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A look at the difference between credit scores and credit reports

On Behalf of | Jan 12, 2017 | Personal Bankruptcy

In may be beneficial for people in North Carolina who are dealing with a lot of debt to monitor both their credit score and their credit report so that they can have a complete picture of where they stand financially. However, not everyone understands what their credit score is and how it is different from a credit report. Here is some useful information on what they are and why they are important.

A credit report is a detailed history of all the credit accounts a person has ever opened, closed or applied for. According to the Consumer Financial Protection Bureau, a person’s credit report is available for free once every 12 months from each of the three main credit reporting agencies. Monitoring one’s credit report is important because if it contains any mistakes, a person’s credit score and history could be negatively affected. Mistakes on a credit report should be reported to both the agency who compiled the report, as well as the company that reported the information.

A credit score, on the other hand, is a three-digit number that lenders use to decide whether to extend credit to someone. For instance, a person with high score would be considered highly likely to pay back any amounts borrowed and would have access to more loan products and lower interest rates. A person with a low credit score would likely be denied most applications for credit or be forced to contend with interest rates on the higher end.

What many people may not realize is that they actually have many different credit scores. Different credit bureaus use different formulas to calculate the number and the number can vary from day to day. To find out what their credit score is, people can purchase it from each of the credit reporting agencies. However, caution should be used when looking at offers to obtain credit scores. According to Yahoo, two of the main reporting bureaus, TransUnion and Equifax, were recently ordered by the CFPB to pay back millions after misleading consumers into thinking that the credit scores purchased from them were the actual ones used by lenders. While the numbers are probably similar, most lenders use a person’s FICO score as the standard for determining credit worthiness. The agencies were also censured for charging people for ongoing subscriptions without their knowledge.



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