Understanding the Difference Between Your Credit Report and Credit Score

In the past few years, credit companies opened the doors to greater consumer access to credit tools which impact your financial life. Moving credit to a more consumer-friendly approach can give you more control over credit and the cost of borrowing by improving credit education and monitoring.

Maintaining credit is an important part of your financial profile because it measures on how you handle debt. Different companies maintain databases of information, creating a synopsis of your credit management skills, which companies use to make decisions.

Credit Reports

Three major credit bureaus maintain a database of consumer information, which lenders and organizations use to determine credit worthiness. The companies track payment and application history, along with any derogatory activity for up to ten years’. Experian, Trans Union, and Equifax sell their files to third parties. Lenders report account activity each month, combined with data found in public records and other sources. Credit companies track information such as credit limits, payments, applications, addresses, and employment for millions of citizens.

You may review a copy of your credit report once every 12 months at no cost. A practice which will help ensure its accuracy.  

Credit Scores

Credit scoring companies, such as FICO, take the data found in your credit file and attach a weighted average to calculate your credit risk. Through proprietary algorithms, the companies tabulate a three-digit score lenders, and interested third parties use to evaluate the data found in your report. Credit card companies, banks, and some third parties grant free access to your credit score.   

Individuals have multiple credit scores and reports because not all lenders report data to all three bureaus and credit scoring companies use different algorithms to tabulate a score. Reviewing the credit reports annually and following one credit score source is an effective way to track your credit.