“John, I’ve read where you undress people who say credit scores are used by employers and then you get on them for using credit reports and credit scores as if they were the same things. Isn’t the just semantics?”
The terms “credit report” and credit score” are often used interchangeably and doing so is incorrect because they are not, at all, the same thing.
To give you a short history lesson, credit reports have been in existence for over one hundred years and contain information about the credit experience of an individual. As people became mobile, businesses didn’t know everyone personally and ended up contacting other companies to get credit reference information on individuals. The credit bureau was born!!
Credit reports contain personal data, credit information, public records and inquiries. Personal information includes name, address (current and former), date of birth, social security number, and employers (current and former). Credit information includes loans (auto, student and mortgage), credit cards (retail, oil and bankcard) and collection accounts. Public records include bankruptcies, tax liens, and judgments. Inquiries include the list of companies with which you have applied for credit.
This information is supplied to the credit reporting agencies by credit card issuers, banks, financial institutions, mortgage lenders, student loans lenders, auto finance companies, collection agencies, and companies that collect public records from courthouses. The three major U.S. credit reporting agencies are Equifax, Experian and TransUnion.
Credit scores are numerical values assigned to credit information that predict credit behavior. The most common credit scores predict delinquency or that someone will be late 90 days or more on an account in the next 2 years. Credit data is used to determine which credit information is predictive of future delinquency; this data becomes the components into the score. The result is an algorithm/formula that computes a three-digit score, with the higher the score the lower the credit risk. Four explanations or reason codes/score factors explain the key reasons the person did not receive the highest score. The score does not replace the credit report, but provides a summary of the credit information.
Since this formula is run against the credit report to calculate a score, you must have a credit report to receive a credit score. There are minimum requirements for a credit report to be scored. For FICO scores, there has to be one undisputed account at least six months old, and has been updated in the last six months. For VantageScore 3.0, there has to be one account with activity in the last twenty four months which has been opened for at least one month. Vantage also uses non-traditional credit data when active account data is not present to score a credit report.
Credit scores are not automatically delivered with a credit report. In fact, you can have a credit report without a score but you can’t have a score without a reporting being first generated. And, if this doesn’t convince you that the two are mutually exclusive I’ll defer to the Fair Credit Reporting Act, which actually defines the two items.
A credit report is actually an example of a “consumer report”, which is any communication provided by a consumer reporting agency bearing on a consumer’s credit worthiness which is used for the purpose of establishing someone’s eligibility for credit, insurance, and employment, among other things. There is NO mention of the credit score in that definition. A credit score is defined as numerical value, used by someone who arranges a loan, to predict the likelihood of certain behaviors, like default. There is NO mention of the credit report in that definition.
So no, it’s not semantics. Credit reports are not credit scores and credit scores are not credit reports.
Credit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and CreditSesame.com, founder of www.creditexpertwitness.com, and a Contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. You can follow John on Twitter here