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.
What is a Credit Report?
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:
- TransUnion
- Experian
- Equifax
Creditors are not required to report to all three credit bureaus, so the information that each has often differs.
What Info Is in A Credit Report?
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:
- Personal Identifying Information - A credit report will record and share a person's social security number and the details associated with it. This includes a person's legal name as well as any names that they might have used in the past to obtain credit, such as nicknames, maiden names, and pseudonyms. It also includes a person's birth date, current and former addresses, and phone numbers.
- Credit Accounts - Any credit accounts associated with the social security number of a consumer are also included in their credit report. Details about the type of account – revolving, installment, mortgage, etc. – as well as the credit limit, balance, payment history, and date of origination are recorded for both historical and current credit accounts.
- Public Records - Many consumers do not realize that their credit report will also contain information based on public records. Civil lawsuits and judgments, bankruptcies, foreclosures, and liens will appear on a person's credit report.
- Collection Items - This category encompasses a wide variety of negative credit activity. Defaulting is an obvious inclusion here as well as late payments or slow repayment. A credit report might also include information about an overdue child support obligation.
- Inquiries - Credit reports also record every time a company accesses a person's report. This information allows them to determine if the consumer is shopping around for credit, indicating a problem.
How Is A Credit Report Used?
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:
- Obtaining insurance
- Renting an apartment or home
- Starting services such as utilities, cable TV, cell phone service, internet, etc.
- Applying for a job
Who Can Access a Credit Report?
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:
- Insurance companies
- Collection agencies that buy debt
- Residential real estate management companies and landlords
- Retail stores, payment processors, credit unions, and banks that accept personal checks
- Utility and communications companies
- Government agencies, volunteer organizations, and employers to determine government assistance eligibility
- Employers
Consumers are also able to access their credit reports. Individuals need to be aware of what their reports contain.
How Do Consumers Monitor Their Credit Report?
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.
When Should Consumers Check Their Report?
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.
What Errors Are Common?
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:
- Identity Errors - Identity errors are any mistakes in the identifying information in a credit report. These errors could be as simple as the wrong name, address, or phone number. More complex presentations of this error occur when two people with similar names are mixed into one file, or identity theft is present.
- Data Management Errors - Data management errors happen when incorrect information is reinserted into a report after being corrected or removed. These mistakes also occur when accounts appear more than once in the same report under different creditors.
- Account Status Errors - There are several account status errors to watch out for. Closed accounts that are reported as open, accounts reported as delinquent or late, which are current, and repeated listings of the same debt – a data management error – fall under this heading. Incorrectly dating when an account was opened, the last payment or first delinquency also creates this type of error. When a person is listed as the owner of an account when they are only an authorized user, that is another form of account status error.
- Balance errors - Balance errors occur when there is an incorrect current balance owed reported – obviously – or when the credit limit is wrong. Often, these are simply an issue of reporting by the creditor.
What Should A Person Do If They Find Mistakes?
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.
What Is A Credit Score?
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:
- Payment history at 35 percent
- Amounts owed at 30 percent
- Length of credit history at 15 percent
- New credit at 10 percent
- Mix of credit at 10 percent
How Is A Credit Score Obtained?
An individual's credit report is the starting point for every credit score.
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.
How Is A Credit Score Used?
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.
- Mortgage Lenders - Mortgage lenders base a large part of their decision on credit scores. These lenders will pull a credit score for each of a consumer's three credit reports – Equifax, Experian, and TransUnion. The middle score is generally the one used to determine qualification for the loan.
- Credit Card Issuers - Credit cards are issued based on one of an individual's credit scores. The issuer will pull one score from one of the major three bureaus to determine eligibility as well as credit limit. Most use the FICO score but which of the major three bureaus that score is obtained from depends on the issuer's personal preference.
- Auto Lenders - Auto lenders utilize credit scores along with full reports to make their determinations. As mortgage lenders, auto lenders use a consumer's credit score to determine more than eligibility. This number is also used to set the terms of the loans and the interest rate.
- Insurance Providers - Insurance providers will sometimes utilize a credit score to determine eligibility. Insurers do not generally use the traditional FICO score. For example, property insurers often use credit-based insurance scores generated by a unique algorithm that predicts the likelihood that an individual will file a claim.
- Property Management Companies - Large property management companies will also use a credit score to determine if a person is a viable tenant. Property owners who rent individual properties, however, rarely check credit scores.
How Can A Person See Their Credit Score?
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.
The Take-Away
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.