Credit history and reports

One of the most important cornerstones of your financial life is the official record of the way you borrow and pay back your debts: your credit history. There are three major companies who track this information: Equifax, Experian, and TransUnion. What’s more, these credit reporting agencies (CRAs) reduce your credit history to a single number—like a grade for your financial behavior — known as your credit score

Credit reporting agencies sell the information they collect about you to those with legitimate business reasons to see your credit report — for example, banks and other creditors who are considering lending you money, landlords, employers, and insurance companies. You must give your permission before these users can get the information. The catch is that if you deny the request, you may be automatically disqualified or denied services.

A high credit score means you’re very creditworthy and that there’s little risk that you’ll pay late or default on your loan. In this case lenders will likely approve your credit card or loan application and offer the lowest interest rates available.

A low score means you’re not so creditworthy, which could result in your paying higher interest rates, being able to borrow only smaller amounts, or worse, not being able to borrow at all. So when you fail to pay your bills on time, the consequences could be much higher than just late fees. Your late payment will almost certainly affect your ability to borrow in the future and what credit will cost you.

While not in wide use yet, the three national credit reporting agencies have introduced a new scoring system for the scores they compute, called VantageScore. With a top score of 990 and a bottom score of 501, the new system groups scores with letter grades— for instance, an “A” would be scores ranging from 901 to 990, while an “F”would be those running from 501 to 600. Whenever you request or are reviewing your credit score, be sure you understand whether it’s your FICO score or VantageScore.