Thanks to a constant bombardment of ads on the internet and TV, most people are aware that checking their credit score is possible. Do you know what a credit score actually represents, though? A credit score is a single number that’s presented to you as a snapshot of your current credit history. That history exists in a more detailed form in your credit report. Credit scores are used by lenders and retailers to assess the risk of lending you money without digging into the details of your credit report. High scores translate into more favorable interest rates and other perks when you seek out credit. Low scores may cause creditors to charge you additional fees, higher rates, or even reject your application for credit.
Having multiple credit scores is actually very common. There are different companies out there that assess your credit based on your report, and each one uses proprietary formulas to evaluate the data they collect. Different creditors rely on different sources for their scores or even use a variety of sources for specialized assessments. Bear in mind that your credit scores can also rise or fall over time.
Since all credit scores are ultimately derived from your credit report, this is the document you really need to get familiar with if you intend to improve your credit. Resolving issues that appear on your credit report will improve your scores across the board.
Credit Reports Explained
A credit report compiles statements obtained from credit reporting agencies regarding a number of different factors. Information in your report is supposed to reflect, as accurately as possible, your credit standing, credit history, credit worthiness, reputation, and cost of living – and these factors are just the start.
Although some creditors rely exclusively on checking your credit scores as described above, others may review your credit report itself when making their lending decisions. Sometimes creditors will check both your report and your scores.
Where do those statements come from? Credit reporting agencies are for-profit corporations that make their money by buying and selling credit information. Their primary sources of information are the creditors that lend you money. Today this information flows through a standardized electronic information sharing network. This system is commonly called “Metro 2” by credit professionals. It allows creditors to submit information in a number of different standardized fields describing your credit activity.
The reporting agencies sell the information they gather to a range of different buyers. This includes not just lenders like banks, credit unions, mortgage brokers, and others but also retailers, debt collectors, insurers, employers, and landlords. The information these bodies buy from the reporting agencies is used to evaluate applications for credit, housing, insurance, employment, and more.
Credit reporting agencies also make their information available to various government bodies. It may be used to evaluate financial transactions, collect debts, extend credit, set up benefits, or to investigate potential criminal activity.
Consumer credit data in the United States is handled by three credit reporting agencies:
These are by no means the nation’s only credit reporting agencies. Other companies fill more specialized or regional niches. These smaller reporting agencies often purchase their information from the nationwide agencies. There are also nationwide agencies that focus on collecting information regarding very narrow fields, such as rental histories, medical expenditures, or check falsification.
What’s the difference between a credit bureau, a credit reporting agency, and a consumer reporting agency? Nothing. These three names are all applied to the same sorts of companies.
Similarly, the terms “credit report” and “consumer report” are often used interchangeably to refer to the same information. The federal government prefers the “consumer” terminology, as these are the terms used in the Fair Credit Reporting Act. Referring to the document as a “credit report” is more common in everyday conversation.