When you apply for a loan, credit card, mortgage, student loan, or any other kind of credit, a lender may check a credit report or credit score before deciding whether or not to lend to you. A credit check may even be required when you’re looking for a job, new apartment, or mobile phone.
Creditors, employers, and other companies check either a credit score, credit report, or both, before deciding if they want to do business with you. Credit impacts everything from whether you get approved for a loan to how low your rate will be.
While your credit report and score are both used to make lending decisions, there are major differences between the two. One is a detailed description of your credit and the other is just a snapshot of your current situation. The reasons why a company might check one instead of the other vary. Here’s a quick look to understand the particulars of your credit report and credit score.
What Is a Credit Report?
A credit report is a detailed record of how you’ve used credit in the past, which includes:
- Information about past and current credit card accounts, mortgages, plus auto and student loans
- Amounts owed to each creditor
- Length of time an account has been open
- Consistency of payments made “on time”
- Inquiries into a credit history
- Current and former residential addresses
- Current and former employers
- Bankruptcy filings and legal judgment
- Home foreclosure or vehicle repossession
These reports are created by credit reporting agencies, also known as credit bureaus. The three main credit reporting agencies are Equifax, Experian, and TransUnion. Creditors send information about how you use credit to these agencies. Then, the agencies compile this information into a list that has details about all of the ways you’ve used credit in the past seven to ten years.
Companies check the information on a credit report to decide if they should lend to you, hire you, rent to you, and do many other things. However, this information isn’t available to just your creditors—you can access it too.
Thanks to the Fair Credit Reporting Act, everyone may annually receive a free credit report from each credit bureau. The best place to do this is by visiting https://www.annualcreditreport.com. If something is incorrect or missing, you can correct this information with the credit bureau so that it doesn’t impact credit in the long-term. You can learn how to dispute a credit report error here.
What Is a Credit Score?
Unlike a credit report, which contains detailed information about your credit behavior and can be hundreds of pages long, a credit score is a snapshot of your current credit situation captured in a three-digit number. The number ranges from 300–850, and it’s broken down as follows:
Creditors also use your credit score, sometimes in conjunction with your credit report, to determine creditworthiness. When you have a high credit score, you’re more likely to get approved for a loan with better rates and terms. For example, for a credit score above 800, a creditor will usually provide you a low rate and offer more favorable repayment terms. On the other hand, if a score is below 669, then the creditor may view you as a lending risk and not extend credit or offer you less favorable terms.
Your credit score is provided by one of the credit bureaus, but it’s typically derived from a credit scoring model created by the Fair Isaac Corporation (FICO®). That’s why you’ll sometimes hear “FICO score” or “credit score” used interchangeably. However, there are other credit scoring models out there, including VantageScore as well as other proprietary scores generated by banks and financial institutions.
FICO calculates your credit score based on the following information:
- Length of credit history (15% of score)
- Amounts owed and whether its new or established debt (30% of score)
- Types of credit—such as credit card debt, auto loan, mortgage, etc. (10% of score)
- Frequency of payments that are “on time” versus “late” (35% of score)
- New credit (10% of score)
Credit scores are calculated based on information listed in your credit reports and may vary between credit bureaus. However, your credit score between the credit bureaus will usually be similar no matter who is providing it since it is calculated based on your credit history.
You can read more about all of the factors that affect your credit score.
Credit Score -vs- Credit Report: Which Has What?
Although there is overlap between the two types of credit information, there are some key differences.
|Credit Score||Credit Report|
|Provides a numerical “grade”||✔|
|Provides a detailed document||✔|
|Used by a lender assess a borrower||✔||✔|
|Indicates likelihood of debt repayment||✔||✔|
|Reviews credit inquiries||✔||✔|
|Contains information that is of public |
record, such as collections or
|Can receive this each year, free of |
|Shows current and former residential |
|Implies consistency of on-time |
|Shows consistency of on-time |
|Shows length of time an account has |
|Looks at entirely of payment history||✔|
|Looks at details of pyment history||✔|
|Shows bankruptcy filing, legal |
judgments, foreclosures, and
Who Looks at Your Credit Information and Why?
There are a number of entities that can access credit details, so the following helps explain who they are and why they want to see credit information.
- Lenders and Creditors: When applying for a new loan or credit card, a lender or creditor will use your credit report and credit score to determine whether or not to approve the application. They will also decide your loan amount, interest rate, and term based on the credit report and score. Even if you already have an account, a lender or creditor may check a credit report periodically to decide if the current account terms will remain the same or be adjusted. Positive information may mean an increase to the spending limit or a lowering of the interest rate, while any negative information may lead to the opposite effect or closing an account completely.
- Banks: Even if you don’t have a credit card with the bank in question, they may review credit information before allowing you to open an account. They do this because there’s a higher likelihood that you could overdraw the account when there’s a low credit score.
- Employers: There’s no evidence that poor credit equates to poor job performance, yet employers may check your credit before offering you a job, especially if that job deals with money or is a government or military job. Current employers may also check credit reports to determine if they should promote you. And in government and military roles, an employer may check your credit to decide whether or not to give you an additional security clearance.
- Landlords: A landlord will run a credit report,with your permission, to see if there is a history of payment delinquencies, evictions, or foreclosures, as these may indicate that you will be late on paying rent or miss rent payments altogether. Depending, the landlord may decide not to rent to you if they think the risk is too great, or they may require a co-signer, also known as a guarantor, to sign the lease with you.
- Utilities: Gas, water, and electric utility companies want to ensure a new account will be paid in full and in a timely manner. If you move into a new home and have poor credit, then you may have to put down a deposit to set up service.
- Insurers: When applying for auto, rental, or homeowner policies, the insurer looks at credit information, which could impact your premium—with lower scores having the potential to increase the amount.
- Mobile Phone Carriers: Much like utility companies, mobile phone providers, such as Verizon, Cricket, or AT&T, may require a deposit to begin service if you have a poor credit history.
- Debt Collectors: As the goal of their job is to collect a debt, debt collectors use credit reports to find your current address and employer information. Plus, by reviewing your credit report, the collection agency can better estimate whether the debt can be paid or not.
- Government Agencies: Depending on the circumstance, the government will use your credit report to calculate payments for child support, process an application for a particular government license, or see if you qualify for government assistance.
Both credit scores and credit reports help entities get a clear picture about how you handle money. Although a credit score provides a snapshot and may be enough for the lender or creditor to make a decision, the credit report provides details that reflect the full picture. This is why it’s important to check credit reports and ensure everything is accurate—do this annually to be in good credit health.