How credit works in the United States

Credit reports and credit scores are different

A credit report is a record of reported credit accounts, balances, payment history, inquiries, collections, and certain public information. A credit score is a numerical estimate generated from information in a report. Different lenders, reporting companies, data timing, and scoring models can produce different scores.

The three nationwide credit reporting companies

You can request the reports authorized by federal law through AnnualCreditReport.com. Review each report because the information can differ among reporting companies.

What commonly influences a score

Scoring models commonly evaluate payment history, balances and revolving utilization, length of credit history, account mix, recent applications, and serious negative events. The exact weighting depends on the model and the information available when the score is calculated.

Why credit matters

Credit may affect approval, pricing, available amounts, deposits, documentation, housing, insurance, and other decisions where permitted by law. Lenders may also use identity and fraud-verification information separately from a credit score.

A practical credit-health plan

1. Review all three reports and save copies of supporting records.
2. Dispute information that is incomplete or inaccurate with the reporting company and the information provider.
3. Pay every obligation by the due date; automatic reminders can reduce accidental late payments.
4. Reduce revolving balances and avoid repeatedly charging accounts close to their limits.
5. Apply for new credit only when it serves a clear purpose.
6. Keep older positive accounts in good standing when practical.
7. Protect login credentials, enable multifactor authentication, and review alerts promptly.
8. Consider a fraud alert or security freeze when identity theft is suspected.

Soft and hard inquiries

A soft inquiry is generally used for account review, education, or certain prequalification processes and ordinarily does not affect consumer scores. A hard inquiry is associated with an application for credit and may affect a score, depending on the scoring model and the credit profile.

Errors, disputes, and identity theft

Act promptly when an account is unfamiliar or information is inaccurate. Preserve records, contact the reporting company and creditor, and use official government identity-theft resources. Accurate negative information generally cannot be removed simply because it is unfavorable.