The always-confusing credit score/report. Ever wonder why creditors look at your credit report rather than your credit score? Or how to correct a credit report error? We crack the code for you.
Monitoring your credit information is a healthy financial habit. But when — and why — will creditors want to know your credit score or what's in your credit report?
FICO, formerly known as Fair, Isaac and Company, specializes in "predictive analytics." The company gathers and analyzes information to predict what's likely to happen. To generate credit scores, they pick information provided by the three major credit reporting agencies — Equifax, Experian or TransUnion. But FICO itself is not a credit reporting agency.
| Credit Report | Credit Score | |
|---|---|---|
| What is it? | A credit report is a record of a consumer's credit history and serves as credit references. | A credit score is an algorithm that measures your credit risk based on the information in your credit report at one point in time. |
| Who makes it? | The three national credit reporting bureaus: Experian, Equifax and TransUnion. | FICO, VantageScore and banks can create their own proprietary credit scores. |
| Can it exist alone? | Yes, a credit report is a stand-alone document. | No, a credit score is calculated based on information in a credit report. |
| Can you see it? | Consumers are entitled to a free copy of their credit reports once every 12 months from each credit bureau under federal law. Free reports are available at AnnualCreditReport.com. | Mortgage lenders are required to show consumers the three credit scores that are pulled for the loan application. |
Some other lenders also must disclose a credit score if used to deny credit to a consumer or to justify offering less-than-the-best terms.
Creditors will use your credit report, your credit score, or both, to determine your creditworthiness. See our chart below to see who uses them and why.
| Do they use: | Credit Report? | Credit Score? |
|---|---|---|
| Mortgage Lenders | Yes, mortgage lenders look at credit reports for any red flags*. | Yes, mortgage lenders pull three credit scores based on credit reports from each credit bureau and use the middle score for qualification. |
| Landlords | Yes, landlords determine whether to rent to a person and the security deposit amount. | Maybe, depending on the landlord. Larger management companies or landlords are more likely to pay the cost to get credit scores versus smaller landlords. |
| Auto Lenders | Yes, auto lenders look at credit reports for any red flags*. | Yes, auto lenders look at credit scores to determine approval, interest rates and loan terms. |
| Credit Card Companies | Not likely. | Yes, credit card issuers typically use one credit score for the application process. |
| Employers | Yes, the credit bureaus provide modified versions of credit reports to employers. | No. Credit bureaus don't send credit scores to employers. |
Sources: FICO; Experian; Federal Trade Commission; Bankrate.com
*Red flags include: foreclosure, bankruptcy, frequent requests for credit, making minimum payments, too many hard inquiries, and cash advances on credit cards.
Forty-seven percent of employers pull credit reports as part of their background checks on potential employees, largely to help prevent theft and embezzlement and to reduce legal liability for negligent hiring.
Like that favorite teacher who allowed test corrections, the Federal Trade Commission makes it possible to dispute erroneous marks in a credit report. The Fair Credit Reporting Act (FCRA) promotes the accuracy and privacy of information held by Equifax, Experian and TransUnion.
An amendment to this law requires each reporting company to provide you a free copy once every 12 months. It's recommended that you order all three nationwide credit reports at one time by visiting annualcreditreport.com or calling 1-877-322-8228.
Knowing the difference between a credit score and a credit report is a smart start to protecting your credit integrity and managing your money.
Article
• Dec 29, 2020 