Credit Report vs Credit Score
The simplified version is that your credit report represents your borrowing history and how you handled your credit accounts, while your credit score is the numerical value that is attached to it. The higher the score value, the better off you are. Of course, the difference between a credit report vs credit score is much more complicated, but this is a practical way to look at it.
The creditors look at your borrowing history to determine how likely you are to return the money you borrow and how much they can charge you for it. Having a high credit score is in your best interest, but not your creditors’. Once they determine that you will return the money and are eligible for a loan, they will try to charge you the highest interest rates they can.
This is why you should always have an expert analyze your credit report before taking out a loan. The higher your score, the lower the interest rates. When you are taking out a large loan, just a few points can make the difference between going on holiday or getting a new car, and staying home or patching up the exhaust again.
What is Included in the Reports?
Your credit report summarizes the way you handle your credit accounts. It contains your past and present debts, the types of credit accounts you have, how they were collected, whether you paid them off in time, and any inquiries that creditors make. The report also includes information that is used to identify you (your personal data), but it doesn’t affect your score.
Let’s say you took out a student loan. The student loan is the type, and the report will include the date you took the loan, the amount, and your payment history. Any debts that have been turned over to a collection agency can also be found in your report, as well as any bankruptcies or foreclosures you may have experienced.
The report also shows any inquiries that were made in the last two years. There are 2 types of inquiries: the so-called “soft” ones and the “hard” ones. When you or your current lenders check your report, or you get offered pre-approved credit, it counts as a soft inquiry. Hard inquiries are done when you apply for a loan or credit. They will be kept on your record for two years, so applying for too many loans in a short time span is bad for you.
Who Compiles the Reports?
The U.S. has 3 major national credit bureaus that compile reports: TransUnion, Equifax, and Experian. They are separate entities and the reports are likely to be similar, but they aren’t just multiple versions of the same credit report. Your creditors are likely to check all three reports before they issue you a loan.
Even if you check-out your Experian report and all seems good, that is no guarantee that there are no mistakes on the other two. Always check all three. Your employers or landlords can also have access to your credit report. So, it’s not just about getting a loan or good interest rates, your whole financial future can be in jeopardy because of a bad report.
Where Can You Get Your Report?
Under The Fair Credit Reporting Act each credit bureau (TransUnion, Equifax, and Experian) is required to issue you a free credit report once every 12 months, if you ask for it. You can order it from annualcreditreport.com or call 1-877-322-8228.
Because you will need to share your personal information to get it, be very careful that you don’t stumble upon a fake website while trying to get your report. Only the above-mentioned site is sanctioned to issue free reports. If you are worried about sharing personal info over the internet, you can always hire White, Jacobs and Associates to do it for you.
What is a Credit Score?
A credit score is a numerical value that is assigned to you based on all of the things we discussed that are included in your credit report. So, how good you are at repaying loans and credit. 2 main models are used – the FICO score and VantageScore. They both range from 300 to 850, with 300 being the worst and 850 being the best. And yes, there actually are people with an 850 score.
Items That Affect Your Score
Your personal information and the “soft” inquiries don’t affect your score, so you can disregard them. All of the other items are judged separately and combined into your final score, but they don’t all carry the same weight. Let’s say you are good on your mortgage payments, but have outstanding credit card debt. It is unlikely they even out and that your score doesn’t change.
That’s something called installment credit and revolving credit, and it can play a huge role in your score. Too many of the “hard” inquiries we talked about can hurt your score – in such cases, lenders may see you as a potential risk. Bankruptcies will, obviously, also be listed as a negative item on your report.
In general, if you took out loans and have a few credit cards, and pay your dues on time, you should have a good score. If you are late on your payments, don’t pay at all, or try to take out too many loans, it can negatively affect your credit.
What is a Good Score?
Anything above 750 is considered excellent. 660 to 749 is good, while 620 to 659 is fair. Anything below 620 is a bad score – you will start getting much higher interest rates and applying for loans will be much harder the lower you go.
What if You Have No Credit History At All?
Having no credit history is not a good thing. Lenders don’t know how you handle credit and have no insight into your credit report, so they consider you a potential risk. The upside is that because you are starting from scratch, you can try to be one of those people batting 500 (or above 750 in credit score terms).
The Smartest Move is to Have a Credit Analyst Look Over Your Credit Report
All this talk about the differences between credit report vs. credit score can get confusing, and quickly. Your best bet is to have a credit analyst take a look at your credit report. Sometimes, you can even have a bad score through no fault of your own – the systems credit bureaus and creditors use are not perfect and prone to mistakes, and an analyst can point it out.