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3-bureau-credit-reports-and-scores

Credit Report vs. Credit Score - What's the Difference?

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Credit Report vs. Credit Score - What's the Difference?

Credit Reports versus Credit Scores

Let’s face it, for most people the world of credit can be a very confusing place. If you can’t explain the difference between a credit report and a credit score, you are not alone. People often use the terms “credit reports” and “credit scores” as if they were interchangeable. However, credit reports and credit scores are two totally different animals. Here is a crash course in credit terminology to help you make sense of this confusing topic and turn you into the super savvy consumer you always wanted to be.

Credit Reports

There is not merely one, but rather three major credit bureaus who compile data from lenders, credit card companies, collection agencies, public records, etc.  The credit bureaus are Equifax, Trans Union, and Experian. The data is compiled into credit files which are then used to generate credit reports (basically user friendly versions of the credit files themselves). In fact, the credit bureaus compile credit data about millions of consumers and sell credit reports to lenders and directly to consumers themselves.

If you have not checked your credit reports in a while, it is a good idea to do so right away. After all, it is ultimately your responsibility to monitor your credit reports for errors and for fraud. You can access a free copy of each of your credit reports (NOT your credit scores) each year at www.annualcreditreport.com. Credit reports do not exist to judge your credit management history, but rather to simply lay out the facts regarding how well you manage your debts.

Credit Scores

Contrary to popular belief, the credit bureaus themselves do not calculate your credit scores. Where a credit report simply lists a record of your credit management history, a credit score actually exists to evaluate and rate that data into an easy to understand number for lenders. A low number indicates that the consumer has a history of poor credit management. A high number indicates the opposite.

The original and most popular credit scoring model by a huge margin is FICO. In 1989 FICO partnered with Equifax to introduce the first credit bureau FICO risk score. The purpose of a FICO credit score is to predict risk – specifically the risk of the consumer going 90 days late on any account within the next 24 months. Today, FICO builds credit scoring software and installs it on the mainframe of each of the 3 major credit bureaus. The credit bureaus will use FICO’s software to calculate their own credit data and then sells the credit reports with credit scores to lenders. FICO receives a royalty from the credit bureaus for the use of the software.

FICO credit scores range from 300 to 850. If a consumer has a low credit score then the data in the consumer’s credit report indicates that there is a high risk involved with loaning money to that consumer. If a consumer has a high credit score then there is a low risk involved with loaning money to that consumer.

As mentioned above, consumers are currently not entitled via federal law to receive free copies of their credit scores annually. (Note: if you apply for a mortgage then mortgage lenders are required by law to show you all 3 of your credit scores that were pulled for the mortgage application.) Still, there are several places online where you can receive free educational credit scores (not the same scores as the ones used by lenders) or a free score from one of the bureaus individually. You can also view your credit scores, often initially for free, as a benefit of signing up for monthly credit monitoring services. Beware, many monitoring services will only all you to see your credit score from one and not all three of the credit bureaus. CLICK HERE to access a great comparison site where you can check out the benefits of several different credit monitoring services before deciding which option is right for you.


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Michelle Black is an 12+ year credit expert with HOPE4USA, the credit blogger at HOPE4USA.com, a recognized credit expert on talk shows and podcasts nationwide, a contributor to the Wealth Section of Fort Mill Magazine, and  a regularly featured speaker at seminars up and down the East Coast. She is an expert on improving credit scores, budgeting, and recovering from identity theft. You can connect with Michelle on the HOPE Facebook page by clicking here. 


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3 Steps to Protect Your Credit after the Target Data Breach

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3 Steps to Protect Your Credit after the Target Data Breach

The reported number of consumers who were victims of the Target data breach is continuing to rise. Original estimates indicated that 40 million Target customers had their payment information compromised. Now, reports are as high as 110 million consumers who may be victims of the data breach – a breach which includes personal data in addition to payment information. Whether or not we ever know the real number of victims, we can be sure that the data breach is the largest in history.

If you shopped at Target over the holidays then your data was almost certainly compromised. However, it appears that the damage may be even more severe than originally believed. In fact according to several reports, Target customers who had their information stolen may include online shoppers and customers who have shopped at the store at “any point in the past.” Concerned that you may have been a victim of the data breach? Here are 3 steps that you may wish to consider to protect yourself from future fraudulent activity.

1. Step One: Get new credit cards, debit cards, and PIN numbers…yesterday!

Banks are currently issuing millions of new debit cards and credit cards to their customers in the wake of this enormous data breach. Yes, changing your PIN numbers and plastic may be a bit of a hassle but it is nothing compared to the hassle which comes along with fighting fraudulent charges or identity theft. You might have to make a few calls to update your payment information for any reoccurring bills (i.e. gym memberships, satellite television, coffee of the month club, etc.) but the hassle is well worth the protection it will afford you. If any fraudulent charges do occur you will want to be sure to call your bank immediately to alert them. Next, take a deep breath and try not to freak out. You can rest assured that, as long as you notify your bank in a timely fashion, you will not be responsible for the fraudulent charges thanks to a number of consumer protection laws. You should not have to lose a penny out of your pocket.

2. Step Two: Consider a credit freeze, but count the cost.

A credit freeze is a proactive way to help protect your credit reports before identity theft occurs. (NOTE: a credit freeze will protect your personal data, but not your credit card or debit card information.) When you freeze your credit reports you are actually taking the reports out of circulation. Therefore, no future lender will be able to access your credit reports when taking an application for a loan or a credit card. If a scam artist is trying to steal your information to open fraudulent accounts a credit freeze will stop him in his tracks. Keep in mind that you will want to freeze your credit reports with all 3 credit reporting agencies – Equifax, Trans Union, and Experian. There is a small fee to freeze the reports per credit bureau, but that fee can be waived in most states if you have already been the victim of identity theft. It is also possible for you to contact the credit bureaus to remove the freeze from your reports if you need to have your credit pulled for a legitimate purpose in the future. Credit freezes are certainly a hassle, but nothing compares to the effectiveness of a credit freeze for preventing identity theft from occurring.

3. Step Three: Consider credit monitoring, but recognize the limitations.

Credit monitoring offers a reactive type of protection for your personal information. However, like the credit freeze, credit monitoring does not offer any protection from fraudulent charges on your debit cards or credit cards. Credit monitoring does not actually do anything to prevent identity theft either, but rather informs you that identity theft has already occurred. Target recently announced that it will be offering free Experian credit monitoring to the victims of its data breach for one year. Unfortunately, credit monitoring with one credit bureau is simply not enough to help identity theft victims properly monitor for fraudulent accounts since it is important to monitor all 3 credit bureaus for any unauthorized changes. (CLICK HERE to compare a list of credit report and credit score monitoring services currently available.) Being the last to know that your information has been stolen is not always terribly helpful. However, it is certainly better to know last than not to know at all.


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About the Author

Michelle Black is an 12+ year credit expert with HOPE4USA, a published author, the credit blogger at www.HOPE4USA.com, a recognized credit expert on talk shows and podcasts nationwide, a contributor to the Wealth Section of Fort Mill Magazine, and  a regularly featured speaker at seminars up and down the East Coast. She is an expert on improving credit scores, budgeting, and recovering from identity theft. You can connect with Michelle on the HOPE Facebook page by clicking here.  

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