Credit scores and credit reports each play an important role in your credit life. But credit can be a complex topic, so it's not always easy to get the facts about how these two things interact with each other. Let's bust a few common myths so you can get a better grasp on how scores and reports affect your life.
Myth #1: Credit scores and credit reports are the same thing
There are a lot of misconceptions out there, but one major myth is that scores and reports are one and the same. It's an easy mistake to make, but this isn't true. There are three major credit reporting bureaus: Equifax, TransUnion, and Experian. A consumer has a credit file at each bureau. The credit file contains your credit history, which is different from a credit score.
When a consumer applies for credit, a lender requests his or her credit report from one of the bureaus. The lender then reviews the applicant's credit history. But if the lender wants to see a credit score, the lender must request it from the same bureau.
Myth #2: Credit scores are listed on credit reports
This is a misconception that often results in other incorrect statements in the media. There have been some media reports that employers are looking at credit scores when making hiring decisions. The truth? An employer can't see your score when reviewing a credit report. This should make a few people relax. Well, unless your credit history has a lot of problems!
Credit reports list personal information, such as your address, birthday, Social Security number, and employment history. The reports also show credit card account information, mortgages, and other credit-related activity. Credit reports also show problems, such as bankruptcies, judgments against you, and if there have been any late payments made. But there are no credit scores listed on credit reports. Your options are to buy a FICO score at myFICO.com or to use one of the free scores on the Internet. Check out My LendingTree to get your free credit score, which is easy to access and understand.
Myth #3: Checking your credit report lowers your credit score
There are two types of inquiries: hard inquiries and soft inquiries. Sometimes, you'll also hear these referred to as "hard pulls" and "soft pulls." Inquiries and pulls refer to the same thing. It's just a matter of semantics!
A hard inquiry happens when you apply for credit and a lender pulls your credit report from one of the major credit bureaus. In this case, the lender intends to review a credit report to determine if the application for credit will be accepted or denied. Here are a few examples: applying for a credit card, a mortgage, and a car loan. Generally speaking, a hard inquiry might lower a credit score by two to five points. But it's also possible that it won't have any impact on credit scores.
Now, a soft inquiry doesn't impact your credit score at all. When you check your own credit, this is a soft inquiry. Here are a few more examples: an employer checking your report after you've applied for a job, someone checking your credit report for the purposes of confirming your identity, a credit card company compiling a list of consumers to receive a pre-approved offer or an insurance company just doing a background check.
It's a good idea to check credit reports regularly to look for fraudulent activity and to make sure there aren't any errors on your reports. Go to the official website to obtain free credit reports: AnnualCreditReport.com. Plan on getting a free report once every four months so you can keep an eye on your credit history throughout the year.