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Understanding Your Credit Report

Your credit score plays a big role in many of the things you may apply for throughout your life and often lies at the center of application decisions. While many correlate credit scores with applying for credit, your score can also be used for things such as employment and housing considerations.  As such, building good credit history, and a corresponding credit score, is very important but doing so isn’t always easy. A good first step towards building credit is to understand how credit reporting works.

Credit Reporting Agencies

Your credit report is maintained by a credit reporting company, often referred to as a credit bureau or a consumer reporting agency.  Credit reporting agencies collect information about an individual or business and then keep a historical record of this information to build a credit report and to create a credit score. While there are many credit reporting agencies, according to Investopedia the three largest agencies1 in the United States are Equifax, TransUnion, and Experian.

Factors Affecting Your Score

Credit reporting agencies are collecting information about you for your credit report, but what is that information? According to Credit.com, there are a total of five key factors2 making up your score: payment history, age of credit, credit utilization, account mix, and credit inquiries.

Let’s explore these factors more.

Payment History: A record of your payments, including on time, missed and late payments. May also include a report of defaulted accounts, or balances in collections.

Age of Credit: How long your credit accounts have been open. May also include the average age of all accounts.

Credit Utilization: The percentage of your total available credit you are using. If your credit limit is $100 and your balance is $75, then your credit utilization would be 75%. It is generally recommended to keep credit utilization under 30%.

Account Mix: Your account mix is made up of the different types of credit accounts you have, such as mortgages, credit cards, car loans, and more.

Credit Inquiries: A mark that is left on your report when someone checks your credit, such as when applying for a credit card or loan.

Importance of Each Factor

While the above-mentioned factors are considered when creating your credit report, they do not all affect your score the same. Some factors can hold more importance than others and have a bigger effect on your credit score. Here is a typical example of how much each factor may account for your score:

  • Payment history – 35%
  • Credit Utilization – 30%
  • Age of Credit – 15%
  • Account Mix – 10%
  • Credit Inquiries – 10%

Building Credit

Now that you have a better understanding of how your credit report works, it should be a little easier to begin building credit. Unfortunately, there is no quick fix for this and building credit will take time and patience. Focus on making each payment on time, and as you pay off your debt try to avoid using too much of your open credit so you can get your balances below the recommended 30% credit utilization. As these two factors significantly affect your score, they should be your focus, but you can also take other steps such as not opening any unnecessary credit to avoid new credit inquiries or a negative impact on the age of your credit.

Monitoring Credit

As you build credit, it’s also important to monitor your credit report, not only to measure your success but also to catch any discrepancies that could be hurting your score. The Fair Credit Reporting Act3 (FCRA) passed by Congress in 1970 provides protections to consumers from misinformation being used against them and provides them with several basic rights. This includes the right to receive one free copy of your credit report each year and the right to dispute any incorrect information shown on your report. Keeping tabs on your credit report will help you catch anything that’s incorrect and allow you the opportunity to dispute it to prevent it from hurting your credit.


1Kagan, Julia. (2021, Mar 3). Retrieved from: https://www.investopedia.com/terms/c/credit-reporting-agency.asp

2Skowronski, Jeanine. (2020, Sept 15). Retrieved from: https://www.credit.com/credit-scores/surprising-things-that-affect-your-credit-score/

3Federal Trade Commission. Retrieved from: https://www.ftc.gov/legal-library/browse/statutes/fair-credit-reporting-act