Your credit score and credit report aren't two sides of the same coin as they might seem. Although a number of consumers often confuse the two, each carries distinct information serving different purposes. Actually, they aren't just credit reports but three of them. The United States has a trifecta - Equifax, Experian, and TransUnion. Using a competitive approach, these national credit bureaus strive to provide the most all-encompassing information to their customers, including mortgage lenders, car loan providers, insurers, and more, including you.
Differently from your credit score, your credit report offers an in-depth overview of your financial history with loans, credit cards and so forth. It's divided into four categories - identifying information, credit accounts, credit inquiries, and public records. If you’re late on your payments, these reports reflect that. They also offer details on the number of your open accounts, their outstanding balances and so much more.
The reports might vary a bit, and that's why it’s vital to look at all three together when evaluating your credit health. Information discrepancies might occur, as businesses aren't mandated to report to all credit bureaus nor is the credit bureaus' fault if certain data is incorrect or missing - the lender may have committed a mistake while reporting or transferring the data.
Luckily enough, you’re allowed to access your credit reports from all three bureaus once every year for free. Numerous websites offer to obtain these reports but caution must be taken to avoid fraud. It is advised to enter the address "annualcreditreport.com" directly into your browser.
Although importance is laid on these reports, many lenders, especially credit card companies, may not necessarily rely on them. Instead, they might delegate the task of evaluating credit risk to other entities. Dominating the field is FICO, formerly the Fair Isaac Corporation.
Your credit score, as Bethy Hardeman from Credit Karma puts it, is a snapshot of your credit report. It represents your creditworthiness, similar to how a grade represents your academic performance. FICO produces a score based on each of your credit bureau reports. Different scoring models are used by different lenders, which means people generally have multiple credit scores.
Unlike your credit reports, your credit scores aren’t automatically made available to you. In most cases, you need to pay for them under the Dodd-Frank Act, though many now provide it at no cost.
Distinguishing a credit score from a credit report, the former is a single numerical grade, while the latter offers a detailed explanation of your financial situation. Both are different, yet correlated, and used by lenders to decide whether or not to grant you credit.
Understanding the importance of your credit score is crucial but to truly delve into your credit history, your credit reports are needed. You need to rectify any inaccuracies and identify the areas needing improvement in order to raise your credit score. Note that any positive chance in your credit score does take time, and those immediate “raise your FICO score within weeks!” offers may not be as they seem.