Written by: Andrew Allen
Edited by: Austin Lang
Reviewed by: Jon McDonald
“Hey, how’s your credit?” isn’t a question we’re often asked in everyday chats with our friends or coworkers. We’d rather discuss last night’s ballgame or what we’re having for lunch. Credit reports and scores just aren’t things we want to talk about if we don’t have to.
But if you’re seeking a loan and need to improve your credit, your credit report becomes something that’s on your mind quite a bit. That’s when you start researching your credit reports at the three major credit bureaus.
Experian is one of the three major credit bureaus that research, compile, and communicate details about your credit to lenders, landlords, and employers.
Experian creates credit reports and generates credit scores that determine your borrowing options.
If you want to know more about Experian, I researched all the details about its credit reports and scores and how a good report could help you access loans at favorable rates. We’ll also take a look at how Experian can help you monitor and protect your credit.
What Experian Does
Like most companies, Experian does more than one thing, but the bulk of its work centers around painting a picture of your interactions with credit. Obviously, people can change their behaviors as they traverse life’s financial trails and learn which steps to take and avoid. But a lot of people believe that past behaviors can signal how we’ll act in the future.
Since none of us owns a functioning crystal ball, and Magic 8 Balls pretty much only answer yes or no questions, records of our past are often the best thing we have to predict the future.
Compiles Credit Reports
If you’ve never looked at your credit report before, you should soon.
Experian partners with banks and other lenders to get information about your past dealings with credit. That information includes the types of credit accounts you’ve owned, the balances on them, and any payments you were late on or missed altogether. The company also combs through public records to uncover any bankruptcies or tax liens you’ve had.
Credit reports contain details about how you’ve managed loans and credit, including but not limited to auto loans, credit cards, student loans, and mortgages.
If you’ve ever been contacted by a collection agency, it’s probably not your fondest memory. These agencies report data about outstanding debts you have to the credit bureaus.
Experian’s credit reports start simply enough, listing personal information like your birthdate and Social Security number. Then they get into the meat of your credit details and list your credit accounts and your history of making payments.
When companies, employers, or landlords check your credit, that’s called a credit inquiry. Experian includes those on your report, too.
Produces Credit Scores
We live in a day and age where data is more accessible than ever. If you want to find out how baseball Hall of Famer Tony Gwynn fared at the plate in every game, that information is only a few keystrokes away. If you just want to know Gwynn’s career batting average, that’s even easier to find.
A credit score is like a baseball batting average. It takes information from your credit career and turns it into a number that lenders use to determine whether they want to loan you money and on what terms.
Experian uses information from your credit report to calculate a version of your FICO score, which is fueled by the following factors:
- Payment History: This factor represents how you’ve handled your credit payments in the past and can be impacted by any payment due dates you’ve missed and how much you missed them. It’s the biggest of all the factors, accounting for 35% of your score.
- Amounts Owed: This factor measures your credit utilization, which sounds like a complicated thing but it really isn’t. Credit utilization is simply the amount of credit you’ve used compared to the total amount of credit available to you. Amounts owed contributes to 30% of your credit score.
- Length of Credit History: You’ve probably heard people say you shouldn’t close old credit accounts, and this is why. The length of time your credit accounts have been active counts for 15% of your score.
- Credit Mix: Variety is the spice of life. Credit mix, which accounts for 10% of your score, measures the variety of types of credit — think auto loans, credit cards, and home loans — you’ve owned.
- New Credit: Last and tied for least, new credit also contributes to 10% of your score and takes a look at new credit products you’ve opened and recent inquiries into your credit.
FICO scores can range from 300 to 850. Like most things in life, except golf and your cholesterol, the higher your number, the better. Experian provides credit monitoring services (more on that later) that give you its version of your FICO score.
You may also hear about VantageScore credit scores. Experian created VantageScore in partnership with Equifax and TransUnion. Still, the three credit bureaus all calculate different versions of your FICO Score and VantageScore because they maintain separate credit reports and are, in fact, competitors.
FICO scores are more widely used in the industry, but VantageScore has been gaining traction since being introduced in 2006.
Shares Data with Lenders
If one of your friends asked to borrow a large sum of cash from you, you might consider their history of repaying debts to friends. But lenders don’t know you like that, so they rely on data from the credit bureaus to make an assessment of the risks that come with lending to you.
Your credit report is a detailed account of your credit past, and this look into how you’ve borrowed money helps lenders make informed lending decisions.
How Experian Reports Can Affect Your Finances
If you have a big vault of gold, money, and priceless artifacts like Scrooge McDuck, then you may not care about your credit. But most of us don’t have that (or three ne’er-do-well nephews to keep in line while globetrotting on harrowing escapades).
Let’s take a closer look at how Experian’s credit reports and scores can impact your financial life.
Influence on Loan and Credit Card Approvals
If you’ve ever applied for a loan or credit card, whether you were approved or denied, the lender likely used information from Experian or another credit bureau to help them reach their decision. That’s one of the reasons it’s a good idea to pay attention to your credit and try to improve or maintain your credit score.
Some lenders have strict guidelines they follow to help them make quick calls on lending. For example, certain companies may not lend to people with scores below 700. The better your credit score, the better odds you have that a lender will approve your application.
Impact on Interest Rates
While some lenders will flat-out reject your credit application if you have a bad credit score, others may be willing to work with you. Even if they do, it’s not something they do out of the kindness of their hearts. They’ll often offer loans with higher interest rates to people with bad credit.
Companies that lend to people with poor credit scores are taking a risk, and they want to be compensated for it.
On the other hand, people with excellent credit can usually get bigger loans at better rates. If you have an excellent credit score, you’ve proven that you’re responsible with managing your debt, so lenders trust you with more of their money.
Experian’s Credit Protection and Monitoring Tools
If you have bad credit, you may feel like Experian is out to get you by sharing information with lenders, but the bureau is just reporting on your past activity.
And it offers some innovative tools that can help you watch your credit so you can make sure your credit report is accurate and updated.
Credit Monitoring Services
If you think back to your school days, you may remember some of your fellow students who signed up to be hallway monitors. A thankless job, hallway monitors sometimes wear a sash or button to let everyone know the halls are their jurisdiction, at least for a period.
Experian offers free credit monitoring tools that can identify possible fraud and thwart identity thieves.
Credit monitoring services function like hallway monitors, except instead of busting people for running in the halls or chewing gum where they shouldn’t, they monitor your credit to look for suspicious activity and alert you of any possible fraudulent activity.
Fraud Alerts and Credit Freezes
Setting up a fraud alert can give you peace of mind that criminals aren’t out there opening up credit accounts in your name. You can add and remove Experian’s fraud alerts online, and they can be temporary or extended alerts.
If you enable fraud alerts, Experian lets lenders know to verify your identity with you before opening up a new credit product in your name.
We think it’s a good idea to set up a fraud alert if you believe you’re a victim of identity theft or a company you’ve worked with in the past has been hacked and your data was exposed or stolen.
A credit freeze is a stronger form of credit protection than a fraud alert, kicking your safeguards up a notch. You can freeze your credit on Experian’s website, and you can unfreeze it anytime.
Credit freezes prevent lenders you don’t have a relationship with from seeing your credit report. Unlike a fraud alert, a credit freeze stays on your account as long as you want it to.
Credit Report Error Disputes
One reason we recommend reviewing your credit reports regularly is that it allows you to find any errors in them. It’s important to correct these errors because they can lower your credit score.
You can dispute errors in your Experian credit report online, by mail, or over the phone. Having documentation, such as bank statements and letters from lenders, to support your suspicion of errors can help your dispute.
Most disputes are resolved in 30 or fewer days, though they can stretch to 45 days if you provide documentation once the dispute’s underway.
Experian is a Key Component of Credit and Financing Decisions
Experian is a big cog in our country’s credit machine. Its credit reports and scores help lenders understand your creditworthiness.
Experian’s tools allow you to monitor your credit, protecting you from identity theft. Based on our criteria, we recommend checking out Experian.
