Highlights:

• A credit report is a summary of how you have handled your credit accounts
• Credit reports are used by potential lenders and creditors to help them decide whether to offer you credit — and at what terms
• It’s important to check your credit reports regularly to ensure the information is accurate and complete

A credit report is a summary of how you have handled credit accounts, including the types of accounts and your payment history, as well as certain other information that’s reported to credit bureaus by your lenders and creditors. 

Potential creditors and lenders use credit reports as part of their decision-making process to decide whether to extend you credit — and at what terms. Others, such as potential employers or landlords, may also access your credit reports to help them decide whether to offer you a job or a lease. Your credit reports may also be reviewed for insurance purposes or if you’re applying for services such as phone, utilities or a mobile phone contract. 

For these reasons, it’s important to check your credit reports regularly to ensure the information in them is accurate and complete.

The three credit bureaus that provide credit reports nationwide are Equifax, Experian and TransUnion. Your credit reports from each may not be identical, as some lenders and creditors may not report to all three. Some may report to only two, one or none at all. 

Your Equifax credit report contains the following types of information:

• Identifying information

This section of your Equifax credit report includes personal information, such as your name, address, Social Security number, and date of birth. The identifying information contained in your Equifax credit report is not used to calculate credit scores.

• Credit account information

This information is reported to Equifax by your lenders and creditors and includes the types of accounts (for example, a credit card, mortgage, student loan, or vehicle loan), the date those accounts were opened, your credit limit or loan amount, account balances, and your payment history. It  may not contain all your credit accounts for several reasons, such as closed accounts that have dropped off your report after a certain period of time, or accounts not reported to Equifax by lenders.

• Inquiry information 

There are two types of inquiries: “soft” and “hard.”

“Soft” inquiries may result from your checking your own credit reports, companies extending you pre-approved offers of credit or insurance, or your current lenders and creditors conducting periodic reviews of your accounts (known as “account reviews.”) Soft inquiries do not impact credit scores. Regularly checking your credit reports can help you monitor your credit accounts and enable you to recognize inaccurate or incomplete information, or suspicious activity that may signal potential identity theft. 

“Hard” inquiries occur when companies or individuals, such as a credit card company or loan servicer, review your Equifax credit report because you have applied for credit or a service – for example, a new loan, a credit card, or a mobile phone contract. Hard inquiries remain on your Equifax credit report for up to two years and may negatively impact credit scores, although the impact may lessen with time.

• Bankruptcies

 Your Equifax credit report contains information about bankruptcy public records and related details such as the filing date and chapter (type of bankruptcy).

• Collections accounts

This includes past-due accounts that have been turned over to a collection agency. These can include your credit accounts as well as accounts with doctors, hospitals, banks, retail stores, cable companies or mobile phone providers. 

You may also want to check your Equifax credit report if you’re planning a big purchase, such as a car or a home. Doing so can help you understand what lenders and creditors may see when you apply for credit.

At first look, one might think fully paying a card balance down to zero dollars would be a net positive. That, however, may not be the case with credit scores, which places a priority on how credit cards are used by financial consumers.

“A zero balance means an inactive account, which helps your score in the short run but poses risks long-term for your credit health,” said Kevin Haney, a former executive with Experian and president of Growing Family Benefits in East Brunswick, N.J. A zero balance lowers your revolving utilization ratio initially, which the scores use to identity consumers on the brink of financial trouble.

“People about to become delinquent often charge their cards to the limit, so lowering this fraction shows stability,” Haney says. “However, banks tend to respond to inactive accounts in ways that could hurt your score down the road. They might lower the limit or close the account.”

What is credit utilization?

Credit utilization is an important calculation tool for credit scoring agencies and a big metric for lenders and creditors. For consumers, that means hitting the credit utilization “sweet spot.”

“With a weighting of 30%, your credit utilization ratio is a key factor used to calculate your credit score,” said Richard Best, a credit specialist at Dontpayfull.com, a consumer discount financial spending platform. “Generally, your credit score improves when your credit utilization is less than 30% of your total available. The lower the better.”

Credit Utilization is one of several key factors credit agencies use when calculating consumer credit scores. Best notes the following factors, too.

• Your payment history, which includes your on-time or delinquent payment record, accounts for 35% of your score.
• The length of your credit history accounts for 15% of your score. The longer your credit history, the better.
• Adding new credit can reduce your score, although the weighting is only 10%.
• Your mix of credit can also affect your score. Heavy reliance on consumer-finance debt can lower your score. This factor weighs in at 10%.

Credit utilization accounts for 30% of an individual’s credit score and an individual’s credit score depends heavily on where his or her credit utilization stands.

“Having a zero balance on a credit card can help and hurt your credit score – depending on the situation,” said Jonathan Hess, founder of Hess Financial Coaching, a personal financial services and training company. “Having a zero balance helps to lower your overall utilization rate; however, if you leave a card with a zero balance for too long, the issuer may close your account, which would negatively affect your score by reducing your average age of accounts.”

How to boost your credit score

Consumers can take specific steps to improve their credit utilization ratio (and improve their zero balance credit card picture) and strengthen their credit score overall. These five tips can get credit consumers on the right track.

1. Make periodic, small purchases on credit cards
2. Pay bills on time
3. Always know your credit score
4. Do some credit housecleaning
5. Build your credit history

1. Make periodic, small purchases on credit cards: Instead of allowing a credit card balance to fall all the way to zero, try making small, periodic payments to boost credit utilization ratios. “That can help build your payment history, so long as you’re paying off the full balance each month and ensuring you’re keeping track of your credit utilization and cash inflows,” said Angelo Alessio, vice president of Product at Harvest.

2. Pay bills on time: On-time payments are the single best method for improving your credit score. “Maintaining a low credit card balance and overall debt-to-income (DTI) ratio is also important in ensuring you have a high credit score,” Alessio said.

3. Always know your credit score: You can’t improve your score if you don’t know what it is, and you don’t track its direction. “By law, you can receive a free credit report from each of the major credit reporting agencies once a year,” Best said. “You can also order free credit reports from AnnualCreditReport.com.”

4. Do some credit housecleaning: The vast majority of credit reports contain errors, like misapplied payments, incorrect credit limits, and even wrong Social Security numbers. Any of those errors can drag credit scores down. “By law, the credit bureaus must correct errors,” Best added. “Once corrected, you can see your score improve instantly.”

5. Build your credit history: The biggest weighting of credit score health is the use of credit. “You must be able to demonstrate a constant record of on-time payments,” Best said. “To do that, use your credit cards regularly, but be sure to pay off the balances monthly.”

When you have a good credit score, you can get better terms and lower interest rates on loan products and credit cards. But it’s not always easy to just boost your credit score overnight. First, you need to consider why your score is low.

Below, we get advice from Triggs and a couple other experts on how quickly your credit score can increase and tips for making it happen.

1. Pay down your revolving credit balances

If you have the funds to pay more than your minimum payment each month, you should do so. Chipping away at your revolving debt can have a major impact on your credit score because it helps to keep your credit utilization rate low. 

“How quickly [your score can go up] depends on how quickly the individual creditors report the paid balance on the consumer’s credit report.” Triggs says. “Some creditors report within days of the payment, some report at a specific time each month.” Credit card companies typically report your statement balance to the credit bureaus monthly, but this could vary depending on your issuer. You can call or chat online with your card issuer to find out when they report balances to the bureaus.

The sooner you can pay off your balance each month the better. You can also make multiple payments toward your balance throughout the month so it is easier to track your spending, and it keeps your balance low. And although it helps to even pay off a portion of your debt, paying off the entire balance will have the biggest and fastest impact on your credit score.

2. Increase your credit limit

You can increase your credit limit one of two ways: Either ask for an increase on your current credit card or open a new card. The higher your overall available credit limit, the lower your credit utilization rate (as long as you’re not maxing out your card each month). Before asking for a credit limit increase, make sure you won’t be tempted to spend more than you can afford to pay off.

If you are considering opening a new credit card, do your research beforehand. How often you apply for and open new accounts gets factored into your credit score. Each application requires the card issuer or lender to pull your credit report, which results in a hard inquiry on your report and dings your credit score a few points.

“Usually the negative impact of those factors is much less than the benefit to your score of reducing your credit utilization ratio,” Triggs says. Just make sure you don’t apply to too many credit cards over a short amount of time and send a red flag to issuers.

It’s more important now than ever to do your research before applying for new credit because issuers may have stricter terms and requirements in wake of the economic fallout from coronavirus. Check to see what your credit score is beforehand.

3. Check your credit report for errors

One way to quickly increase your credit score is to review your credit report for any errors that could be negatively impacting you. Your score may increase if you are able to dispute them and have them removed. 

About 25% of Americans have an error on their credit reports, so it’s important to take the time to review. Some common errors to look out for include fraudulent or duplicated accounts, as well as misreported payments.

“Most of the clients we meet with have not reviewed their report within the past year, and are often surprised by what we find to discuss with them,” says Thomas Nitzsche, a financial educator at MMI. 

You can get a free credit report from the three major credit bureaus (Experian, Equifax and TransUnion) on a weekly basis by going to AnnualCreditReport.com now through April 2021.

4. Ask to have negative entries that are paid off removed from your credit report

You may have a series of late payments on your credit report, or perhaps an old collection account that’s since been paid off still shows up. If this is the case, ask to have them removed. (And if you do have a collection account that’s unpaid, make this a priority. Unpaid collection accounts can negatively impact your score.)

This step may take more time and effort on your end, but it could be worth it. Triggs suggests speaking to the collections agency, debt buyer or original creditor (depending on who now services your account) to remove a paid-off account from your credit report. 

“You’d most likely have better results using this method with collection agencies or debt buyers versus the original creditor,” he says. 

Try to convince them to not only show the account as paid, but to remove the account altogether, which could have a much bigger impact on your credit score. “Having even a paid collection account or paid charge-off on your credit report could deter creditors in issuing you future credit at all,” Triggs says.

Bottom line

When it comes to improving your credit score, no there’s no one solution that fits all.

“It’s important to remember that every person’s credit journey is unique,” Beverly Anderson, president of global consumer solutions for Equifax. “So while there are many factors that apply to most consumers, they won’t always impact everyone’s credit scores in the same manner.”

Highlights:

• Credit scores are calculated using information in your credit reports
• Credit scores generally range from 300 to 850
• Different lenders have different criteria when it comes to granting credit

It’s an age-old question we receive, and to answer it requires that we start with the basics: What is a credit score, anyway?

Generally speaking, a credit score is a three-digit number ranging from 300 to 850. Credit scores are calculated using information in your credit report, including your payment history; the amount of debt you have; and the length of your credit history.

There are many different scoring models, and some use other data in calculating credit scores. Credit scores are used by potential lenders and creditors, such as banks, credit card companies or car dealerships, as one factor when deciding whether to offer you credit, like a loan or credit card. It’s one factor among many to help them determine how likely you are to pay back money they lend.

It’s important to remember that everyone’s financial and credit situation is different, and there’s no “magic number” that may guarantee better loan rates and terms.

Although ranges vary depending on the credit scoring model, generally credit scores from 580 to 669 are considered fair; 670 to 739 are considered good; 740 to 799 are considered very good; and 800 and up are considered excellent. Higher credit scores mean you have demonstrated responsible credit behavior in the past, which may make potential lenders and creditors more confident when evaluating a request for credit.

Lenders generally see those with credit scores 670 and up as acceptable or lower-risk borrowers. Those with credit scores from 580 to 669 are generally seen as “subprime borrowers,” meaning they may find it more difficult to qualify for better loan terms. Those with lower scores – under 580 – generally fall into the “poor” credit range and may have difficulty getting credit or qualifying for better loan terms.

Different lenders have different criteria when it comes to granting credit, which may include information such as your income or other factors. That means the credit scores they accept may vary depending on that criteria.

Credit scores may differ between the three major credit bureaus (Equifax, Experian and TransUnion) as not all creditors and lenders report to all three. Many creditors do report to all three, but you may have an account with a creditor that only reports to one, two or none at all. In addition, there are many different scoring models available, and those scoring models may differ depending on the type of loan and lenders’ preference for certain criteria.

What Factors Impact Your Credit Score?

Here are some tried and true behaviors to keep top of mind as you begin to establish – or maintain – responsible credit behaviors:

• Pay your bills on time, every time. This doesn’t just include credit cards – late or missed payments on other accounts, such as cell phones, may be reported to the credit bureaus, which may impact your credit scores. If you’re having trouble paying a bill, contact the lender immediately. Don’t skip payments, even if you’re disputing a bill.
• Pay off your debts as quickly as you can.
• Keep your credit card balance well below the limit. A higher balance compared to your credit limit may impact your credit score.
• Apply for credit sparingly. Applying for multiple credit accounts within a short time period may impact your credit score.
• Check your credit reports regularly. Request a free copy of your credit report and check it to make sure your personal information is correct and there is no inaccurate or incomplete account information. You’re entitled to a free copy of your credit reports every 12 months from each of the three nationwide credit bureaus by visiting www.annualcreditreport.com. By requesting a copy from one every four months, you can keep an eye on your reports year-round. Remember: checking your own credit report or credit score won’t affect your credit scores.

You can also create a myEquifax account to get six free Equifax credit reports each year. In addition, you can click “Get my free credit score” on your myEquifax dashboard to enroll in Equifax Core Credit™ for a free monthly Equifax credit report and a free monthly VantageScore® 3.0 credit score, based on Equifax data. A VantageScore is one of many types of credit scores.

If you find information you believe is inaccurate or incomplete, contact the lender or creditor. You can also file a dispute with the credit bureau that furnished the report. At Equifax, you can create a myEquifax account to file a dispute.

Your credit report contains a nearly complete record of your credit history. Many of your financial applications are based either directly or indirectly on the information in your credit report. It goes without saying that you want to be sure the information in your credit report is accurate.

Best Overall: AnnualCreditReport.com

In 2003, a Federal law passed granting every consumer the right to a free report from all credit reporting agencies each year.¹ AnnualCreditReport.com is the centralized site that allows every consumer can access their free credit report granted by Federal law.

It’s the only website that allows you to access each of your credit reports from all three of the major credit bureaus — Equifax, Experian, and TransUnion — at no cost. You can obtain one free credit report every 12 months through AnnualCreditReport.com, without signing up, creating an account, or entering your credit card information. Alternatively, you can call 1-877-322-822 to order your legally free credit report.

Credit reports are available as a PDF download or you can request to have your credit reports mailed to you. The downside is that you receive your full credit report, which hasn’t been formatted for user-friendliness. Depending on the length of your credit history and the number of accounts you’ve had, your credit reports can be dozens of pages each. You won’t receive a credit score with your credit report from AnnualCreditReport.com.

Best for Credit Monitoring: Credit Karma

Credit Karma has been around since 2006 and has partnered with two of the major credit bureaus — Equifax and TransUnion — to offer your free credit report. Because you can access two of your major credit reports, it’s the next best option to AnnualCreditReport.com. While you will have to create an account to use Credit Karma, you don’t have to enter your credit card information or remember to cancel any free trial subscription. You can access your credit reports at any time by logging into your account either directly through your web browser or through their mobile app. Your credit report information is updated as often as once per week, giving you continued access to changes in your credit information.

You’ll have access to your credit report information along with an explanation of the factors that are currently contributing to your credit score. Credit Karma also uses your free credit report information to show credit card and loan offers that you may qualify for based on your credit standing. You don’t have to take advantage of these offers if you’re not on the market for a new credit card or loan product.

Best for Single Bureau Access: Credit Sesame

Credit Sesame provides your TransUnion credit report information along with the factors affecting your credit the most. Like Credit Karma, you sign up by creating an account, but you won’t have to enter your credit card information. Once you’ve created an account, your membership gives you access to a monthly update of your credit information, but you can access your account at any time.

In addition to your TransUnion credit report information, you’ll also have access to your TransUnion credit score online or through the Credit Sesame mobile app. Reviewing your information often gives you an idea of where your credit stands and whether you need to improve your score. Credit Sesame analyzes your credit information to make recommendations for credit cards, loans, and other financial products, but you don’t have to apply if you’re not on the market for a new loan.

Easiest Sign-Up: NerdWallet

Sign up with NerdWallet and get access to your free TransUnion credit report. With Nerdwallet, your credit report details are refreshed weekly, but you can log on at any time to check your credit report information.

In addition to your free credit report, you’ll also be able to view your VantageScore 3.0 based on your TransUnion credit report information. Your credit score is also updated on a weekly basis.

Registering is fairly simple. You can use your existing Google account and you only have to enter the last four digits of your social security to create your account. You can optionally use the Nerdwallet mobile app to quickly and easily monitor your credit report and other aspects of your finances when you’re on the go.

Best for Personalized Analysis: Bankrate

Bankrate gives you full, free access to your credit report information from TransUnion, with a unique layout that’s easier to understand than many other credit report services. Bankrate lays out your credit report information in a chronological timeline to show how your credit information has changed over a period of time. You can look over the history of your credit and pinpoint key areas that may have influenced your credit – for better or worse. As your credit report information changes, you can see how those changes may have changed your credit score and even isolate items in your credit report that could indicate a possibility of fraud.

Along with your free credit report, you’ll also get a free credit score and analysis of your score. The insights help you understand the factors affecting your credit score, see whether your credit score is trending up or down, and understand how your financial habits might affect your credit score.

Best for Improving Credit: CreditWise

You can check your TransUnion credit report and credit score through CreditWise, a credit report and credit score tool from Capital One. Credit Wise is available for free, even for those who aren’t Capital One customers. Sign up is simple and easy. You won’t have to enter any credit card information, there’s no trial subscription to cancel, and your credit information is updated weekly. You can access Credit Wise online or use the mobile app to keep up with your credit score.

CreditWise keeps you up to date with changes to your credit report and you’ll even receive e-mail or push notifications about important credit events, which is great if you’re on the go and tend to forget to check your credit regularly. CreditWise includes a credit score simulator you can use to help determine how certain actions will affect your credit score so you can make informed financial decisions. For example, if you’re planning to open up a new credit card account, you can use the simulator to estimate how it will impact your credit score.

Best for Daily Updates: WalletHub

Your credit report information can change frequently as your creditors send in updates to the credit bureaus. Weekly or monthly updates can keep you a bit out of touch with your credit report details. WalletHub is the only site that provides free daily updates to your full credit report information along with a summary of important changes to your credit information. You’ll have the most updated information from your TransUnion credit report, allowing you to act quickly to changes or suspicious activity on your credit report. WalletHub also provides personalized credit advice based specifically on your credit information.

In addition to your free credit report, you’ll also have access to your free credit score (WalletHub uses Vantage Score 3.0), which allows you to quickly see where your credit stands and how potential lenders might view your credit risk. There’s no credit card necessary to sign up and you won’t damage your credit by using the service, even if you check your credit report every day.

You may have heard the saying, ‘to get credit, you need to have credit’ — which can be pretty frustrating as a credit newbie.

Most milestones in life, such as buying a house or leasing a car, require a credit history, but if your credit score is low (or nonexistent), you will likely find it hard to get approved. The majority of credit cards also require some sort of credit history in order to qualify, with only a handful of cards made for people with no credit.

There are ways to build credit even if you’re just getting started. Below, CNBC Select reviews three things you should do if you have no credit history and want to start building credit.

1. Become an authorized user

One of the simplest ways to build credit is by becoming an authorized user on a family member or friend’s credit card. As an authorized user, you can piggyback off the primary account holder’s credit and as a result, establish your own credit history. Authorized users also have zero liability, so this is a low-risk way to build credit.

But before you become an authorized user, make sure your family member or friend has good credit and uses their credit card responsibly . You don’t want to become an authorized user on an account that has debt or late payment history, since those negative actions will appear on your credit history and counteract any credit building you plan on achieving.

Also, make sure you practice responsible behavior as well. You’ll want to make a clear plan for how you’ll pay back any purchases you make with the card, so you don’t risk wracking up debt on someone else’s card.

2. Apply for a secured credit card

Secured credit cards are a great way to build credit if you have none. These cards are typically easier to qualify for if your credit history is poor or non-existent. And you can use a secured card just like a traditional (aka unsecured) credit card to help you establish good credit, as long as you practice responsible credit behavior.

A secured card is nearly identical to an unsecured card in that you receive a credit limit, can incur interest charges and may even earn rewards. The main difference is you’re required to make a security deposit in order to receive a line of credit. The amount you deposit typically starts at $200 (though it can start as low as $49) and often becomes your credit limit. So if you make a $200 security deposit, you’ll receive a $200 credit limit.

The Discover it® Secured card tops our list for the best secured credit cards by offering cardholders cash back, a generous welcome bonus and no added fees on purchases outside the U.S. — all for no annual fee.

3. Get credit for paying monthly utility and cell phone bills on time

If you don’t want to use a credit card to build credit, there are some alternatives. A number of financial institutions offer credit building tools, but they may charge a monthly fee. However, Experian provides a free and easy to use tool: Experian Boost. This tool counts positive payment of utility and cell phone bills in your credit file, which allows you to build credit.

Simply connect the bank account(s) you use to pay your utility and cell phone bills, verify the data and confirm you want it added to your Experian credit file. You’ll get an updated FICO Score instantly and also receive a free copy of your Experian credit report.

You can have a credit score without a credit card if you’ve taken out a loan, had rent payments reported to the major credit bureaus, or fallen behind on other bills. A credit score is just a way of summarizing the contents of your credit reports. And in addition to information about any credit card accounts you’ve had in the past 7 years, credit reports contain info about other loans and lines of credit you’ve used as well whether you’ve been sent to collections or sued for amounts owed. Unpaid alimony and child support also are noted on credit reports, as are tax liens. So even without ever using a credit card, you still could have a credit score if you’ve otherwise borrowed money or failed to pay some key bills. 

You can see if you have a credit score for free on WalletHub, the only site with free daily updates. The fact that it’s possible to have a credit score without a credit card might mean you already have a rating. But if you don’t have a score, or just want yours to be higher, you really should get a credit card. Having an open credit card account is the most efficient, inexpensive credit-building option available. Just consider the alternatives.

Here are the best ways to get a credit score without a credit card:

• Make rent payments: Ask if your landlord reports your monthly rent payments to the credit bureaus. If they don’t, you can sign up for a service like PayYourRent.com that will ensure you get credit for paying on time. 
• Pay your student loans: If you took out loans to pay for college or vocational training, consistently paying them on time will build up your credit.
• Get an auto loan: You can get an auto loan with limited or bad credit history, but your interest rate and car insurance premiums will be fairly high.
• Get a credit-builder loan: Some banks and credit unions offer small loans specifically designed to help people with no credit build their history. You may have to offer collateral in order to get one.

You can have a credit score without a credit card if you’ve otherwise borrowed money, had a landlord report your payments to the credit bureaus, or failed to pay bills. But applying for the right credit card, like an easy-to-get secured card, is one of the cheapest ways to start building your credit history. And if you’re not able to get a credit card in your own name, you may be able to find someone who will add you as an authorized user. This will also help you build credit.

There are several factors that make up your credit score, and paying off debt does not affect all of them. Your credit report contains a range of information on your financial history, and all of those data points are used to create your credit score. So even after you pay off debt, there may be other factors that have a higher impact on your credit score.

Credit utilization

One area directly affected after you pay off debt is your credit utilization. Your utilization is calculated by dividing the balances you carry by your total credit limit across all of your cards.

This category of your credit score includes your credit utilization ratio for each credit card as well as your overall balances. Ideally, your balances should be between 10 and 30 percent of your available credit. If you paid off an account that had a low balance but your other cards are close to being maxed out, you may still see poor credit utilization. You can also be impacted if you pay off all of your debt and have no credit utilization.

Credit mix

Another reason your credit score could decrease is if you pay off an installment loan but still carry credit card debt. Installment loans (like car loans, student loans or home mortgages) have a set period in which they will be paid off. Credit card debt is considered “revolving” debt, which varies from month to month and does not have a set time period to repay. Installment loans don’t impact your score as heavily as revolving debts like credit cards and lines of credit, because there’s a set repayment period.

This category of your credit score is called your credit mix. Lenders like to see a mix of both installment loans and revolving credit on your credit portfolio. So if you pay off a car loan, you might actually see your credit score drop because you now have only revolving debt.

Age of your credit accounts

The average age of your credit accounts is another important factor in determining your credit score. Having many older accounts has a positive impact on your credit score, and having several new accounts is a negative contributing factor. If you pay off debt on an older account and subsequently close it, your credit score may drop.

New inquiries

When you pay off debt, your credit score may drop for totally unrelated reasons. One common reason is new inquiries on your report. Every time you apply for new credit where the creditor runs a hard credit check, it’s listed on your credit report. It stays there for two years and may result in a temporary drop in your score. If you applied for a loan or a new credit card around the same time you paid off your debt, you may have unintentionally caused a drop despite your lower overall debt.

How long does it take for my credit score to update after paying off debts?

Your credit score doesn’t update automatically, so it can take some time before you see whether paying off your debt helped or hurt your score. Expect to wait at least one to two billing cycles from your credit card before seeing your updated balance appear on your credit report.

Also remember that paying off your entire balance every month is not reflected in your utilization rate or, ultimately, your credit score. The balance that is used to calculate your utilization rate is based on your last statement balance. So, you could charge $900 on a credit card with a $1,000 limit and pay it off the same month, but the FICO credit score will still consider that a utilization rate of 90 percent.

Whether it’s your first time visiting Credit Karma or you’ve been a member for years, you might want some more insight into where Credit Karma gets your credit scores and why you should trust a company that claims to offer something for free.

Here’s the short answer: The credit scores and reports you see on Credit Karma come directly from TransUnion and Equifax, two of the three major consumer credit bureaus. The credit scores and reports you see on Credit Karma should accurately reflect your credit information as reported by those bureaus.

This means a couple of things:

• The scores we provide are actual credit scores pulled from two of the major consumer credit bureaus, not just estimates of your credit rating. This, by the way, is one of the reasons why we ask for your Social Security number and other personal information in order to create a Credit Karma account — so that we can match you up to what the bureaus have on file for you.
• Credit Karma isn’t a credit bureau or a credit-reporting agency. We don’t gather information from creditors, and creditors don’t report information directly to Credit Karma.

Understandably, you may still have some questions about how Credit Karma gets your credit scores and why your scores from Credit Karma might look different from scores you got somewhere else.

What’s a credit score?

There are few numbers in life that matter as much to your financial well-being as your credit scores.

Each of your credit scores is a three-digit number that relates to how likely you are to repay debt. These numbers can go a long way in determining whether a lender will approve you for a credit card or loan.

We say “each of your credit scores” because you actually have more than one. The three major consumer credit bureaus — Equifax, Experian and TransUnion — create credit reports that contain important information about your credit accounts and financial profile.

Credit-scoring models created by companies like VantageScore Solutions and Fair, Isaac and Company (FICO) use the information from your credit reports to calculate your credit scores. Different credit-scoring models may weigh the information in your credit reports differently, but high-impact factors generally include credit card utilization, your payment history and any derogatory marks on your credit reports.

Why are my credit scores from Credit Karma different from scores I got somewhere else?

We pull your VantageScore 3.0 credit scores directly from TransUnion and Equifax. There are a few reasons why you might get different credit scores from each of the three major credit bureaus.

One big reason why you may have different scores is that the three credit bureaus may have differing information about you.

Here are three reasons why that may be the case:

1. Mistakes happen

Errors on credit reports are not unheard-of, and even if one bureau has your information completely correct, there’s no certainty that the other two bureaus will as well.

To offer some helpful context: Through Credit Karma’s Direct Dispute™ tool, more than $10.2 billion in erroneous debt has been removed from TransUnion credit reports since 2015. And that’s only one credit bureau!

2. Not all lenders report to all three major credit bureaus

Some lenders may only report to one or two bureaus, not all three. Also, the bureaus may not update your reports at the same time. Different information can understandably result in different credit reports and credit scores.

3. Different credit-scoring models can yield different results

Lastly, credit scores are calculated using different scoring models. Because each scoring model can emphasize different aspects of your credit history, you can get different scores even if they’re based on the same credit reports.

1. Clean up your credit report

Before you do anything else, go to AnnualCreditReport.com and request a credit report from each of the three big nationwide credit reporting companies:

• Equifax
• Experian
• TransUnion

By law, you’re entitled to one free report every 12 months. When you request it, be ready to print it or save it to your computer.

Once you have the report, examine everything. In particular, look for any accounts that show late payments or unpaid bills. If that information is inaccurate, the report should tell you where to send a dispute.

Keeping a clean credit report isn’t only important for your credit score. It can also affect your job prospects. Some employers pull credit reports before making hiring decisions.

You may also want to sign up for a free account with Credit Sesame, which will give you an idea of how your reports are shaping your credit scores. You’ll also get to see your VantageScore from TransUnion, one of the three big credit reporting companies.

2. Pay down your balance

According to Fair Isaac Corp., aka FICO, the company that calculates one of the most widely used credit scores, 30% of your FICO score is based on the amount you owe.

However, it’s not simply how much you owe that’s important. It’s how much you owe compared with how much credit you have, a ratio known as your credit utilization rate.

For example, if you have a $10,000 credit limit and a $5,000 balance, your credit utilization is 50%. If you’ve maxed out that $10,000 limit, your utilization is 100%.

There are many theories on the ideal credit utilization rate, but Experian suggests it’s best to have a rate of less than 30%. In other words, you should never have more than $3,000 charged at any time if you have a $10,000 limit.

If your credit utilization rate is high, paying down your balances is a quick way to lower that rate and thus boost your score. For more ideas on tackling debt, read “8 Surefire Ways to Get Rid of Debt ASAP.”

3. Pay twice a month

You might think you’re doing great because you pay off your card every month, even if it’s maxed out. The problem is that your creditors are only reporting balances to the credit reporting companies once a month. If you run up a big balance each month, it could look like you’re overusing your credit.

For example, assume you have a credit card with a $1,000 limit. It’s a rewards card, so you use it for everything. In fact, every month, you hit your limit. The statement arrives, you owe $1,000, and you pay it off. But depending on what point in the month the credit card company reports your statement balance, it might look like you have a $1,000 limit and a $1,000 balance every month. That’s a 100% credit utilization rate.

You can help alleviate the problem by breaking up your credit card payments. Go ahead and charge everything to get the rewards, but send in payments at least twice a month to keep your running balance lower. In addition, if you make a large purchase on your card and have the cash handy, pay it off immediately.

4. Increase your credit limit

Maybe you’re not in a position to pay down your balances. You could take a different approach to improving your credit utilization rate: Call your creditor and ask for a credit limit increase.

If you’ve maxed out your $1,000 card and get a limit increase to $2,000, you’ve instantly cut your credit utilization rate in half. The key is to not spend any of your new credit. It defeats the purpose of getting a limit increase if you immediately charge the card up to $2,000.

5. Open a new account

If your current credit card issuer balks at the idea of increasing your credit limit, apply for a card from a different issuer. It will still help your credit utilization rate, since your utilization rate is based on all your open lines of credit and balances.

So, an individual with $10,000 in credit who owes $5,000 will have a 50% credit utilization rate regardless of whether that $5,000 is on one card or spread across multiple cards.

Be aware, though, that opening multiple accounts at once is not good either. Having too many new accounts can make you look like you desperately want to go on a spending spree. Don’t risk dinging your credit score by applying for more than one new card if you’re going to try this strategy.

To compare credit card offers and find the best one for you, check out Money Talks News’ free credit card search tool.

What is credit history?

A credit history is the record of how a person has managed his or her credit in the past, including total debt load, number of credit lines, and timeliness of payment. Lenders look at a potential customer’s credit history to decide whether or not to offer a new line of credit, and to help set the terms of the loan. Employers and landlords may use credit histories to evaluate job candidates or potential renters.

Deeper definition

A credit history offers a detailed look at how many lines of credit — bank loans, mortgages, credit card accounts — you have. Credit bureaus monitor your credit history, and they generate credit reports that detail your credit history at your request or for lenders or other institutions that need to review your creditworthiness.

Your credit history details how many inquiries there have been for credit reports, in addition to any negative actions taken against you, such as property liens or court judgments against you by creditors. The information contained in your credit history is used to calculate your FICO score. Higher FICO scores indicate better creditworthiness.

A good credit history makes it easier for you to obtain credit, while a bad credit history may prevent you from borrowing or significantly reduce your options. If you have a history of not paying bills on time, or you’ve filed for bankruptcy or had accounts go into collection, you may have more trouble doing everything, from finding a place to live to getting a job.

Got bad credit? Bankrate has the tools you need to consolidate debt.

Credit history example

Antonio has three credit cards listed in his credit history, which details how long he’s had each card, the spending limit on each card, and how much he owes. He also has a car loan and a mortgage, both of which are recorded in his credit history. With most of his funds tied up in his shipping business, Antonio has maxed out his credit cards in an ill-considered plan to help out a friend who has relationship problems.

With the economy in recession, Antonio’s business is in trouble and his friend is unable to pay back the money he borrowed via Antonio’s credit cards, putting Antonio at risk of bankruptcy. He would like to take out a loan to consolidate his debt, but when potential lenders examine his credit history, they demand a painfully high rate of interest.