Credit Reports vs. Credit Scores: Part 2

Credit Reports vs. Credit Scores: Part 2

 What’s The Difference?

Continued from Credit Reports vs. Credit Scores: Part 1, this section focuses on a few common misunderstandings about credit scores.

The most common misunderstandings about credit scores involve (but are not limited to) the following:

Your credit score is a single number: In the US, there are three major credit bureaus that collect and maintain credit information: Experian, TransUnion and Equifax. Each bureau has its own specified and customized formula to determine your final credit rating. Banks, lenders and insurance companies also have their own models for computing their clients’ credit scores; therefore, your credit standing can vary from one evaluator to another. There are also a number of consumer scoring services available that utilize similar, though different algorithms to calculate your credit scores.

More money means a higher credit score: Income is not included when looking at your credit scores. The scores reflect how well you manage your credit regardless of your income.

Credit scores go down when checked: There are two types of inquiries – soft and hard. A soft inquiry is when you check your own scores through a third party service. You can check your own scores as often as you like, without negatively impacting your credit standing. A hard inquiry on the other hand happens when a third-party source checks your credit information. For example, if you’re securing a loan to buy a new car, the car dealer may check your credit information at one or more of the three major credit bureaus. This would reflect on your credit reports at one or more of the bureaus. Too many hard inquiries in a short amount of time could adversely impact your credit rating and scores. 

Keep a close eye on your credit reports from each of the bureaus and be mindful of the elements listed above. All in all, it can take a bit of patience and vigilance, but you’ll be rewarded with peace of mind and possibly a stronger credit standing.