What’s the difference between a credit score and a credit report?
You may use the terms "credit report" and "credit score" interchangeably, but they're very different.
A credit score and a credit report are not the same thing.
You’d be hard-pressed to find two terms used more interchangeably than credit score and credit report. However, both of these terms mean different things.
Let’s examine what a credit score is, what a credit report is, and also compare the two.
What Is A Credit Report?
A credit report is a comprehensive narration of your financial history. It provides detailed insight into your past and present credit accounts, loans, mortgages, credit cards, and charge cards.
Additionally, it gives you a heads-up if you are lagging behind on any of your bills.
It basically chronicles your experience dealing with debts.
Consequently, credit reports can contain unsavory bits of information such as bankruptcies, defaults in payments, late payments, foreclosures, an account turned over to a collections agency, and repossessions.
The purpose of a credit report is to determine the owner’s eligibility for jobs, mortgages, credit cards, insurance policies, loans, and more.
Typically, there are 3 credit reports. This is because the U.S. has three national credit bureaus: Equifax, Experian, and TransUnion. Each provides thorough information on a person’s financial history
However, it is imperative to pay attention to all three reports as each may vary due to incorrect or missing details. This is usually the fault of the lender, not the bureau, as the former may have erred in communicating the data.
These credit reports can be requested by landlords, employers, collection agencies, loan providers, insurers, mortgage lenders, and individual borrowers.
Thanks to the Fair Credit Reporting Act, you are entitled to a free copy of your credit reports from all three bureaus once every 12 months. You can request a copy through AnnualCreditReport.com. However, to combat the uptick in credit frauds as a result of the COVID-19 era, the bureaus are offering free weekly reports till 2022.
What Is A Credit Score?
A credit score is a 3-digit grade that instantly summarizes your credit report and creditworthiness.
Sifting through countless pages of a credit report would prove onerous to lenders, so they engage the services of an entity to assign a numerical value according to the contents of the credit report.
Therefore, the credit score is an instant representation of how much risk a person represents. Lenders consider your credit score to assess if an individual would qualify for a credit card, loan, mortgage, etc.
Credit scores can be calculated using various models, but the Fair Isaac Corporation (FICO) and VantageScore have proven to be the most popular companies and models in the industry. Actually, the former has the upper hand, so credit score is virtually synonymous with FICO score.
The score ranges from 300 to 850. The higher you score, the lower risk you represent to lenders.
Significant factors considered when calculating a credit score include:
- Payment history
- Credit utilization ratio
- Length of your credit history
- Credit mix
- New credit
Since you can have different reports from the three different bureaus, it isn’t strange to have different credit scores on those grounds.
While you can’t receive a credit score for free, if any creditor makes a decision based on your credit score, the Dodd-Frank Act gives you the right to see the score.
A comparison of credit score and credit report
1. A credit report is a detailed record of your financial situation, while a credit score is a numerical representation of your creditworthiness based on the details in your credit report.
2. The credit report can exist on its own as a document, but the credit score can only be derived from the credit report.
3. Credit reports are only created by the three national credit reporting bureaus. However, credit scores can be obtained from FICO, VantageScore, credit card companies, banks, other financial institutions, and advisory services.
4. Consumers are legally entitled to a free copy of their credit reports once every 12 months, but the same is not the case for credit scores.
5. Both are important for determining whether you can get a loan, mortgage, or any other credit product, as well as the rate you’ll pay.
6. They are both linked and are mostly reflections of your financial actions.
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