We all know credit scores are integral to our financial lives and well-being. However, apart from the basics, many questions about the uses and intricacies of credit scores could be made more transparent. Here, we will shed some light on the question marks surrounding credit scores and give you a better understanding of what those numbers mean and what they can do for you.

Why Three?

One commonly asked question about credit is, why do you have three credit reports? The answer is simple: there are three major credit bureaus. While there are a multitude of smaller bureaus, TransUnion, Equifax, and Experian established themselves as the standard for consumer credit report creation in the United States. Lenders will base their decision on a credit report from one of these three bureaus. Each credit report may have slightly different information, so checking all three is essential. 

Who Has Access?

In all cases, you, the consumer, must grant access. When you apply for a credit product, you are providing the lender permission to access your credit report. This can include insurance companies, utility providers, and even the government. Typically, landlords and employers will access your report as well. 

You will not know which of your credit bureau reports a lender or business will pull, but if you are denied credit, they must provide the source of the credit report, the credit score they used to base their decision, and the factors in their denial. The notice enables you to access a free credit report based on the denial. 

You have the right to access one free three-bureau credit report annually and can do so at AnnualCreditReport.com. https://www.annualcreditreport.com/.  

What Does It Take To Make a Good Credit Risk?

The only way to build credit is by having credit. Paying bills on time and using 30% or less of your available credit is essential. Five factors influence credit scores, but the two most influential are payment history and credit utilization. Credit reports provide seven years of your payment history. 

A mix of credit cards and loans is optimal, but don't apply for too many credit products simultaneously. Income is not a factor in credit scores since it is not included in your credit report. However, when reviewing your credit report, any credit application will ask for your income information to determine your debt-to-income ratio. So, it's critical to not only have low utilization of your overall credit limits but also to have a low debt-to-income ratio.  

What Do They Mean?

According to the Consumer Financial Protection Bureau, a credit score predicts your credit behavior, such as how likely you are to pay a loan back on time, based on information from your credit reports. The higher the score you receive, the less risk you are indicated to be. FICO and VantageScore are the primary scoring models businesses and lenders use nationwide. FICO and VantageScore score differently for various credit products: credit cards, auto loans, and mortgages. Each releases new numeric versions of their scoring models across their products regularly. However, lender adoption of updated scoring models lags. No matter the model, all will range from 300 to 850. Ultimately, the longer your credit history is with a few lenders that you've consistently paid on time, the better your chances are for having a good score.