When it comes to credit reporting and the three credit bureaus, there are a lot of myths floating around. Far too many people, including media and politicians, repeat something they heard and suddenly it causes wide-spread panic amongst consumers. Some of the confusion begins
because “credit reports” and “credit scores” have been used interchangeably when they are not.
To clarify, a credit report is a record of your payment history and the accounts that you have, both past and present. A credit score is a numerical representation of your credit report using a FICO scoring model to assign the value. With that in mind, the following are some of the more persistent myths related to credit reporting.
FICO Sells Your Credit Report and Scores
Many people believe that because FICO created the formula for scoring a credit report, it is also responsible for selling the credit report to lenders and for scoring the credit reports directly. This is not the case. Credit bureaus are solely responsible for selling credit reports and scoring those reports. FICO provides the software which contains the formula for calculating credit scores, and when a report and score are requested, the credit score is calculated at that time. It is then sold to the consumer or lender making the request by Experian, Equifax, or TransUnion.
Credit Scores are Static
Many people believe that because a credit score can take time to improve, the scores must be static. Unfortunately, that isn’t true. Credit scores are “real-time,” meaning they change in accordance to the FICO calculation at the moment it is run by the credit bureaus. If you have several late payments that pop up on your credit report when your score is run, your rating will decline. However, because late payments will still show up on your report, even if you pay on time the following month, your score may not increase right away because the negative pattern is still present and affects the calculation.
Credit Scores are a Permanent Part of Your Credit Report
The reason that you have to buy your credit score separately from your credit report – aside from the fact that it is income for the credit bureaus – is because the score is not a permanent fixture on the credit report. It is an ever-changing number that represents your overall credit report. These are considered two completely different and independent items, which is why you cannot get a free credit score even though you can get a free credit report.
In sum, it is important to be knowledgeable about the facts regarding credit reporting and scores. FICO is the company who created the formula for calculating credit scores and wrote the software that credit bureaus use to provide a score to lenders and consumers. However, FICO is not responsible for selling your reports or scores, and they do not provide scores.
Furthermore, credit scores are subject to change, so when you pull the score, it is in “real-time,” and based on the current state of your credit report. They are not a permanent part of your credit report which means they will go up and down based upon your actions.
For more information about your credit report and score, visit us at www.creditreport123.com.