Creditors use credit scoring to determine if you’d be a good risk for credit cards, auto loans, and home mortgages. Credit scores help creditors evaluate your ability to repay your debt.

What is it?
Your credit score is calculated by evaluating information about you and your credit experiences, such as your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, and the age of your accounts. Creditors use a statistical program to compare this information to the credit performance of consumers with similar profiles. A credit scoring system awards points for each factor that helps predict who is most likely to repay a debt. A total number of points — a credit score — helps predict how creditworthy you are, that is, how likely it is that you will repay a loan and make the payments when due.

Credit scoring is based on real data and statistics, so it usually is more reliable than subjective or judgmental methods. It treats all applicants objectively. Judgmental methods typically rely on criteria that are not systematically tested and can vary when applied by different individuals.

Evaluate your credit report annually for accuracy
Because your credit report is an important part of many credit scoring systems, it is very important to make sure it’s accurate before you submit a credit application. An amendment to the federal Fair Credit Reporting Act (FCRA) requires each of the major nationwide consumer reporting companies to provide you with a free copy of your credit reports, at your request, once every 12 months.
(Source: Federal Trade Commission)

To Order Your Free Annual Credit Report

• Visit annualcreditreport.com
• Call toll-free: 1-877-322-8228
• Mail your completed Annual Credit Report Request Form to:
  Annual Credit Report Request Service
  P.O. Box 105281
  Atlanta, GA 30348-5281

Or you may contact the three credit reporting companies directly, although you may be charged for each report.

Equifax
800-685-1111
www.equifax.com

Experian
888-EXPERIAN (397-3742)
www.experian.com

Trans Union
800-916-8800
www.transunion.com

Visit the Federal Trade Commission’s (FTC) website for more information about credit at http://www.ftc.gov/bcp/conline/edcams/credit/index.html.

Download a copy of the FTC’s Guide: Building a Better Credit Report
http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre03.htm