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"My credit report is great, but my scores aren't. What's going on?"
While this sounds like a riddle, it's a reality for many people. The reason for the disconnect: Your credit report might not be as attractive as you think it is. Since credit scores are created from the information that appears in your file, those numbers will be low if the data isn't quite right. Here's how and why your credit report may seem good to you, but could translate into a bad (or even nonexistent) credit score.
What Makes Up a Good Credit Report?
A good credit report is one that contains evidence that you've borrowed and repaid money responsibly with several lenders. Specifically, that you:
- Use a variety of credit cards and loans, and have done so for a few years
- Always pay your bills on time
- Have repaid loans in full
- Consistently carry over little, if any, credit card debt
Just as important, there a few line items that are absent from a good credit report. These include:
- Collection accounts
And while you do have to apply for credit products to get them, you don't want your credit reports to indicate a flurry of applications in a short span of time, since it could be interpreted as a sign that you're desperate for money.
When your credit report only lists plenty of appealing activity, you appear to be a low-risk credit customer—and your credit scores will reflect that. That's because past and present behavior is a predictor of future behavior.
What Is a Good Credit Score?
Credit reports are valuable because they show a detailed overview of what you've been doing with loans, credit cards and other debts. But for a quick mathematical snapshot, credit scores come into play. Credit scoring companies take the financial information from your credit report, enter it into their scoring model, and spit out a three-digit number that indicates to lenders what kind of risk you pose as a borrower.
There are a number of different models, but the most common are the FICO® and VantageScore® models. Both range from 300 to 850, with higher numbers being preferable. For example, in the FICO® scoring range, scores between 740 and 850 are tops. Learn more about credit scoring ranges.
Although the scoring models assess credit report information differently, the same general rules apply: As long as you have an established pattern of on-time payments with a mix of credit products, a low credit utilization ratio (the amount you owe compared with the amount you can borrow) and no visible credit problems, your scores should be on the high side.
How Do I Know if My Credit Report Is Hurting My Scores?
There are a few types of credit reports that might look good to you on first glance, but actually often translate into poor scores.
- The good . . . and the bad. The first type of report lists some perfectly managed accounts—but also some negative activity, like late payments, collection accounts and credit card balances that are close to the credit limit. These negative line items can overshadow the positive ones, sinking your scores.
- Inaccurate reports. Undiscovered mistakes or fraudulent activity may also be in your credit file, hurting your scores. Pull your credit reports on a regular basis to check that all the information is correct. This way you won't be blindsided by scores that are at the bottom of the scale when they should be at the top.
If you find fraudulent activity in your report, dispute it with the credit bureaus and consider putting a security freeze on your file if the activity is recent or prevalent. Once the negative information is removed from your report, your scores should see a bump.
- Not enough credit activity. The other type of surprising bad credit report is the one without enough information in it, also known as a "thin" credit file. While you may think your credit is stellar because you only have one credit card and manage it responsibly, having just one account in your credit file is actually a negative to lenders considering you for credit.
Your credit scores will also be low if the only credit accounts you have are very new. Building an impressive credit history takes time and a wealth of information.
Credit Scores Change Over Time
Another misperception about reports and scores is that they're static. If you've used an array of credit products and managed them all without a hitch, your scores may be high. That doesn't mean they'll stay that way—and they definitely won't if you stop borrowing and repaying.
Eventually a credit card issuer will close an inactive account, which will impact your credit utilization ratio. Remember, credit scores need sustenance, so you need to feed them with responsible credit activity. You may also not realize that a couple late payments will hurt your score, but they will. In fact, making credit payments on time is the biggest factor in calculating your credit scores.
If you have as many credit cards as you want and don't need any loans, you can still positively impact your credit. Add your cell phone and utility bills to your credit report with Experian Boost™†. Then your credit report will show the type of data that is important to lenders: timely payments. They will be factored into your Experian credit scores, which could cause them to rise.
Clearly, you can have a bad credit score with what you presume is a good credit report, so ensure they match up. Just use a mixture of credit products often and responsibly, dispute errors, and deal with high or delinquent debts. In time your scores will be where they ought to be—and you can be certain about how lenders see your creditworthiness.
Editorial Disclaimer: Opinions expressed here are author's alone, not those of any bank, credit card issuer or other company, and have not been reviewed, approved or otherwise endorsed by any of these entities. All information, including rates and fees, are accurate as of the date of publication.
This article was originally published on May 16, 2019, and has been updated.
*Credit score calculated based on FICO® Score 8 model. Your lender or insurer may use a different FICO® Score than FICO® Score 8, or another type of credit score altogether. Learn more.