Learn about the intricacies and differences between credit scores and your credit report in Erin's three-part blog series on "Understanding the Credit Landscape". Erin also includes some tools and tactics for managing each!

This week, Erin the Expert explains the differences between a credit report and a credit score. Let's take a look!

Understanding the Difference between Credit Reports & Credit Scores

Many people do not understand that there’s a difference between your credit report and your credit score. A credit report is a repository of an individual’s credit profile, maintained by the three credit bureaus: Transunion, Experian and Equifax.

The credit report contains a listing of the following:

• Listing of all businesses extending loans and credit

• Initial loan amounts (or credit limits)

• Current balances

• Payment history, i.e. payment amount and if the account was paid on time or late

• Hard Inquiries (more on this later)

• Previous addresses

• Employment history

• Credit blemishes (aka as derogatories) such as late payments, collections, bankruptcy and foreclosure

Let's get back to credit scores. Credit scores are formulas that use information on your credit reports maintained by the 3 credit bureaus that we mentioned before. A score is rendered for each that identifies the quality of your credit profile for particular purposes.

There are many scoring models, but the two main methods are FICO and Vantage. FICO is the scoring model used by the mortgage industry, specifically Revision 9 which was introduced in 2017. FICO9 includes trended data, which is a historical analysis of credit payment “behavior”. Vantage, on the other hand, renders different scores than FICO. This model weighs different aspects of your credit report.

Although services like Credit Karma give you your Vantage score, these scores are not valid for mortgage qualification. The best way to be proactive and ensure the highest credit score possible is to monitor and manage your credit reports as there can be inaccurate information -It’s best to clear up any errors quickly.

How can inaccurate information end up on your credit report?

Some typical examples include:

• Common and family names (example: John Smith and John Smith Jr.)

• Collections you’re unaware of such as: medical and fraudulently opened accounts

The only way for you as a consumer to get an accurate report directly from the three bureaus at no cost is through FreeCreditReport.com.  This is the only site approved by the federal government and it allows you to obtain your reports on a yearly basis.

Stay tuned for next week's blog, Part 2: Misunderstandings & Realities of Credit Scoring.