Understanding How Your Credit Score and Credit Report Are Related
Credit report. Credit score. It's all the same thing, right? Not exactly. Although your credit report and credit score are both tools to evaluate your overall financial health, they are two different instruments and you should understand the importance of each of them.
What Is a Credit Report?
Your credit report is a summary of how you have used credit in the past. It contains numerous details about your past credit use and gives lenders an idea of if they want to extend credit to you.
There are three main companies that provide credit reports: Equifax, Experian (previously TRW), and TransUnion. Because not every creditor reports accounts to each of the reporting agencies, your credit report may vary between each company.
As noted by Glen Craig from the Free from Broke blog, your credit report contains:
- Your personal information (including name, address, social security number)
- Types of credit you have used (credit cards, mortgages, car financing, etc.)
- Length of time lines of credit have been open
- Amount of credit used and amount outstanding
- Credit inquiries from third parties
- Banking information
- Public records including bankruptcies and court-related judgments
What Is Your Credit Score?
Your credit score is a numeric figure based on your credit history (the information contained in your credit report). The main industry standard for credit scores is your FICO score (range of 300-850), which is calculated by Fair Isaac Corporation; however, each of the credit bureaus uses their own credit score.
Glen Craig explains that your FICO score is calculated based on the following data points:
- Your payment history (accounts for 35% of score)
- Amounts you owe on your current credit (accounts for 30% of score)
- Length of your credit history (accounts for 15% of score)
- New credit (accounts for 10% of score)
- Types of credit you use (accounts for 10% of score)
A higher score indicates that you are less of a risk. This means, the closer your score is to 850, the better offers of credit you will receive.
Importance of Correcting Inaccuracies
You should not assume that you know what is listed in your credit reports. It is important to check your credit report before applying for credit. This allows you to know beforehand what to expect to correct any inaccuracies.
The FDIC (Federal Deposit Insurance Corporation) reminds consumers that the "amended Fair Credit Reporting Act permits consumers to request a free copy of their credit report once every 12 months from each of the three major credit reporting agencies."
As noted by New Jersey's Department of Banking and Insurance, "Under federal law, both the credit reporting agency, and the organization that provided the information to the agency, such as a bank or credit card company, have responsibilities for correcting inaccurate or incomplete information in your report." However, you are responsible for alerting the credit bureau and reporting agency of the errors.
Know Your Credit Scores
In addition to obtaining a free copy of your credit reports each year, you should monitor your credit scores from all three credit bureaus throughout the year to catch negative reports as they happen. The easiest way to stay on top of your credit scores is to utilize tools like credit monitoring from FreeScore.
FreeScore's credit monitoring provides you with:
- Your credit scores from all three credit reporting agencies
- 24/7 credit monitoring to protect against identity theft and inaccurate credit requests
- Credit alerts for changes in any of your credit reports
Sign up today to take the first step of protecting your credit scores.
Read More About Credit Reports
- Learn From 5 Common Credit Reporting Myths
- How to Check Your Credit Report with the Right Resource
- Understanding How Your Credit Score and Credit Report Are Related
- Is Ignoring Credit Reports a Big Mortgage Mistake?
- Correct Credit Errors Caused by Shopping Trips
- When Your Loan Is Invisible on Your Credit Report
- Annual Credit Report vs. FreeAnnualCreditReport.com: The Difference Revealed
- How to Report and Dispute Credit Report Errors
- Credit Report Information
- Bankruptcy on Your Credit Report
- Teach Your Kids About Credit
- What Recession Means to Your Credit Report
- Employers Can't Ask You To Provide Credit Reports