If you routinely check your credit reports for changes, then kudos on developing a great habit. Keeping a close eye on your credit reports is a great way to ensure the information is accurate and that you haven’t become the victim of identity theft. And if you check your reports often from any of a variety of websites that are willing to give it to you at no cost, then you’re probably also getting your credit scores as well.
If you’re getting your scores from different websites or credit card issuers, you’ve probably noticed that your scores vary, perhaps slightly and sometimes significantly. However, while your credit scores may certainly be different today from the credit scores you viewed the last time you checked them, the truth is that your credit scores do not actually change.
The Difference Between Credit Reports and Credit Scores
First things first. It’s important to understand that your credit reports and your credit scores are not the same. They are different products entirely, sold by different companies, for different prices, and used for different purposes. A credit report is actually a record of your credit management history over a period of time. Conversely, a credit score simply interprets the data on your credit report into an easy-to-use three-digit number that predicts your level of credit risk.
Your Credit Scores Never ‘Change’
The idea that your credit scores change from time to time is actually a myth. This particular credit myth stems from a misunderstanding regarding how credit scoring actually works. Unlike the information contained on your credit reports, credit scores themselves are not actually a part of your reports.
I know this may be confusing, so let me explain how it works. The data on your credit reports (mortgages, credit cards, loans) is updated quite often, normally monthly. For example, your credit card balance may be updated to show a higher amount than you carried the previous month or a new late payment might have appeared on your auto loan this month.
And while your credit scores are completely dependent on the information contained in your credit reports, it isn’t changed as new information hits them. Simply put, your score isn’t a constantly changing number that is perpetually connected to your credit reports.
Recalculating a Credit Score
It may sound like semantics, but instead of your credit scores changing, they are actually recalculated each time they’re purchased by a lender. Whenever your score is calculated, it’s delivered to the purchaser (for example, a lender), but no record of that score is maintained on your credit reports. Instead, your scores are calculated, delivered, and tossed out.
The next time you or someone else requests a copy of your credit scores, they will be freshly calculated and based on the data as it presently appears on your credit reports. Your credit scores are simply a snapshot which reflect your level of credit risk at that very moment in time.
This is actually why the Federal law passed in 2003 that entitles all of us to free annual credit reports doesn’t actually apply to credit scores. So, when you claim your annual freebie through www.annualcreditreport.com, you won’t simply be given a credit score, because it’s not technically a part of your credit report. It’s instead an ancillary product that’s sold along with credit reports.