Credit Score: What It Is and How It Is Reported

What a credit score represents

A credit score is a number produced by a statistical model that compares the information in a consumer's credit file with patterns observed across large groups of files. The number is not stored in the file itself. It is generated at the moment a lender, landlord, insurer, or the consumer requests it, which is why the same file can produce different numbers depending on which model and which credit reporting company is used.

Creditors use scores as one estimate of how likely an account is to be repaid as agreed. A score is not a decision. Lenders also review income, existing obligations, employment information, and their own history with an applicant, and each lender sets its own cutoff for approval.

There is no single authoritative credit score. Federal law gives consumers the right to see what is in their credit file and to dispute incomplete or inaccurate information, but no rule requires that every scoring model return the same result or that a lender rely on any particular score.

Where the data behind a score comes from

The three largest national credit reporting companies are Equifax, Experian, and TransUnion. They assemble files from data furnished by lenders and other businesses, from public records such as certain bankruptcy filings, and from inquiries that record when a business requests a consumer's file.

Furnishers decide when and how often to report, usually once per billing cycle. Because a lender may report to one, two, or all three companies, and may not report at all, the contents of a file differ by company. Payments such as utilities, rent, and some medical bills often do not appear unless a furnisher specifically reports them.

Consumers can review what is in their files without cost. The Federal Trade Commission directs consumers to annualcreditreport.com, the source federal law designates for the free reports the nationwide companies must provide.

The general factors inside a scoring model

Scoring models generally sort the information in a file into a handful of categories: payment history, amounts owed, length of credit history, new credit, and the mix of account types. Each category receives a weight that varies by model and by the population being scored.

Amounts owed is often expressed as a utilization ratio, meaning the balance on a revolving account divided by its limit. Models typically consider utilization both per account and across all revolving accounts. The balances used are those reported on the statement date, so a snapshot may not reflect payments made afterward.

Two families of models dominate the market. FICO scores are sold by Fair Isaac Corporation, and VantageScore models are developed jointly by the three nationwide credit reporting companies. Versions within each family differ, and a lender chooses which version and which company's data to use.

• Payment history, meaning whether accounts were paid as agreed
• Amounts owed, including balances and revolving utilization
• Length of credit history, or how long accounts have been open
• New credit, covering recently opened accounts and inquiries
• Credit mix, or the variety of account types on file

Score ranges and how to read them

Most scores in the United States are expressed on a defined scale. Common FICO scores run from 300 to 850, while later VantageScore models use the same 300 to 850 range and earlier versions used 501 to 990. The scale, not the raw number alone, determines how a lender interprets a result.

What counts as a strong score depends on the lender and the product. Mortgage underwriting, auto lending, and credit card issuers each set different thresholds, and a score that qualifies for one product may not qualify for another. There is no universal dividing line between a good and a poor result, which is why the question of what is a good credit score has no single answer.

When a score is delivered, it often arrives with reason codes, short statements describing the factors in the file that had the most influence on that particular result. Reason codes are specific to the model and version that produced the score and are not a general assessment of a consumer's finances.

Where a credit score and report can be obtained

A credit report and a credit score are different products. Reports list the underlying account, balance, and inquiry information; a score is a model's summary of that information at a point in time. Under federal law, the nationwide credit reporting companies provide free reports through annualcreditreport.com.

Scores are distributed through several channels. Many banks and card issuers provide a score to their customers at no charge, often displaying a score from one of the nationwide companies. Credit reporting companies and independent services also sell scores, sometimes bundled with monitoring products.

A score viewed through a bank or a monitoring service may come from a different model or a different credit reporting company than the score a specific lender uses for a decision. Educational scores are intended to show roughly where a file stands, not to predict any particular lender's answer. Questions about where a free credit score originates, or how to check a credit score, usually turn on which model and which data source are behind the number.

How inquiries and other events are reported

When a business requests a credit file, the request is recorded as an inquiry. Requests a consumer initiates by applying for credit are commonly called hard inquiries. Requests for account review, preapproval screening, or a consumer's own copy of a file are commonly called soft inquiries, and soft inquiries are not shown to other lenders.

Many scoring models treat several mortgage, auto, or student loan inquiries made within a short shopping window as a single inquiry, since those searches typically represent one shopping event. The length of that window is set by the model rather than by law.

The Fair Credit Reporting Act limits how long most negative information may be reported. Most adverse items, such as late payments and collections, may be reported for seven years, and certain bankruptcy filings may be reported for ten. The time is counted from the date of the event, not the date it first appears in the file.

Disputing information in a credit file

Under the Fair Credit Reporting Act, a consumer may dispute information in a file that is incomplete or inaccurate. A dispute can be filed with the credit reporting company, with the furnisher that supplied the information, or with both at the same time.

The credit reporting company generally must reinvestigate within thirty days, a period that can extend to forty-five days if the consumer provides additional information during the initial thirty. The company must send written results and a free copy of the file if anything changed as a result.

When disputed information results from identity theft, IdentityTheft.gov provides a federal reporting tool and an affidavit that can be attached to a dispute. The Consumer Financial Protection Bureau publishes sample dispute letters and answers to common questions about how the process works.