Getting And Reading Your Credit Reports (Free And Easy)

Today we’re breaking down something that affects nearly every part of your financial life—but that most people rarely look at: your credit report.

Whether you’re applying for a mortgage, financing a car, renting an apartment, getting insurance coverage, or dealing with a prospective employer, your credit report plays a powerful role behind the scenes. It’s more than just a number.

While many people focus on their credit score, the real story lives inside the report itself—your borrowing history, payment patterns, and the details lenders use to decide how risky it is to trust you with money.

Would you rather watch?  Check out “How To Read Your Credit Report” on Cents and Sensibility!

The credit report has become a mystery for some reason. People go years without checking their credit for fear of the unknown, but you should review your report annually to monitor for suspicious activity and see what’s going on.  You can look for a sign of identity theft and determine whether you need to put on a fraud alert.

You don’t want to apply for a mortgage and find things you didn’t know existed (especially negative information), which you then will have to straighten out while someone else grabs that condo you wanted.  Checking that your personal information is correct is important!

When I worked in finance, we had a great young couple who came in to get a car loan. They had moved out of a previous home 18 months before, and somehow their last utility bill had not been paid. They never received any notices (according to them), so they had no idea they had this huge black mark on their credit. After several phone calls, they were able to pay the bill and bring in a receipt. Then there was paperwork to fill out to send to the credit bureau, and that takes at least 30 days to process (assuming they don’t find anything wrong with your documentation). All of this held up their ability to get a car loan.

Basically, your credit report shows all your interactions with credit and debt over the past few years; some items stay on your report for 2 years, and others for up to 7. It shows both good and bad interactions. Along with a notice for each on-time payment, it also shows late payments (they must be 30 days late to appear on your credit report), delinquent or defaulted loans, items in collections, unpaid tax liens, foreclosures, and bankruptcy.

So, that time you skipped your credit card payment and bought an expensive pair of shoes will follow you for approximately 7 years.

What Is a Credit Score and How Does it Work?

The credit score is actually a pretty recent invention. Back in the day, lenders just went by their gut, deciding if people were a risk or not. This often did not work out well for women or minorities, so in the 1950s, two men decided it was time to set up a system that would be a bit more objective. They developed a credit-scoring model based on behaviors they believed could assess risk for the lender.

In 1958, this debuted under the name Fair Isaac Corporation (Fair and Isaac were the names). It came together to be known as FICO. This formula was tweaked over the years until it settled into something we are more familiar with in the 1980s.

Your credit score is basically the rating of your relationships with creditors, similar to checking the reviews of an Uber driver or an Amazon seller.  There are three different companies that track this: TransUnion, Experian, and Equifax.  Slightly different information will be found on each report.

If you dream of one day having those credit cards with super rewards, like free flights or cash back on all spending, you must have a high credit score. A low score gets you the credit cards with sky-high interest rates and the payday loan. If you end up desperate for cash, you will be stuck with few options and have to take the best of the bad choices.

Your base FICO credit scores range from 300 to 850. There are some specialized scores (for example, an auto-industry-specific score that ranges up to 900). The highest I have ever seen myself was about 825, and we passed it around at work like a Beyoncé autograph.

Here is how the chart breaks down:

800 or higher: Exceptional Credit

750-799: Excellent Credit

700-749: Good Credit

640 – 699: Fair Credit

580 – 639: Poor Credit

580 and Below: Bad Credit

Dipping below 650 is usually where you start to get into trouble. Your goal should be to have a credit score above 700. This tells lenders that you are low risk and likely to make payments on time.

If you are a perfectionist, you can shoot for over 800, but it’s mostly for bragging rights. In my experience, only those over 40 could break the 800 ceiling, and it took years of good credit to reach that point. I am sure there are exceptions, but time is a major factor in your FICO score, and it’s the one thing you can’t rush.

How Do I Get My Credit Report?

You can get one free copy of your credit report every year.  Federal law requires this, so you can stay on top of your credit.  The free report won’t show you the number score, but my bank sends me my score often, so I don’t think the number is as hard to get as it used to be.

You just need your social security number, some basic account information, and likely a previous address or some information about yourself.  Generally, everything they ask is from public records, and you should have no issue answering the questions.

What Happens When You Don’t Have a Credit Score?

If you are young or have never had any debt, you may pull your free credit report and discover you have none. The term is often referred to as a “thin file.” It just means that you don’t have enough history for them to give an informed opinion of your risk.

Do not freak out and go apply for 15 credit cards. The best thing you can do to build your credit is to have one or two small debts, use them consistently, and pay them on time. And remember, if you have no intention of ever borrowing money, you don’t need a credit score. It’s not required.

There is another time when you may have a zero credit score. If you have paid off all your debt and don’t maintain any revolving credit (like a credit card), eventually everything will fall off your report. It will take years, but it can happen. If you choose to do this, you can find companies that will give you a mortgage, but it’s a bit more work.

How do They Determine Your Credit Score?

There are five factors used to determine your credit score:

1.  Payment history (35% and the largest factor): Make your payments on time (remember, a day or two late will not hurt you, but 30 days late will). This seems easy, but life happens. While the best-case scenario is that you pay off your credit cards every month, it isn’t always possible. So be sure to make your minimum payment. If it ever reaches the point where you absolutely cannot pay, pick up the phone. Call the lender and see what they will be willing to do. If you have an excellent payment history, they may be willing to extend you a grace period once (I personally gave people extensions both when I was on my HOA and in my banking job). I wouldn’t try this more than once, though.
2. Amounts owed (30%): This is the amount of available credit you spend on your active accounts. When a company issues you a credit card, their dream is that you will spend more than you can afford and just make minimum payments. That way, you will pay exorbitant interest and help their bottom line. The credit bureaus don’t want you to do this, however. They would like you to use about 30% of the available balance on your card. So if it has a $1,000 limit, try not to go over $300 regularly.
3. Length of credit history (15%): Use your credit and don’t die. That’s all you need for this. The longer you stay alive and pay your bills on time, the better this section is.
4. Credit mix (10%): This portion of your credit report is absolutely ridiculous. Please don’t pay much attention to it. The idea they give you is that to have a good score, you must have loan diversity. It’s really not true. I had only a mortgage for over a decade and an excellent credit score. Maybe it would have been one or two points higher if I had a credit card, but then I might lose points in the “amounts owed” category. If you try to get a car loan and the lender you approach says they won’t give you a loan because your only debt is a mortgage with a year of clean payment history, run away. Someone else will lend you the money (although please do everything you can to pay cash for your car).

New credit (10%): This tracks your applications for new credit. They do this because it is a bad sign when someone applies for multiple credit cards at once. It’s only 10% of your score, so don’t stress too much about having someone pull your credit if it means you could lower an interest rate or consolidate your debt into a better financial situation.

Check out How To Place or Lift a Security Freeze On Your Credit Score!

What to do to Help Your Credit Score?

I am sure you want to raise your credit score if it’s low. Having a higher credit score really doesn’t have any disadvantages. Even if you don’t plan on having any real debt, it’s still nice to know that if an emergency comes and you need a loan, you can go to a reputable financial institution and not get ripped off.

The formula for this is pretty simple:

1. Make 1 or 2 small purchases each month with your card. Maybe get a gas station credit card and use it only to fill the tank. Don’t go over 30% of the available credit line.
2. Pay the bill on time and in full.
3. Do that over and over again.

If you don’t want revolving debt, you can do this with student loans, car loans, or any other type of loan. Make your payments on time each month consistently. Follow those simple rules, and you will be beating off lenders with a stick when it comes time to make responsible purchases.

Another option I want to mention is a secured credit card.  A secured credit card is a type of credit card that requires you to put down a cash deposit as collateral. That deposit usually becomes your credit limit, or is set right above it.

How it works

• You apply and provide a refundable security deposit (for example, $300).
• Your credit limit is typically equal to that deposit (so, $300 limit).
• You use the card like a normal credit card.
• You make monthly payments.
• The card issuer reports your activity to credit bureaus, helping you build or rebuild credit.

Secured cards are commonly used by people who have no credit history, have low or damaged credit, or want to rebuild their credit score.