Credit Scores versus Credit Reports

Key takeaways

• Your credit score is a number between 300 and 850. It is determined by your credit history, including overall credit that has been extended to you, your outstanding debt balances, debt repayment history and other factors
• Your credit report explains your credit history by providing in-depth information about the factors affecting your credit score.
• The three major credit reporting agencies – Experian, Equifax, and TransUnion – maintain credit reports and provide one free credit report per person per year.

Your credit score will play a crucial role when seeking a new credit card, personal loan, auto loan or mortgage. Lenders may check both credit reports and scores.

How is a credit report different from your credit score? Essentially, the report lists all of your debts, payments and credit limits over time, while a credit score is a calculated number ranging from 300 to 850. Credit reporting agencies determine your score based on information they collect for the credit report.

Making sure that your credit report information is accurate assures that your credit score figure will be accurate, helping you to prepare for large purchases and future expenses. And it empowers you to take control of your financial health.

There are three main credit reporting agencies: Experian, Equifax and TransUnion. These agencies obtain consumer information from financial institutions (banks, credit card issuers, auto loan lenders, mortgage lenders and others) who voluntarily share that information. The information also includes public records such as liens, bankruptcy petitions and other court judgments.

These agencies then use the scoring formulas to determine credit scores. While each agency has its own calculation, they are similar, and look at the amount of debt owed, how that debt is paid, credit use history, current credit available, current credit in use and history of on-time (and late) payments. That’s all your payments, not only credit card payments.

Should I dispute items on my credit report?

The information in credit reports is used to develop your credit score. Sometimes, some of the information may be incorrect. Therefore, it is of the utmost importance that you review your credit reports periodically to ensure the information in each report is accurate.

Because of the Fair and Accurate Credit Transactions (FACT) Act, you have the right to receive a copy of your credit report every 12 months from each agency for free. You can request your credit report from each agency here. You can request all three at once or each at a different time.

If you believe that a transaction or other piece of information listed on a credit report is incorrect, you can request that the item be corrected. Each credit reporting agency has up to 35 days to investigate the matter and respond. So if you have a large purchase on the horizon, it’s best to be aware of the information on your credit report.

Why does my credit score matter?

Many companies and organizations utilize both credit reports and scores for various purposes. But remember, a report does not include a score.

Many banks, credit unions and credit card issuers provide scores for free to customers. You could check the website of each, or contact your institution directly. In addition, several credit monitoring services provide scores, but often charge a fee for their services. Finally, you may purchase your credit score from credit score services or the Fair Isaac Corporation (FICO).

Your credit score is an integral factor in making large financial investments or a significant life change, such as the following:

1. When you need to borrow money

Whether obtaining a new credit card, personal loan, business loan, or purchasing a new house or car, the lender will check your credit score. Providers of refinancing, home equity loans, home equity lines of credit and home equity agreements will also check your credit score.

The more competitive your score, the lower your interest rate will be. Your score also affects your required down payment.

2. When you need to rent an apartment

The competitive housing market has bled into apartment rentals. Landlords today frequently check their applicants’ credit reports to determine whether a prospective renter will pay on time. Therefore, you often need more than a good income and strong references.

Nonetheless, what constitutes acceptable credit may vary widely from one landlord to another. Generally, landlords will view your address and rental history, employment history, on-time payment history with your creditors, and the number of credit requests you submitted in recent months.

3. When you lease a car

Leasing is a more favorable option for some consumers than buying a car. However, your credit score will play a big part in determining your down payment and monthly installment payments.

You can think of your credit score as the inverse of the payment requirements – the higher your score, the lower the down payment and installment payment requirements. When your score is less competitive, the lender will require you to have more “skin” in the game.

4. When you apply for certain jobs

You may find it surprising that your credit score can affect your chances of landing a job. Employers filling roles that require access to large amounts of money or sensitive information are more likely to run a credit check.

5. When you apply for car insurance

In many states, car insurance companies review credit reports and scores to help determine rates. Check with your insurer to see if they consider credit reports and scores in setting rates.

Credit scores, credit reports: each matter to lenders

If you’re a homeowner, you’ve gone through the mortgage application process. Once you’ve begun to pay down that mortgage and establish equity in your home, you can then use that equity to gain access to liquid cash. This cash can be used for whatever you need, such as paying off debt, which can improve your credit score. 

Homeowners may qualify for an Unlock HEA with a credit score of 500 and applying for an HEA doesn’t impact a homeowner’s credit score. You may be able to access up to $500,000 in home equity without having to sell your home or refinance. Explore your options today.