Understanding the ‘Free’ in ‘Free Credit Report’ – Part II
Credit Reports versus Credit Scores
Another common area of confusion for consumers is understanding what information they are entitled to at no cost. Although credit reports are provided free of charge, credit reporting agencies are permitted to charge consumers who are seeking both a credit report and a credit score. Because the terms credit report and credit score are often used interchangeably, it is first necessary to know the difference between a credit report and credit score.
There are four general categories of information typically contained within a credit report:
(1) Personal Identification Information
(2) Credit Account History Information
(3) Credit Inquiry Information
(4) Public Record Information
A credit report does not automatically include your credit score, and requesting your federally mandated free credit report, will not also provide you with a free credit score. Rather, your credit score, which is generally referred to as a FICO score, must be obtained through either the individual credit reporting agencies (Equifax, Experian, and TransUnion) or through third-party companies. Consumers are cautioned though, that credit report requests made through third-party providers, as opposed to those which exist pursuant to federal mandate, present the risk for potential deception. For more information on this topic, click on Understanding what "Free Credit Report" means – Part I
The next inquiries that necessarily follow, then, are ‘When is a credit report sufficient?’ and ‘When should a credit score be obtained?’ The answer to these two questions is twofold. First, financial industry experts, Las Vegas Custom Loans included, would likely advise that responsible consumer practice necessitates obtaining, in the very least, an annual copy of your credit report from each of the 3 credit reporting agencies. The report in and of itself is valuable, in terms of identifying specific sources of credit issues, such as reporting errors; fraud and/or identity theft; joint and personal liabilities and debts; credit accounts in default (both personal and co-signed accounts); and quantity of open and/or revolving lines of credit. However, a credit report alone does not offer the succinct qualities that FICO scores provide by interpreting financial status through the assignment of a numerical value ranging from 300-850. This notion presents the answer to the second inquiry. Consumer need for individual numerical scores depends on the purpose for which the credit history is sought. Where a significant amount of credit is desired, credit scores are important to determining financial risk.
In addition to FICO, there are also other recognized scoring methods, such as Vantage score, which may result in further consumer confusion. For more information on FICO and Vantage scoring methodologies, please see our article entitled FICO vs. Vantage Score
What can consumers gain from this article? Firstly, consumers are advised to obtain annual copies of their credit reports from all 3 credit reporting agencies. Secondly, while checking your credit report it is important in terms of pinpointing specific credit issues and for those seeking to secure a mortgage, taking the additional step of obtaining your credit score is highly recommended.
If you have any questions or concerns about your credit report
please contact Casey Moseman at 702-271-1274