It seems like now, more than ever, people are obsessed with their credit scores. Don’t get me wrong, you certainly want to maintain good credit, but do understand all sorts of new services and products have been introduced to monetize this nascent business.

Whether it’s helping a client refinance a mortgage, lease a new car, consolidate school loans, or secure a line of credit for a business, we have discussions about credit scores regularly.

Have you ever noticed that your credit score can differ across the systems calculating it? As you’ll come to find out, not all credit scores are created equal. In fact, credit scores are calculated in a multitude of ways and is largely dependent on the type of credit being applied for. On top of that, there are different sources providing the information that goes into calculating your credit score.

So here’s what you need to know about credit scores, and more importantly, your credit reports.

What is a credit report?

A credit report is a collection of numerous data points, gathered from your unique list of lenders and creditors over time. This data, also referred to as your “credit history”, reveals exactly how and what you’ve borrowed, spent, and repaid (or not) over time.

On a credit report there are lines of reporting called “tradelines”. Tradelines are entries from each of your creditors showing how much credit they’ve extended to you. For example, if you have two separate credit cards plus an automobile loan, this information would be presented on three separate trade lines. Take it a step further, if you pay off the automobile loan, the trade line will still exist, to your benefit, and be marked as paid in full.

Credit reports also provide historical information on past balances as well as information on how much you currently owe and repayment habits. More recently, recurring payments for items like rent have found their way onto credit reports too.

How to Get Your Credit Report

There are three separate credit reporting agencies which we’ll mention in a moment. To help protect consumers, the federal government established regulations around fair consumer credit reporting practices. These guidelines provide everyone with a free copy of their credit report each year. You may request this annual report, for FREE, from each of the three credit reporting agencies once every year. These agencies are:

Equifax

Experian

TransUnion

Some people prefer to access their credit reports all at once. Others like to review them separately at different times throughout the year. If you choose to view them at different times, consider checking one every four months. This will give you a “rolling” view of this information throughout the year.

Think of these reports as the story of your credit life. Monitoring these reports on a regular basis will assure they’re telling the truth about your financial behavior. To learn more about accessing your free credit report, visit the Federal Trade Commission’s website. Don’t be fooled into thinking you have to use a third-party vendor, pay or sign up for a separate service to retrieve your credit reports.

What is a credit score?

First things first, there are many different ways a credit score gets calculated. The type of calculation or scoring method a lender will use is specific to the type of credit you are asking for. For example, the method used to qualify for a credit card is very different from that used to qualify for a mortgage.

What all of these calculations share in common is that the source of information for scoring comes from your very own credit report. While there are hundreds of algorithms and methods for determining your credit score, your FICO score is probably the most recognized method of credit scoring

Now let’s get into the numbers. Your credit score takes certain information from your credit report and uses this to calculate a number between 300 and 850. Generally speaking, creditors use this number to assess your overall creditworthiness. Ideally you want your credit score to be at 720 or higher, the better your credit score the more likely you are to receive credit on favorable terms. If your credit score is too low, you might not qualify for the credit you are seeking on your own and the creditor may require a co-signer.

It’s quite common that your credit score will vary from each of the credit reporting agencies. Pay close attention to this. If there is a significant difference in your credit scores, you’ll want to review every trade line in the credit report that resulted in the lowest score. Do this to determine if there is false information or other errors on your credit report. If so, be sure to contact the credit reporting agency and follow their dispute resolution process in order to have it reviewed ad possibly removed.

Recently upon reviewing my own credit report, I noticed an error with one of the credit reporting agencies. I disputed the information directly with the credit reporting agency and eventually it was removed, thus improving my credit report and conversely my credit score.

While a copy of your credit report is free on an annual basis, remember that gaining access to your credit scores may not be free. In some cases, a “free” credit score may be a perk as part of another product offer.

Businesses that provide these services are doing so to make money. Expect to pay something to get your score. Even if they claim their services are “free”, the business is likely receiving something of value in return (possibly your personal information).

There are a few exceptions to this. In the course of applying for credit, a lender may cover these charges for you in anticipation of earning their money by other means. Don’t be afraid to ask your lenders and creditors about where they source your credit score and if there’s a cost involved. If you work with a financial advisor, they can also help you determine the best method for gaining access to your credit score and credit report.

You may be wondering which of these methods offers the best view of your creditworthiness. If you’re getting ready to apply for a loan or mortgage, your credit reports are the key source of information. You’ll want to check your credit reports and review them with a financial planner.

This will help you ensure your credit report and credit scores reflect the truth about your financial and debt management habits. Since your credit score is a numerical assessment, based upon certain information in your credit report, it won’t give you the full picture all on its own. Both are great to know, but your credit report will always take precedence over your credit score.