One of our previous blogs on credit scores, Understanding Your Credit Score, talked about the factors used to calculate FICO scores (the most widely used scoring system). However, the blog did not go into detail on what a credit score is or the difference between credit report and credit score. The two are not only different, but they are used for different purposes. Here are the main differences:
A credit report is a record of your credit history. The report may include loan amounts, current balances, credit companies used, dates accounts were opened, recently opened lines of credit, payment history, third-party collections, and even details of public record, such as bankruptcies. These detailed reports are created by the three National Credit Reporting Bureaus: Experian, Equifax, and TransUnion. Each one of the Bureaus maintains one credit report per person. However, these reports can vary, since creditors do not have to report information to all three Bureaus. Federal law requires that each of the three Bureaus give consumers a free copy of their credit report every 12 months. You can receive a free copy of your credit report by going to www.annualcreditreport.com.
A credit score is an algorithm used to measure your financial risk based on the information on your credit report. FICO scores are the most widely used, but VantageScore, and banks have their own. FICO scores have 5 factors used to calculate credit scores, and it weighs each factor differently. The other credit companies use similar information but may have different weights and/or include other data.
Here are two key differences between credit reports and credit scores to consider:
- Credit scores are calculated based on information found on your credit report at the time it was pulled. If your credit report changes, your credit score changes.
- There are several different credit scores from each company – FICO has 53! You only have one credit report per Bureau.
Lenders use credit reports and credit scores to see if you are responsible for your finances, and to make sure that you won’t be overwhelmed if you take on another loan. When taking out a mortgage loan, lenders look at both your credit report and credit scores, and are required to show you the three credit scores that were pulled from each of the three National Credit Reporting Bureaus for the application.
Interest rates, terms, and whether you can apply for certain loans are factors that are affected by your credit score. Contact one of licensed mortgage loan originators today if you have any questions or would like to see if you qualify for a mortgage loan.