Credit Report vs. Credit Score: What’s the Difference?

Credit Report vs. Credit Score: What’s the Difference?

Before you start looking for a home to buy, you need to get your credit in order. In the process, you’re sure to come across the terms “credit report” and “credit score.” While some people use the terms interchangeably, they are, in fact, two different things.

A credit report is a record of your credit history. It contains information about your existing credit (such as credit card accounts, mortgages, and loans), including how much you owe and your payment history. It also contains information about any court judgments, tax liens, and bankruptcy filings.

Your credit score is a number that is meant to encapsulate the information in your credit report. It reflects the risk a company incurs by extending credit to you. The higher the score, the lower the risk.

Lenders typically use your credit score in combination with your credit report to decide whether or not to grant you credit and what terms and interest rates to offer you. You can find a detailed discussion of credit reports and credit scores in the Federal Reserve’s Consumer’s Guide.

What’s on your credit report?

By law, you can request a free copy of your credit report every 12 months. Consumer Reports warns that some companies may charge for this service, so they suggest requesting a copy from AnnualCreditReport.com. The three big consumer credit bureaus (Equifax, Experian, TransUnion) maintain this site in order to comply with the Fair and Accurate Credit Transactions Act.

Unfortunately, there’s no law stating that credit reporting companies must provide you with your credit score for free. However, you might be able to learn your credit score when applying for a loan. Your lender will learn your credit score as part of the loan application process and may share it with you. Otherwise, you can purchase your credit score from any of the big three credit bureaus.

“Hard pulls” will NOT lower your credit score

One myth that hurts consumers shopping for mortgages is that pulling credit reports hurts your credit score. According to MyFico.com, credit scores aren’t reduced by multiple inquiries within a short period of time.

In fact, a few years ago lawmakers forced the credit bureaus to reformulate their score calculations in order to allow consumers to shop around for various financing and not be penalized for it.

If, while you’re shopping for a mortgage, a lender tells you not to let anyone (other than the lender himself) pull your credit because your score will drop, consider removing this lender from your short list. Obviously, having other lenders pull your report will not hurt your score. By perpetuating this myth, the lender is scaring you into not allowing other lenders to pull your credit – which pretty much means you’ll go with him (or her).

Key takeaway: Shop lenders for the best rates

As a mortgage broker, we advise our customers that five mortgage inquiries within a 30-day period are viewed by the credit bureaus as one single inquiry and adjusted accordingly. (For additional information from “the source,” see this LA Times interview of Frederic Huynh, a Senior Scientist at FICO, on key rules regarding credit scores.)

Naturally, if you want to get your loan approved or get better terms and interest rates, you’ll need a good credit score. For tips on getting a higher credit score, see our blog post, How to Improve Your Credit Score. You can also watch our short video:

If you’re planning on buying a home and have questions about your credit report or credit score, give us a call. We’re always happy to help.