Credit reports and credit scores are often misunderstood. Understanding these products can be confusing especially when consumers hear about how important credit scores are combined with the intense marketing of credit scores and credit report services.
Credit score and credit reports are closely related yet completely different products. A credit report is a list of all of credit information, public record information, and identification information that the credit reporting agencies have on file under an individual’s name. A credit score is a numerical summary of the information that is present in a credit report.
Credit reporting agencies collect and maintain records of an individuals credit records that are supplied by credit card companies, banks, mortgage companies, and other lending institutions. The information on credit accounts that are supplied to the credit reporting agencies by the creditors including the amount of money borrowed, payment records and additional data is used to create a credit report. There are three primary credit reporting agencies in the U.S. Equifax, Experian, and TransUnion.
The information in a credit report provided by the creditors is then used to calculate a credit score. The credit score is a three digit number that is used to determine the credit risk of a borrower for creditors and businesses assessing the financial risks of potential customers.
All individuals are entitled to at least one free copy of their credit report from the three big credit reporting agencies in the U.S. annually. Credit scores do not come with the free credit reports that are required to be provided to consumers by law, credit scores are not free.
The credit score that is calculated based on the information in a credit report may be different depending on the credit reporting agency used to determine the score as well as the type of credit score.
The most widely known type of credit score is the FICO Score. FICO Scores are the most common score used by financial institutions but there are many non-FICO credit scores available as well.
Individual credit reports from the three big credit reporting agencies are usually very similar, but they are not identical. Since the information in each credit report is somewhat different, the three credit scores from the credit reporting agencies will also be different.
Data in a credit report changes periodically, depending on how many credit accounts a an individual may have, the credit data in a credit report may change several times in a month. Since the credit score is based on the data in a credit report, a credit score will fluctuate over time and can change as often as the data in the report changes. The more accounts an individual has the more likely their score is to fluctuate as the data in their report changes when the creditors send updated data regarding an account to the credit report agencies.