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Many people believe that a “credit score” and “credit report” are the same thing and use the terms interchangeably. However, there is a world of difference between the two. So what is the difference between a credit score and a credit report? In this article, we’ll define each and explain why it is important to know the difference between the two and understand both.
- Credit scores and credit reports are closely related, but they are two distinct aspects of your finances.
- The information on your credit report is used to generate your three-digit credit score.
- As new information is added to your credit report, your credit score will go up or down.
- Reviewing your credit report and score regularly will provide you with long-term financial benefits, including better credit terms, more employment opportunities, and lower insurance rates.
Credit Score vs. Credit Report: What Are the Key Differences?
Though the terms credit score and credit report both include the word “credit,” they mean very different things. A credit report contains your “credit history” or how you have used credit in the past, either favorably or unfavorably. Your credit score is based on that history and helps lenders decide whether to extend credit to you, such as a credit card or loan.
These are the key differences between them:
|Credit Reports||Credit Scores|
|Who creates them?||The three credit bureaus: Experian, Transunion, and Equifax||FICO and VantageScore are the main credit scoring companies|
|What are they based on?||Information from a credit bureau’s database, which primarily includes information reported by creditors||A credit report|
|When are they created?||When someone with a permissible purpose requests a credit report from a bureau||When someone with a permissible purpose requests a credit score|
|How are they used?||To understand a person’s creditworthiness. Could impact your eligibility for a loan, credit card, job, insurance, and other types of accounts.||To quickly understand the likelihood that someone will miss a payment. May impact your eligibility and terms for a credit account or rental home.|
What Is a Credit Score?
A credit score is a three-digit number ranging from 300 to 850 that rates a consumer’s creditworthiness. The higher the number, the better the chance that a lender will approve a loan request and offer more favorable terms, such as a lower interest rate. Credit scores can change at least every 30 days based on information provided by creditors to the three leading credit agencies, Equifax, Experian, and TransUnion.
How Credit Scores are Calculated
There is no mystery in how credit scores are calculated, which can help you improve your credit score over time.
- Credit scores are calculated using the comprehensive financial information on your credit report.
- The calculation is done by Equifax, Experian, and TransUnion, which are the three main credit agencies.
- Each of these agencies uses a slightly different formula for calculating credit scores, which will likely result in a somewhat different result provided by each of them.
FICO vs. VantageScore Calculation
There are two main credit scoring models, FICO and VantageScore. Here’s how they are calculated:
- Payment history: 35%
- Amounts owed: 30%
- Length of credit history: 15%
- Credit mix: 10%
- New credit: 10%
- Payment history: 41%
- Depth of credit: 20%
- Recent credit: 11%
- Balances: 6%
- Available credit: 2%
- FICO was established in 1989 and is used by 90% of financial institutions and retailers when they make credit decisions. VantageScore began providing credit scores in 2006 and has grown to be used by 10% of lenders when evaluating a consumer’s credit.
- Each model has different scoring methods, depending on the information lenders want. For example, VantageScore uses “available credit” in its calculation, and FICO doesn’t. However, FICO uses “credit mix” when calculating a credit score, and VantageScore doesn’t.
- There can be as much as a 100-point difference between FICO and VantageScore credit scores. For example, VantageScore counts multiple credit inquiries within a 14-day period as a single inquiry, whereas FICO counts each separately. This can substantially impact your credit score.
How Your Credit Score Impacts You
When you approach a lender and ask to borrow money, they’re happy you asked because that’s what they’re in business for. But, they are always concerned with your ability to repay the loan because they will lose money if you don’t.
Your credit score is what they use to determine if they should lend to you, how much to lend, and at what terms, such as the length of the loan and the interest rate.
Your credit score is an important consideration when you apply for:
- Mortgages: the mortgage amount not only depends on your income, but also your credit score.
- Auto loans: your credit score helps the lender decide if you should get the loan and what the interest rate should be.
- Credit cards: getting approved for the card and the interest rate your charged depends on your credit score.
- Personal loans: without a strong credit score, your application for a personal loan (see the FinImpact article) could be declined, or you’ll have to pay a higher interest rate.
Landlords and employers may also look at your credit report. Landlords don’t want the expense and hassle of dealing with an eviction, and many employers believe a job candidate’s credit score is an indicator of their trustworthiness.
What Is a Credit Report?
A credit report is often referred to as a “credit history” because it looks at your past performance concerning credit.
It’s a comprehensive document that reflects financial information on your lines of credit and payment track record.
Information on your credit report includes:
- Personal information: name, address, Social Security number, and date of birth.
- Lines of credit: when you opened loans and credit cards, how much credit you have available, account balances, and payment history.
- Inquiries: covers the number of both hard and soft inquiries. Too many inquiries in a short period can hurt your credit score.
- Bankruptcies: these can stay on your credit report for up to 10 years.
- Accounts in collections: even just one can damage your credit score and hurt your chances of securing credit.
Credit reports do not include your credit score; they are used to determine it.
How Credit Reports are Generated
Wondering how all of that information ends up on your credit report?
- Equifax, Experian, and TransUnion, the three main credit bureaus, gather and store the data that appears on credit reports.
- The credit bureaus get the information for credit reports from creditors, including banks, credit card companies, and personal loan (see the FinImpact article on loans for excellent credit scores) companies.
- The credit bureaus also use public records to find information (i.e., bankruptcies).
How Your Credit Report Impacts You
The credit bureaus are in the business of gathering and reporting information; there’s little they can’t and won’t find out about your credit history.
- What is uncovered and ends up on your credit report is used to calculate your credit score, which impacts your ability to borrow or get credit cards, the interest rate you’ll pay for credit, your insurance rates, the number of employment opportunities you’ll have, and where you’ll be able to live.
- Lenders look at both your credit score and your credit report when making lending decisions, like when you’re applying for a personal loan. The combination of a good credit history and a good to exceptional credit score will let you borrow more at a lower interest rate.
How to Check Your Credit Score and Credit Report
It’s important to check your credit score and credit report regularly.
- You can find out your credit score easily by asking your existing creditors to provide it to you or by asking potential lenders or new lenders what they found your credit score to be when they evaluated a recent application you submitted.
- You can get a copy of your credit report by requesting it from each of the three credit bureaus, Equifax, Experian, and Transunion, and by ordering it through www.AnnualCreditReport.com at no cost once every 12 months (monthly through the end of 2023).
- When you receive your FICO score, you’ll want it to be between 740 and 850, which is considered very good to exceptional, or between 661 to 850 with VantageScore, which is regarded as prime to Superprime.
Checking Your Credit Score
There are numerous ways to check your credit score, including:
- Checking your score via the websites of the major credit reporting agencies: Equifax, Experian, and TransUnion.
- Checking your credit card and loan statements. These may include your score.
- Contacting your bank, which may offer a way to check your score.
- Using free services like Mint or Credit Karma.
Checking Your Credit Report
In addition to checking and knowing your credit score, it’s also essential to check your credit report.
- Everyone is entitled to a free annual credit report from Equifax, Experian, and TransUnion.
- Check it through www.AnnualCreditReport.com once yearly at no charge or for free once a month through the end of 2023.
- You can view your credit reports online for free more frequently. For example, signing up for an Equifax account will give you access to six free credit reports per year.
- It’s important to check your credit report often to catch any errors on your report and to dispute any that you find. The credit bureaus are obligated to investigate and correct any errors you report, if warranted.
What Is a Good Credit Score?
What is considered a “good credit score” depends on which scoring company, FICO or VantageScore, is providing the numbers. Here’s how they rate and compare:
- 300 to 579: Poor
- 580 to 669: Fair
- 670 to 739: Good
- 740 to 799: Very good
- 800 to 850: Exceptional
- 300 to 600: Subprime
- 601 to 660: Near prime
- 661 to 780: Prime
- 781 to 850: Superprime
The higher your credit score, the more opportunities you’ll have. You’ll be able to borrow more, get better interest rates, earn better credit card rewards, get more job opportunities, score lower insurance rates, and have more housing options.
How to Improve Your Credit
When you learn your credit score, you’ll want to bump it up so you can borrow more significant amounts and pay lower interest rates.
Some ways you can do this are:
- Maintain healthy financial habits: always make payments on time, and catch up on missed payments as soon as possible.
- Keep your credit utilization low: try to keep it under 10% if possible if you want exceptional credit (i.e., use no more than 10% or $1,000 if you have a $10,000 credit limit).
- Apply for new credit sparingly: new credit helps to build your credit file, but applying for too much in a short timeframe can hurt your score with hard inquiries.
- Apply for a secured credit card: the amount you deposit will become your credit limit. This is a quick way to begin building credit.
- Apply for a credit-builder loan: this is where you make payments first and then receive the loan amount at the end of your payment term. This is also an excellent way to start building a good credit score.
- Become an authorized user on someone else’s credit card: just being on their account can help boost your credit score, and you don’t even need to have or use a card registered to their account.
Knowing the difference between a credit score and a credit report can help you better know where you stand with current and potential creditors and help you take action steps to improve your credit score. This will afford you better opportunities to borrow more, pay lower interest rates, get more and better job offers, pay less for insurance, and have better housing options.
- Your credit score and credit report are both important windows into your financial health.
- Lenders use credit scores to decide whether to lend you money, how much they’ll lend, and what interest rates they’ll charge you.
- You can play an active role in improving your credit score and accessing more opportunities by maintaining healthy financial habits, such as consistently paying on time, keeping your credit utilization low, having a good credit mix, and applying for new credit sparingly.