Over the last couple of posts, we have looked at the differences between your credit report and your credit score. Your credit report is the entire record of your credit history while your credit score is a number given as a snapshot of your credit as a whole. Here is a quick overview of the differences we have discussed.
Your Credit Report
Your credit report is a record of your credit history. This record is kept by the three credit bureaus, Equifax, TransUnion, and Experian. This record, much like a high school transcript, shows the history of the debt you have accrued throughout your life, such as credit cards and various loans. It also shows your payment history, whether or not you’ve filed for bankruptcy or had any foreclosures, repossessions, or collections. This record shows open or closed account status. It also indicates whether they were closed upon your request.
This information is valuable for lenders to see your credit history and assess the risk of extending a new line of credit for you. It is also useful to check for yourself and determine whether or not your identity has been compromised or stolen through a fraudulent credit account. Checking your credit report is useful to keep your information up to date as well, such as your current address and any name changes.
Not only does checking your credit help you find identify theft it also helps guide financial decisions like purchasing a home (or bigger one), applying for a home equity loan, or even applying for a new job. These are all cases where credit is checked. If there are errors, it’s too late to fix an error after the lender/employer finds a mistake. Often they just move on and decline the application.
To check the status of your credit report, the three big credit bureaus, Equifax, TransUnion, and Experian, are allowing weekly credit reports for free until April 22, 2022, through the website, AnnualCreditReport.com.
Your Credit Score
Your credit score is a number assigned to you according to your credit history, between 300 to 850. This number is much like a letter grade in school. A lower number is worse than a higher number, which is far better. At a glance, this number allows lenders to determine who is riskier with their credit versus someone more responsible in paying back debts and loans. The better you are at paying your credit cards and loans, the higher your credit score. Higher scores also result in lower interest rates, as you propose a lesser risk to lenders.
The score is computed based on items reported on your credit report. Timely payments, credit utilization, and various types of credit, such as revolving or installment loans, are all factors that determine your score.
Credit scores are also affected by how often you open new lines of credit and how frequently you check your credit. The more times credit is checked, the lower the number can become. Using their proprietary methodologies, two major companies, FICO and VantageScore, each compute your score. These two companies are competitors and will likely calculate different numbers. However, your credit score should never be wildly different in checking one from the other. Significantly different scores indicate it is time to compare all three reports for variation simultaneously.
The goal for anyone who wants to raise their score or maintain a high one is to make payments on time, fully pay off larger loans, and keep available credit limits on open credit card accounts.
Know the Difference
Your credit report and your credit score are not the same thing. Far too many people confuse the two and believe them to be the same. They are not. Knowing the difference between them, you are now better equipped to effectively manage credit, raise your score, and improve your interest rates. Now you’re on the right track to excellent credit.
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