THElast week i helped a family member get a copy of their credit report and credit score. One thing they found confusing was the difference between the two.
Contrary to what many believe, a credit report and a credit score are not the same thing. While these are variations on your overall financial health, they are separate instruments. A credit report is just that, a detailed âreportâ of your credit history. And a credit score is a real number. And the way you get your credit scores and your credit reports (and how much they cost) is also different. Here’s a look at the two and their relationship.
Credit reports versus credit scores
|What are they?||Summary of your credit history as kept by the three major credit bureaus: Equifax, Experian, and TransUnion||A number typically ranging from 300 to 850 depending on the information in your credit reports.|
|Why three?||Each credit bureau probably has slightly different information about your credit history. For example, not all creditors report to the three credit bureaus.||Since each credit bureau has slightly different information, they usually produce slightly different FICO scores.|
|Are they free?||Yes, you can get a free copy of your credit report from each credit bureau once a year.||No, although you can get your score for free by signing up for a trial of the credit monitoring service.|
|How did you get them?||www.annualcreditreport.com||FICO|
A credit report is a detailed view of how you have historically used credit. It is used by anyone who is considering loaning you money and is used to gauge how responsible you are for things like credit cards, mortgages, car loans, etc.
Your credit report contains information such as the following:
- Identification data: Your name, address, social security number, date of birth and employment information are part of your credit report and are used to identify you. While this information is not used to calculate your FICO score, it is still important. When you review your credit report, you want to make sure that this information is correct, as errors can occur when your identity has been stolen.
- Credit accounts: From credit cards to mortgages, from auto loans to school loans, lenders account for every account you set up with them. The information reported includes the type of account (credit card, car loan, mortgage, etc.), the date you opened the account, your credit limit or loan amount, the account balance and the your payment history.
- Credit inquiries: When you apply for a loan, you authorize the lender to obtain a copy of your credit report. The result is that an investigation appears on your credit report. The inquiries section contains a list of everyone who has accessed your credit report in the past two years. The report you see lists both “voluntary” inquiries (also known as forced drawdowns) resulting from your own credit applications, and “involuntary” inquiries (or indirect drawdowns), which occur, for example. , when a lender extracts your credit history to offer you a pre-approved credit card.
- Public documents and collectibles: Credit bureaus also collect information on public records from state and county courts, and information on overdue debts from collection agencies. Public record information includes bankruptcies, foreclosures, lawsuits, wage garnishments, liens and judgments.
In short, your credit report contains a history of how you handled credit and typically represents most of the information a creditor needs to determine if you are a good or a bad risk.
Equifax, Experian and TransUnion are the big three credit reporting companies. You can request a free credit report every 12 months from any of these national credit reporting agencies, and annualcreditreport.com makes it extremely easy to do. This way, you can make sure that all the information saved is correct and that there are no accounts listed that you have not opened.
FICO Credit Ratings
Credit scores assign a numerical value to the above information. This number ranges from 300 to 850 for scores based on the FICO formula. The higher the score, the better. This tells lenders that if they lend you money, you are “good at it.” The rates you receive on mortgages and other loans will also be lower the higher your credit score is. Your credit score can also affect the cost of insurance, getting a job, getting security clearance, to name a few.
Tooltip: You can get your credit score totally free from Experiential.
The most commonly used credit score is the one created by Fair Isaac Corporation, called the FICO score. Equifax, Experian, and TransUnion have their own take on a credit score, but FICO is the industry standard.
Your FICO score is determined based on the following data:
Payment history = 35%
Amounts due = 30%
Length of credit history = 15%
New credit = 10%
Types of credit used = 10%
It is important to note that for some people some factors are more weighted than others. If you’ve ever struggled to pay on time, for example, payment history matters more in the future.
There are several ways to get your credit score for free, which you can check out here.