This blog post will explain the difference between Credit Reports and Credit Scores.

Your ability to get a loan or a new credit card depends on what your credit report reveals and what your credit score says.  Your economic happiness depends on them!

The first thing you need to know is what a credit report really is.  Since you might be seeing new words and terms, just click on the highlighted ones to read definitions of them.


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Most of us probably know what a Credit Report is.  Some would say that your life is in the hands of your bank and other lenders and your children’s ability to use your credit card at the mall and their happiness depends on what your credit report says.

Investopedia provides a good definition of a credit report being a detailed report of your credit history collected by credit bureausLenders use this information to determine whether it is worth the risk to provide you with a loan because they think you are “credit-worthy”.  There are only three major credit bureaus: Experian, TransUnion, and Equifax in the U.S.

Your credit report includes your full name, social security number, previous and current addresses, and employment history.  Each report summarizes your credit history including how many of your accounts are past due or in good standing.  Your credit card accounts are detailed regarding the highest balances, dates the accounts were opened, and credit limits.  Past and current problems with your credit accounts are listed such as wage garnishments and liens.  If credit agencies have attempted to get you to pay debts, that information will also be included in your credit report.

In other words, how quickly do you pay your bills?  Do you pay them on time and in full?  Have you been late with your payments?  Has anyone hired collection agencies to contact you about debts you owe?  Has a lawsuit been filed against you?  Did you ever go bankrupt?  All of this information helps lenders with deciding what risks are involved if they give you a loan.  If a credit card company gives you a credit card will you pay in full on time every month?  Or, can you be relied upon to make partial payments every month so they can charge you late fees and interest to make more money off of you without your filing for bankruptcy or disappearing?  As you can see, poor risks don’t qualify for loans and you want to be known as an “upbeat” and not a “deadbeat”.


To make it easier for you to read your credit report, they are normally divided into four sections.  Your personal information will be at the top of the credit report.  Sometimes, you may notice different variations of your name or social security numbers which usually means that information was reported incorrectly by a lender.  This misinformation needs to be deleted from your credit report to avoid confusion with anyone accessing your credit report.  A debt repair company can help you with making corrections in your credit history so your credit report is accurate.

The second section consists of detailed information regarding your lines of credit accounts.  These include all of your credit card accounts and any banks who extend you credit whenever you need it.  The third section consists of any negative public records like a bankruptcy, liens, or court judgments (even small claims court).  Finally, the last section includes a list of every company, agency, or individual who recently obtained a copy of your credit report.

As you can see, your credit report is supposed to have the history of every company, institution, or legal entity who extended credit to you or loaned you money and how well and fast you paid them back.  It includes people or companies who filed lawsuits against you to recover money you owed them.  Also, any marital divorce you went through will be included.  In addition, your credit report will also include negative information about you which is known as “derogatory” which includes delinquent or late payments, charge-offs (write-off), accounts sent to collection, and accounts settled for less than the full amount owed.  These derogatory items allow lenders to extend credit to you on less than favorable terms like high interest rates or additional fees.  Derogatory items can remain in your credit report for as many as 7 to 10 years depending on what state you live in.


Credit Scores

A credit score is a number based on an analysis of your credit report history which indicates your “creditworthiness”.  Instead of spending time reading your entire credit report; banks, credit card companies, and other lenders simply look at your credit score before deciding whether to make a loan for you or to give you a credit card.  Lenders and credit card companies worry about your ability to pay all your debts on time.  If you are a bad debt risk with a low credit score, don’t be surprised that your loan will not be approved.  Lenders also rely on your credit score to determine how high the interest rate and the credit limit will be when they grant you a loan.  A high credit score indicates that you are “trustworthy” by being a good risk in regards to paying off your loans on time.

It’s not just banks and credit card companies which rely on your credit score.  Insurance companies, mobile phone companies, landlords, and government agencies rely on your credit score too.  For instance, your future landlord will want to know how trustworthy you are and if you can afford the rent and pay it on time.

Each of the three credit bureaus has their own system for creating your credit score.  If a lender obtains your credit score from two or all three bureaus; most lenders will average all of the scores into a middle (average) credit score.  Car dealers, landlords, and others may just obtain one credit bureau’s credit score and use that one.



The most popular credit score is the FICO score formerly known as the Fair Isaac Corporation Score.  Your FICO score is based upon information collected by credit reporting agencies which calculate it into a formula where the higher the number, the better risk you are with paying back a loan on time.  Most mortgage lenders use the FICO score.  Banks use your FICO score when deciding whether to approve your savings and checking account applications.

Surprisingly, all three credit bureaus have their own credit scoring system, which are similar.  That’s because they do not always have the same information in your credit history or may feel some information is more important than others.  In addition, different information may be regarded as more important for a car loan than for a home mortgage.

There is also the VantageScore system which is considered an alternative system to the FICO Score.  Lenders found that the FICO Score served certain types of loans better than others.  The VantageScore may have advantages for loans other than bank loans and home mortgages.  VantageScore is a new competitor to the long established FICO Score.  While VantageScore has risen in popularity over the past few years, the FICO Score system is still used by 90% of all lending decisions with 90% of the largest U.S. financial institutions, according to ABC News.


Besides, the three credit bureaus, FICO, and VantageScore; there are additional credit score models geared specifically for different industries. explains the most popular of these alternative credit score systems in its article, “Know About All the Different Credit Scoring Models”.


(1) The Experian National Equivalency Score was created by Experian using a score ranging from 0 to 1,000 where a 100 means you have a 10% chance of one of your accounts becoming delinquent within two years.  A 900 score means you have a 90% chance of being delinquent in at least one account within two years.

(2) The TransRisk New Account Score was created by TransUnion, determining an individual’s risk on new accounts, rather than existing accounts.

(3) CE Credit Score was created because its creator was unhappy with how credit customers paid for their credit scores but the way the score was determined was hidden.  The CE Credit Score is available for free at Quizzle.

(4) The CreditXpert score was created to help businesses approve new account applications by inspecting credit reports for false information or for ways to raise its scores quickly for approval.  The idea behind this credit score is that failing to approve 100% of all credit applications is like leaving money on the table.

(5) The Insurance Score made specifically for the insurance industry better determines whether you are a high risk insurance policyholder.  Insurance companies use different scoring systems for the many types of insurance available (auto, fire, liability, life, etc.).



You have probably heard of the Google algorithm which uses a formula to determine which web pages and blog posts provide the best answers and information for whatever a person types during a Google search.  Credit scores also use an algorithm.

Quora published an article, “What is the algorithm used to calculate credit scores?” explaining that credit scores assign a number for each category it looks at like amounts owed, credit history, new credit, payment history, and credit mix (different types of credit).  The highest number assigned to each category by importance can be lowered by your negative actions.  For instance, if your payment history begins with a “35” and you fail to make one payment, that number may be lowered to “33”.  The more late or delinquent payments will continue to lower that number.  That goes for each category.


credit score-ranges

The highest FICO Score you can achieve is 850.  The closer you can get to 850, the better the chance of getting your loan approved at a low-interest rate.  The same goes with credit cards, a high FICO Score enables you to get your credit card application approved with a higher credit limit.

The latest version of Vantage Score is called the “VantageScore3.0” which also has its highest score at 850.  The VantageScore 3.0 looks at six factors to determine your score:

  1. Payment history: How well did you do with making your past payments? Late payments are penalized.
  2. Credit type and age: What kinds of credit do you have? Older credit accounts are better rated than new ones.  Different types of credit also get higher points which show variety in your credit history.  That’s because lenders like to see many different types of credit showing you can manage your finances with different accounts by paying them on time.

The different types of credit are explained below:

(a) Installment credit where you pay a fixed monthly amount (or more) until the principal is fully paid.  Auto loans, mortgages, and student loans are examples.

(b) Revolving credit fluctuates on the amount of credit available to you and how much of it you choose to pay every month.  Credit cards and department store cards are examples.

(c) Unsecured credit where no down payment or collateral is offered.  Retail and credit cards are examples.  The problem with this type of credit is when your debt-to-credit ratio is too high which causes your credit score to be lowered.

What is a secured credit card

(d) Secured credit is loans secured by some asset like your car or home.  This type of credit is considered a safer risk because the asset can be seized if you fail to pay and default.  For example, defaulting on your car loan gives the lender the legal right to repossess your car.

(e) Short-Term loan is a cash advance for a short period of time.  If secured by your next paycheck, it known as a “pay-day loan”.  Since this is considered a risky type of credit, the interest rate is higher.  Failure to pay this type of loan right away results into further debt which causes your credit score to be lowered.

  1. Credit usage: Instead of scoring points for having a high credit limit, this score looks at how much credit did you actually use? If you are very close to maxing out on your credit limit, you lose points.
  2. Debt balance: How much total debt do you carry? Lowering your total debt gains you more points. Your debt balance should always be lower than 30% of the credit limit.  If your debt balance goes over 30%, your credit score will be lowered.
  3. Available credit: How much available credit do you have? This is where maxing out on your available credit loses points.  The higher your available credit, the better it looks for your credit score as long as you pay on time and do not “max out”.
  4. Recent behavior and inquiries: If a lot of inquiries have been recently made about your credit, it raises concerns that you may be in a tight financial situation. While the more auto dealers, landlords, insurance companies, banks, and lenders check on your credit report and score can negatively affect your credit score; when you check on your own report or score, it is not an “inquiry” and does not negatively affect your score.


Your credit score is lowered every time a “derogatory” item occurs.  Late payments, delinquent (overdue) payments, liens, bankruptcies, court judgments, collections, auto repos, and lender charge-offs (write-offs) all contribute to your credit score being lowered.  Avoid these types of actions to keep your credit score higher.  The more recent derogatory items lowers your credit scores more than the older ones.



NerdWallet recommends the FICO Score because it is more likely to be used in big lending decisions.  More home mortgage lenders use the FICO Score than VantageScore, according to NerdWallet.  That’s because the federal government agencies dealing with mortgages, called “Fannie Mae” and “Freddie Mac”, require their lenders to only use the FICO Score.

Accessing credit reports

The federal Fair Credit Reporting Act law entitles you to a free credit report from any of the three credit bureaus within 60 days of any bad actions taken against you like being denied credit resulting from your low credit score.  You are also entitled to one free credit report once a year.  You can receive a free copy of your credit report from  However, the law only allows you to receive the credit report and not your credit score.  Whenever you want to receive a copy of your credit score you will have to pay for it as this is another way that these credit bureaus make money.


Due to the expense of purchasing more than one credit report per year, private companies (including membership ones) have cropped up offering free credit reports whenever you want.  The most popular is called Credit Karma.

Credit Karma has become popular as a free credit and financial management website for U.S. consumers.  It was founded in 2007 and provides free credit scores and credit reports from the three U.S. credit bureaus.  Estimates are that Credit Karma had 50 million members in 2016.

One reviewer of Credit Karma questions the reliability of the Credit Score they provide for free to their members.  “Credit scores are not free” claims Finance Gourmet as banks pay for them, as well as, car dealers and others accessing credit scores.  Credit Karma uses the Vantage 3.0 credit score systemFinance Gourmet points out that this is not the credit score used by “most banks and lenders” who rely on the FICO Scores and not the Vantage 3.0 scores.  This is their main complaint about Credit Karma.  While the Vantage 3.0 credit score is good for monitoring your score to see if it is going up or down, your FICO Score is more important to know in order to get a loan and a mortgage.

Another review of Credit Karma was provided by Investopedia.   The reason why Credit Karma can give you a free Vantage 3.0 credit score is because they make their money by learning more about you.  They can charge their advertisers more for placing their ads streamlined according to your tastes.  While Credit Karma is free to use, expect to be bombarded by advertisements customized to what Credit Karma tells their advertisers are your needs and desires.  Investopedia also points out that their Vantage Score 3.0 is not as good as your FICO Score.

The Better Business Bureau (BBB) investigated Credit Karma where its San Francisco headquarters is located.  The BBB notes that Credit Karma is not accredited by them.  In addition, they point out that Credit Karma settled charges against their company with the Federal Trade Commission (FTC) on March 28, 2014 (file number 132-3091).  The FTC went after Credit Karma for failing to secure their mobile apps where members’ personal information was at risk from hackers.

Another website run by the U.S. Consumer Affairs Agency has 19 reviews about Credit Karma.  As recent as last January 13th, consumers complained about being locked out of the Credit Karma website without any prior notice.  Another consumer on January 11th, complained about Credit Karma’s Credit Sore being inaccurate resulting in her loan being rejected. Her banker recommended “never to rely on” Credit Karma.

Another consumer complained last January 7th, that Credit Karma’s free credit score was 100 points higher than the real credit score.  She was advised that Credit Karma’s credit scores are “always much higher” than the real credit scores.

Most of the remaining complaints to the Consumer Affairs Agency involved “wildly inaccurate” credit scores which were inflated to make the consumer appear qualified for a loan when he or she was not qualified.  Others complained about Credit Karma’s poor customer support.

CONCLUSIONCredit report vs credit scoreThe difference between Credit Reports and Credit Scores are clear.  A credit report is a summary of your credit history.  A credit score is a formula which calculates information in your credit report and comes up with a number score as to how creditworthy you are.

The FICO Score was the only formula used by all the banks and lenders in the U.S. for many years.  Then the VantageScore formula came along which is fairly new and not as popular as the FICO Score which is still used by 90% of the lenders in the U.S.

You can obtain one credit report per year for free or when there is a negative action taken by a lender because of your credit score.  However, in most cases, you can’t obtain your credit score for free.  One big exception is the credit score provided for free from the Credit Karma Company.

They cannot provide you with a free FICO Score, but only a free VantageScore.  While this may help you with keeping your eye on the rise or fall of your credit score, it will not help you with most loans, or getting approved for credit cards or rental properties.

That’s because 90% of loans like a mortgage or bank loan still depend on the FICO Score.  So, if you want to monitor activity with your account with Credit Karma, remember that their credit score is not the same one used by most lenders who still rely on the FICO score. You should go to another source for monitoring your FICO score.

Have you obtained a copy of your credit report lately?  If you notice any errors or would like to have any debt collections, tax liens or late payments which corrected or deleted you should Sign Up for your Free Credit Strategy Session today!

Legal Disclaimer – Credit Repair Heroes does not provide legal advice.  The information provided in this blog are for informational purposes only and not for the purpose of providing legal advice.  The author is not a lawyer and no attorney-client or confidential relationship exists or will be formed between you and Credit Repair Heroes or the author.  You should contact an attorney to obtain advice with respect to any particular issue or problem.