Frequently Asked Questions About Credit Report Monitoring

What is a credit report?

In the United States, credit files on individuals are kept by three different credit bureaus: Equifax, Experian and TransUnion. All three are private-sector, for-profit companies. The credit files they maintain contain extensive information on you and your credit history. The information is obtained mainly from lenders, creditors, insurers, employers and other institutions with which you may have a financial relationship. Any company that issues you any type of loan (such as a mortage or car loan) or credit card reports to at least one and often all three credit bureaus each month. They give the bureaus the latest status of your relationship with them including your outstanding balance and whether you have paid on time. The bureaus then keep all of this information in your credit file. Information about you is also obtained from public records. In addition, any time you apply for credit and a creditor requests your credit report from one of the bureaus (a "hard inquiry"), that information goes into your credit file as well. A credit report is simply a compilation of all the information contained in your credit file. Because not all lenders, employers, etc., report to all three bureaus, you actually have 3 different credit reports at any one time - one each from Equifax, Experian and TransUnion. Each credit report changes regularly as the credit bureaus receive new data.

Any time you are applying for new credit, such as in a credit card application, the creditor requests your credit report from one or more of the credit bureaus. The creditor then uses that information, along with your income and other data, to evaluate whether they want to offer you credit, and if so, how much. This type of request by a creditor for your credit report is known as a "hard inquiry" (as opposed to a "soft inquiry"). Hard inquiries themselves show up on your credit report and can affect your credit score. If the creditor does grant you credit, they then report back to the credit bureaus monthly, and the cycle continues.

What is a credit score?

Companies have built formulas to turn the information in your credit report into a number that represents how good of a credit risk you are. These numbers are called credit scores. Most credit scoring systems use the same numerical range which is between 300 and 850. The higher the score the better. According Fair Isaac, the company that produces FICO scores (the most widely used credit scores), the distribution of credit scores in the U.S. is as shown below:

Credit scores are an extremely important part of how lenders evaluate the likelihood that you will pay back your loan on time, but they also use other information when deciding whether to grant you credit and how much to grant you. While different creditors will evaluate scores differently and there are no hard and fast rules, some general guidelines for what scores mean are shown below. Keep in mind that other factors will also affect the type of credit you might be eligible for.

Over 750: Excellent - you should be eligible for any type of credit you want at the best rates

720-750: Very good - eligible for almost any type of credit and usually will get the best rates

660-720: OK - you will be able to get most types of credit but will often not get the best rates or products 620-660: Below Average - you will still be able to get credit in a lot of cases but will have to pay higher interest rates than others

Below 620: Bad Credit - you will have difficulty obtaining credit and when you get it your rates will be high

Unfortunately, it is not as simple as each person having one credit score. Since the scores are calculated based on the information in your credit report and you have three different credit reports (one from each of the 3 credit bureaus), you know that you will have three different credit scores. Furthermore, there are a lot of different formulas to calculate credit scores. FICO is the most widely used formula but each of the credit bureaus also has their own formula, as do countless other companies. Many lenders with whom you have a relationship calculate a custom score based on the additional information they have about you outside of what is in your credit report. So for each different credit score formula, you will have 3 different credit scores. And since there are many different formulas, that means you will have lots of different credit scores. The credit scores you receive from the credit monitoring services we recommend at NextAdvisor.com are either FICO scores or the credit bureaus' scoring system we tell you which one in our description of the service. In general, it is best to get your FICO score because that is the most common score that lenders use. However, the other types of scores are typically very similar to the FICO score. Also keep in mind that just as your credit report gets new information all the time, the credit scoring formulas are using that new information to recalculate your score, so your score changes over time.

How does Equifax help me monitor my FICO score and credit report?

When you sign up for the free 30 day trial, you also get a free Equifax FICO score and a free 3-Bureau credit report (reports from 3 bureaus laid out side-by-side for easy comparison). Since the FICO score is the score most lenders use to make decisions, this is the best score you can get. Equifax actually gives you an entire Score Power report which not only includes your FICO score but also a FICO Score Simulator that estimates what your score would be if you took certain actions, as well as a full explanation of factors affecting your credit score. And of course you want to see your reports from all 3 bureaus to make sure there are no errors on any of them (they all contain slightly different data) so this is also the best credit report you can get.

What is credit monitoring and why do I need it?

Credit monitoring services track your credit file daily and alert you whenever there is a change. These services are great for making sure you stay on top of your credit and are even better for preventing identity theft. Since any new information on your credit report can affect your credit score and your ability to get credit, we highly recommend monitoring your credit for any changes or inaccuracies. Given the high cost of having negative information on your report, we think credit monitoring is a great idea. Correcting incorrect negative information on your credit report can significantly raise your credit score and literally save you thousands of dollars a year.

We think credit monitoring is even more important for preventing identity theft. Most identity thieves will attempt to open new accounts in your name. This will always result in a "hard inquiry" to at least one of the credit bureaus. Credit monitoring services alert you within 24 hours of any change to your credit report, including credit inquiries. Thus if an identity thief is attempting to open an account in your name, you would see an inquiry or perhaps several inquiries from lenders you are not requesting credit from. You can then follow up with the lender or with your credit monitoring service to stop the identity theft before any damage is done.