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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.

FAQs

Review Your Credit Report

Review Your Credit Report

Check Your Credit Score When Preparing to Apply for a Mortgage

When applying for a substantial amount of money such as a mortgage, the first step anyone should take should be to make sure all your credit scores are the highest they can be.

Your credit report is primarily based on your trade-line and payment history, debt levels, and other information gathered by the three credit bureaus (Experian, Equifax and TransUnion). From that they calculate your credit score and assign a number between 300 and 850. 850 is the best.

Lenders use that score to determine whether to accept a loan application and the rate they will charge. That’s why it’s important to make sure your information is correct. You’re entitled to a free credit report once a year from each of the three credit bureaus.

Breakdown of Credit Scores and What They May Mean to You

700+ Credit Score – Excellent

A credit score over 700 means excellent or very good credit. Basically, the higher the score the lower your rate because you’re considered less risk to the lender. Your credit is or near flawless!

680 – 699 Credit Score – Good

A score in this range means good credit. You should be able to qualify for most loans but you may be paying a slighter higher rate than those offered to borrowers with excellent credit. You may benefit from a professional credit analysis.

620 – 679 Credit Score – Fair

Although a credit score in this range is still considered okay by many lenders, you may not get approved as easily as a borrower with a higher score. You probably won’t qualify for the best rates either. Your credit may benefit from credit repair.

580 – 619 Credit Score – Poor

Scores in this range are below average (subprime) and you’ll have a tough time getting a loan or even a credit card. If you score in this range you should work to improve your credit score because you’ll be paying higher interest rates just to get credit approval. Your credit is in need of repair.

500 – 579 Credit Score – Damaged

A credit score in this range usually means you’ve had a collection, charge-off, a foreclosure or a bankruptcy. Your credit is in need of repair.

How to Shop for a Mortgage

How to Shop for a Mortgage

Keys to Getting the Best Home Mortgage Loan

It’s always smart to get a few quotes on a major purchase. Taking out a new home mortgage loan is no different. Our experience has shown that most customers are fairly knowledgeable about current rates and willing to make a few calls to “shop around”. But calling around for just the numbers won’t guarantee you will win in the end.

Meridian Home Mortgage has created this Mortgage Shopping Guide as a way to cut through all the numbers – not only identify your best value but place you with the best home mortgage company as well.

1. Check Your Credit Score Before Applying
2. Find a Loan Officer that Will Work for YOU
3. Compare Offers!