Understanding Credit Reports and Scores
The Fair Credit Reporting Act (FCRA) regulates how credit information is collected, shared, and disputed. Under the FCRA, consumers are entitled to free annual credit reports from each of the three major bureaus through AnnualCreditReport.com. Understanding your credit report is the foundation of financial literacy.
How Credit Scores Work
FICO scores, used in approximately 90% of lending decisions, range from 300 to 850. The five factors are: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%), and credit mix (10%). Your score is not a fixed number — it changes as the information in your credit report changes. Planning bills ahead of time helps avoid the missed payments that cause the biggest drops.
Credit Bureaus
Equifax, Experian, and TransUnion are private companies, not government agencies. Each maintains its own database, and not all creditors report to all three, which is why your reports may differ.
Payment History and Utilization
Late payments are typically reported to credit bureaus when they are 30 or more days past due and can remain on your report for up to 7 years. Credit utilization — the percentage of available credit you are using — is the second most important factor. Keeping utilization below 30%, and ideally below 10%, is recommended.
Negative Items and Disputes
Under the FCRA, consumers can dispute inaccurate information. Credit bureaus must investigate within 30 days and remove or correct information that cannot be verified. Most negative items remain for 7 years, except Chapter 7 bankruptcy which can stay for 10 years.
Credit Protection
Credit freezes are free under federal law and block new creditors from accessing your report. Fraud alerts require lenders to verify your identity before opening new accounts. Regular monitoring, freezes, and fraud alerts are the best tools for protecting your credit file from identity theft.