When you’re new to credit, it’s hard to understand things like what credit is, or how your credit report and credit score are related. However, it’s important that you do to ensure you remain on the good side of credit.
Table of Contents
- What’s the difference between a credit report and a credit score?
- What’s the relationship between credit reports and credit scores?
- How does my credit report affect my credit score?
- Why do I have multiple credit scores and credit reports?
- Why do credit reports and credit scores even exist?
- How can I check my credit reports and credit scores?
What’s the difference between a credit report and a credit score?
The primary difference is that a credit report is a record of your credit activities, and a credit score is a number that reflects whether your recorded activities have been financially healthy or unhealthy.
This question is a lot like asking, “What’s the difference between a math test and a test score?” When you think of it like that, it’s impossible to misunderstand.
What’s the relationship between credit reports and credit scores?
The information in your credit report is used to calculate your credit score. That’s why your credit score changes over time—it’s constantly recalculated based on the information that gets reported in your credit report.
How does my credit report affect my credit score?
All of the credit-related information in your credit report has a positive or negative impact on your credit score. Credit-scoring companies like FICO and VantageScore use various factors in your credit report to calculate your score, which helps lenders determine if it’s risky to lend you money or not.
Those factors include:
- Payment history: This tracks the payments you’ve made on your credit accounts going back 7 years. If you’ve historically paid your bills on time, you’ll have a good payment history; if you’ve made a lot of late payments, you’ll have a bad one.
- Current balances/credit utilization: Every major scoring model looks at how much you owe on your credit cards and loans. The amount of your available credit that you’re using (your debt-to-credit ratio) is especially important.
- Length of credit history: The longer you’ve been using credit, and the older your credit accounts are on average, the better your credit score will be.
- New credit: Applying for or opening new credit accounts temporarily lowers your credit score, although this effect isn’t very severe.
- Credit mix: This refers to the types of credit accounts you have (e.g., credit cards, loans, etc). Having a diverse blend of accounts is good for your score.
Your credit score ranges from 300 to 850. If all of the factors listed above are in good shape, you’ll have a good credit score (on the higher end of that range); if you have serious black marks, you’ll have a bad credit score.
Fundamentally, you now understand the difference and relationship between your credit report and credit score. But here’s where things get a bit more complicated: you have multiple credit reports and multiple credit scores.
How is that possible, and how do your various scores and reports interact?
Why do I have multiple credit scores and credit reports?
You have multiple credit reports because more than one company tracks your credit history. The three main credit bureaus are Equifax, TransUnion, and Experian, and you have a separate credit report at each one.
You have multiple credit scores because:
- Each credit bureau’s credit report is different. Lenders don’t necessarily furnish (submit your information to) to every credit bureau. Because the information in your credit reports may be slightly different, that means each credit score will be slightly different.
- There’s more than one credit-scoring company: Your FICO score isn’t your only credit score, with their main competitor being VantageScore. Beyond that, certain banks and lenders have their own in-house credit-scoring models.
- Credit-scoring companies have several credit models: Even if you only had one credit report, FICO alone would still have 28 versions of your credit score based on it.
Credit-scoring companies like FICO produce so many versions of your credit score for two main reasons:
- They need to update their models based on economic circumstances, like recessions, to accurately predict consumer financial behavior.
- They also create industry-specific models to predict if you’ll be a risky credit card, auto loan, or mortgage customer. These models calculate your score in slightly different ways.
Arguably, there’s also a third reason: credit scoring companies are in the business of selling a product (your credit score). The more models they have, the more versions of this product they can sell.
Your credit scores are mostly interchangeable
Despite having so many reports and credit scores, the fundamental relationship between them is the same.
Thankfully, if you have good credit habits and pay your bills on time, you’ll have a good credit score regardless of credit-scoring company or model, and you don’t need to worry about all of this complexity.
Why do credit reports and credit scores even exist?
Credit reports and credit scores exist because it’s risky for companies to lend money to people without vetting them to see if they’ll pay it back or not. If you’ve ever lent money to a friend who never paid it back, you understand why.
Imagine if, before lending to your friend, you were able to see a perfect history of all of the other people they’d never paid back before. Would you still lend them money?
Regardless, it can feel invasive to know that there are companies that track your financial history and score you based on it. That’s why this industry is heavily regulated by the government under the Fair Credit Reporting Act (FCRA), though many argue it requires further regulation.
How can I check my credit reports and credit scores?
Because your credit reports and credit scores are different things, you’ll generally have to look them up in different places.
How to check your credit report
Fortunately, accessing your credit reports is simple. The credit bureaus are obligated to provide you with one free copy per year (currently one per week until December 2022, in response to the COVID-19 pandemic). You can get your reports by visiting AnnualCreditReport.com.
It’s best to use this website and not any others; AnnualCreditReport is safe to use and is actually federally authorized to provide your reports, but many other sites that claim to provide your reports are run by scammers who want to harvest your personal information.
How to check your credit score
Checking your credit score is slightly more complicated (largely because you have so many scores). The most convenient methods include using:
- Your bank’s online portal: If you have a bank account or a credit card, there’s a good chance they’ll provide free access to at least one of your credit scores on their website (most likely your FICO 8 or FICO 9 score, which are two of the most widely used models).
- A credit monitoring service: There are many websites, including CreditKarma, that offer you free credit scores. Be aware that they might just provide your VantageScore, which is used much less often in actual lending decisions than your FICO scores.
- The credit bureaus’ or FICO’s website: The three bureaus and FICO themselves offer access to your score. However, they won’t necessarily provide a free FICO score; while Experian provides your score free of charge, for instance, FICO’s credit monitoring service is paid.
Like we said, your various credit scores and credit reports are all closely related, so there’s no need to look up every last one of your scores (remember, you have dozens).
Most of the time, regularly pulling your credit reports and checking at least one of your scores is enough.