Many consumers mistakenly use the terms credit report and credit score interchangeably.
While closely related, these terms are two separate vectors that measure distinctly different aspects of a consumer's creditworthiness.
Understanding the finer details of a credit report vs a credit score is essential for navigating your financial life.
When considering credit reports vs credit scores, it may be easier to look at it as a college education. The credit report is the transcript of a person's financial experience up to this point. It gives all the "grades" of that individual.
If a credit report is like a college transcript, a credit score is akin to a person's GPA. While the report gives all the finer details, the score provides a snapshot of a consumer's financial health.
Read on to learn what each of these terms mean and how they are used.
A credit report is a stand-alone document that allows potential lenders to evaluate an individual's creditworthiness.
Creditworthiness is an assessment of one's ability and likelihood to repay debts.
It is a comprehensive statement that details a consumer's credit history as well as their current credit situation and serves as a credit reference.
It is composed of information submitted to them by creditors such as loan originators, service providers, credit card companies, government agencies, and others.
There are three national credit reporting bureaus that maintain their credit report on an individual consumer:
Creditors are not required to report to all three credit bureaus, so the information that each has often differs.
The information within a credit report includes identifying personal information, the status of credit accounts, loan repayment history, and any collection data.
These reports also record inquiries by lenders, the dates accounts were opened, and payment histories – including defaults and late payments – for these accounts.
Consumers can expect their credit reports to contain information such as:
Potential lenders use the information in a credit report to determine if a consumer is a viable candidate to receive credit.
The credit report is used as the basis for interest rates and repayment terms.
Lenders may also access a current account's credit report to determine if the consumer still meets the terms to maintain that account.
In addition to opening a credit account or taking out a loan, credit reports used to access worthiness when:
There are legal restrictions on who can access a credit report intended to keep vital data out of the hands of those who would misuse it.
The most apparent entity allowed to access a consumer's credit report are lenders.
Any agencies offering financing, loans, leasing terms, or credit accounts fall under this umbrella.
In addition to lenders, credit reporting bureaus can provide credit information to businesses and entities that include:
Consumers are also able to access their credit reports. Individuals need to be aware of what their reports contain.
The Fair Credit Reporting Act (FCRA) requires all credit reporting agencies to provide consumers with a copy of their report.
Under this federal law, Americans are entitled to a free copy of their three credit reports once every 12 months. These reports are available at AnnualCreditReport.com.
Due to a settlement resulting from the 2017 Equifax data breach, consumers in the U.S. are entitled to request additional reports from that specific credit bureau.
This settlement allows consumers to request six free copies of their Equifax report – in addition to the one that the FCRA guarantees – during any 12 months through December of 2026.
These additional reports can be requested through Equifax directly.
Reviewing one's credit reports from the three nationwide bureaus every year is essential to ensuring accuracy.
This is even more important for consumers looking to make a major purchase like a home or new car.
Check them before making large financial decisions.
Any time a person is planning to apply for a loan, a new job, or any form of credit, they should ensure no errors on their credit report that will hold them back.
Check them whenever identity theft may be present. Identity theft is more prevalent than ever before, and data breaches are an unfortunate part of life in the age of technology.
Anytime a consumer suspects their identity might be compromised, they should check their credit reports for irregularities.
Every individual should make sure that their credit report only contains information that is about them. Consumers should pay careful attention to incomplete, inaccurate, or out-of-place information that does not line up with what is in their records.
Common mistakes on credit reports include:
If a consumer finds errors on their credit report, they have the right to dispute it.
Anytime a person feels that their report is incomplete or inaccurate, they have the legal right to dispute the content with both the original lender as well as the credit reporting bureau that holds the report.
The FCRA requires these companies to conduct a reasonable investigation. This investigation is free of charge to consumers.
If there are repeated problems with an individual's credit report, they can also file a complaint with the Consumer Financial Protection Bureau (CFPB) through their website, by phone, or by mail.
The CFPB handles complaints from consumers about credit reporting errors, credit repair services, and other topics involved in credit reporting.
Consider filing a complaint about any problem with a credit reporting bureau that is not resolved satisfactorily.
Specifically, if dissatisfied with a dispute investigation, a credit report is improperly used, or if access to one's reports is somehow restricted or prohibited.
A credit score uses an algorithm to measure a person's creditworthiness based on the info contained within their credit report at a specific point in time.
Credit scores are created by FICO, VantageScore, and individual banks that create their proprietary algorithms. The most commonly used is FICO which offers a score for each of an individual's three major bureau reports.
FICO considers five areas of a credit report – each given a specific weight – when calculating a person's credit score for that specific report.
Other credit scoring algorithms use these same factors but add other data and weigh each differently to obtain their scores. The five FICO factors include:
The information contained within that report is used to determine the base numbers for the categories above. Thus, careful monitoring of a credit report also preserves the integrity of a person's credit score.
Like a credit report, a person's credit score is used to determine if they are a worthy credit risk.
How important the score is to approval and how it is used depend largely on the lender in question as different lenders look for different things.
Each of the big three credit reporting bureaus – TransUnion, Equifax, and Experian – allow consumers to pay to see their credit scores.
Requesting a score this way does not count as an inquiry and thus, will not affect your credit report or score.
Mortgage lenders are required by law to show individuals the three credit scores pulled for accessing their loan application.
Lenders that use a credit score to justify offering less than ideal terms or denying credit outright must also disclose the credit score used in that determination.
Free services like CreditKarma.com also offer consumers a chance to see their credit score.
Credit reports and credit scores are both important for a consumer's financial freedom and future.
Consulting with financial experts like those at 121 Financial Credit Union can help you keep your credit in a proper state to secure the future you and your family want.