different scores since all of them use different credit rating formulas, and each score is based on information the credit bureaus keep on file about a consumer.
Protecting Against Identity Theft using Credit Scores
Credit scores are a great way for consumers to help protect against identity theft, because they are able to view any suspicious changes made to their addresses, unreasonably low credit scores, and any unauthorized bank accounts, inquires and purchases. Specifically, credit scores should be analyzed and reviewed for:
- 1) All inquires in the section, “Requests Viewed by Others,” which contains inquires from creditors that have viewed a consumer’s credit score. If consumers do not recognize the creditor, then that may signal fraud.
- 2) All accounts. If a consumer does not recognize a newly opened account, then that also might be indicative of identity theft.
- 3) All identifying information, including addresses. If consumers discover an unknown address, then it could be an indication that the fake address was used on a credit card or loan application.
Identity Theft Protection Services that Provide Credit Scores
There are several identity theft protection services that include credit scores with their packages. These companies include:
- 1) LifeLock, one of the most popular identity protection companies in the U.S., offers consumers free annual credit scores with their bundle packages. Their plans start at $110 per year.
- 2) TrustedId, another leading identity protection company, also provides consumers with free annual credit scores along with their packages. Their plans start at $99 per year.
- 3) IdentityGuard offers consumers not only free annual credit scores, but also credit monitoring and credit scores with their packages. Their plans start at $14.99/month.
Credit Score Summary
It is important for all consumers to understand what a credit score is, what it consists of, and what to look for to detect identity fraud. Consumers should also know how credit ratings are determined and what each score range means. Identity theft can lower a consumer’s credit score significantly, which can affect their ability to receive financing on the purchase of large ticket items. Unauthorized, newly opened accounts, inquires and purchases should not go unnoticed – therefore, consumers should keep an eye on their scores as often as possible, whether it is every four months or on a daily basis with a credit monitoring service.