Credit Report vs. Credit Score: Do You Know the Difference?

Credit reports and scores remind me a lot of the Abbott and Costello act, "Who's on First?" They can be rather confusing. But while "Who's on First" is funny, confusing your credit report and credit scores is not. In fact, mistaking the two could end up costing you.

Not only are credit reports and credit scores different, they are often used for different purposes. However, because the two are directly related, it can be easy to confuse the two, their purpose and potential effects on your finances.

So let's sort out Who's on first and What's on second when it comes to credit reports and scores.

What is a credit report? Your credit report contains information detailing your credit history. This information can come from a number of sources, including lenders, utility companies and landlords.

This information is compiled by one of three major credit-reporting agencies: Equifax, Experian and TransUnion. These companies try to compile an accurate picture of your financial history. Credit files include information such as:

-- Name, address and social security number

-- Types of credit you use

-- When you opened a loan or line of credit

-- The balances and available credit on your credit cards and other lines of credit

-- Information about whether you pay your bills on time

-- Information about any accounts passed to a collection's agency

-- How much new credit you've opened recently

-- Records related to bankruptcy, tax liens or court judgments

While the credit-reporting agencies do their best to keep your record free of errors, slip-ups do happen. That's why it's important to check your credit report at least once a year (consumers are entitled to one free credit report every 12 months, available at to ensure all of the information is correct. Keep in mind that each agency may have slightly different information and, consequently, may have errors another credit report doesn't.

It's important to know, however, your credit report does not include your three-digit credit score.

What is a credit score? Your credit score is the actual numerical value assigned to the information in your credit report. A credit-reporting bureau applies a complex (and proprietary) mathematical algorithm to the information in your credit file to generate your numerical credit score.

While there are numerous credit-scoring formulas, FICO is the most-widely known and used by many creditors. Your FICO score can range from 300 to 850, with under 400 being quite low and 700+ putting you in the healthy range. Your credit score is meant to give potential lenders an idea of how big of a financial risk you are. In their eyes, the higher your score, the less likely you are to default or make late payments.

Credit-scoring algorithms calculate this likelihood by weighing certain items that are more likely to predict future delinquency. With FICO's, for example, your past payment history makes up 35 percent of your score. Recent late or missed payments on a credit card lower your credit score.

What else goes into your FICO score, and how much does it affect your score? Here's a quick breakdown:

-- Debt amounts (especially on revolving lines of credit): 30 percent

-- Length of credit history: 15 percent

-- Credit mix (having a blend of account types is good): 10 percent

-- New credit: 10 percent

Unlike your credit report, you can't always get your credit score for free. When you order a free credit report, you'll usually have an option to buy your numerical credit score for $7 to $12. There are services, such as Credit Karma, that will provide you with a credit score for free, but this number is only an estimate--it's not necessarily the credit score FICO and other agencies may have.

What are they used for? If you apply for a loan, the lender will most likely pull your credit score. (This causes a "hard inquiry" on your credit, which slightly lowers your credit score.)

Lenders glance at your credit score to determine your credit risk. Most lenders, in fact, have pre-set standards. If your credit score is within a certain range, they'll offer you certain credit terms, all other things being equal.

While lenders will pull your actual credit score, your credit report may be used for other purposes. For instance, potential employers can pull a copy of your credit report (with your permission). Often, they'll look to see if you're responsible with your finances, which may mean you'll be more responsible on the job.

The bottom line. Now that you know the difference between your credit report and credit score, take steps to improve both. Check your credit report regularly for errors, make all your payments on time and avoid maxing out those credit cards.

Rob Berger is an attorney and the founder of the popular personal finance blog, the Dough Roller, where he writes about personal finance and investing. He covers credit reports and scores extensively.

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