The credit report and credit score are the two most important indicators of your financial wellbeing. These two factors determine various financial decisions like loan approval, mortgage qualification, interest rate calculation, credit account opening, etc. While the terms credit score and credit report may sound similar, but they are not the same.
Some people use these two terms synonymously, but when you take a closer look, you will find key differences between credit report and credit score. Understanding their meaning individually and how they work will help determine when to use what!
What is a credit report?
A credit report is a record of your credit activity. It mentions the details of your credit history. The information is gathered from the three main credit bureaus: Experian, Equifax, and TransUnion.
The information on your credit report includes past payments, credit card balances, loan history, debt management, etc. The credit report also includes your personal information, credit score, late payments, closed accounts, delinquent accounts, old accounts, number of credit inquiries in recent years, credit utilization percentage, a mix of your credit lines amongst secured and unsecured segments, etc. Also, the age or vintage of credit availed by you that reflects how long you have been serving your repayments is included in the report. The negative remarks by any of the lending institutions that you have had a loan or credit card are also a part of the credit report.
When you need new credit, like a personal loan or a new credit card, the lenders check the information on your credit report. This is done to determine your creditworthiness or your ability to repay the new credit. A credit report is quite exhaustive, considering it contains so many of your credit details. But knowing what your credit report has, will help you with credit improvement.
Checking your credit report often also helps you discover cases of fraud and anomalies. For example, if you see a recently opened account that you haven’t, you must immediately write to the credit bureaus. It shows that someone has used your personal information and opened the accounts in your name. This will save you from bad credit activity damaging your credit bureau score and legal hassles. You may also consider signing up for a credit repair service like DueFactory. We provide you with free credit reports, help you with credit building, and guide you in your credit journey.
What is a credit score?
A credit score is a three-digit number that remains in the range of 300 to 900, depending on the type of credit bureau or scoring model. The credit score is a numerical representation of your credit report. The credit score is calculated using a variety of different scoring methods. Two scoring models are used in lending decisions – the FICO scoring model and the VantageScore model. Since their scoring algorithms are different, you may give a different credit score for these two. Experian reports your FICO score, and Equifax and TransUnion (CIBIL) report your VantageScore.
According to the FICO score model, the credit score ranges and its meaning are:
· Very poor: 300 to 579
· Fair: 580 to 669
· Good: 670 to 739
· Very good: 740 to 799
· Excellent: 800 to 850
According to the VantageScore model, the ranges are:
· Very poor: 300 to 499
· Poor: 500 to 600
· Fair: 601 to 660
· Good: 661 to 780
· Excellent: 781 to 850
The higher your credit score, the likelier the chances to get loan approval. Also, with a good credit score, you will get credit cards and loans at lower interest rates. This will help you save money on your monthly payments. The creditors also offer better loan or credit terms to borrowers with high credit scores, like lower interest rates, higher loan ratio, free rewards, etc.
A low credit score will prevent you from getting a new line of credit. Hence, knowing your credit score before applying for a loan or credit is important. If your score is low and it will be challenging to obtain credit, you can consult Due Factory, the credit repair partner, for all your credit woes. To begin with, we can help you repay your old outstanding loans immediately or over a period of time. We can also guide you to improve your credit score.
Before moving on to credit report vs credit score, it is vital to know about the five factors that determine your credit score:
1. Payment history: Making timely monthly payments for your credit accounts is one of the most crucial factors for calculating your credit score. It carries a weightage of 35%, the largest portion of your score.
2. Amounts owed: The total amount of credit and loans against your credit limit is another primary determinant of your credit score. Carrying a 30% weightage also measures your credit utilization ratio. A lower utilization means a higher credit score, and vice versa. If you can keep your utilization ratio below 30%, you can build a great credit score.
3. Credit History Length: A weightage of 15% is the average amount of time you have your credit accounts. The longer the account, the higher your credit length and the better your credit score.
4. New credit: How often do you apply for a new pay 10% role in your credit card account? Multiple credit applications can upset your credit health.
5. Credit Mix: having a variety of credit products, like credit cards, loans, mortgages, etc., is better for your credit score and constitutes a 10% weightage.
Credit Report V/S Credit Score
Now that you know about the two in detail let us summarize the differences between credit report and credit score:
| Differential Factor | Credit Report | Credit Score |
| What is it? | A summary of a borrower’s credit history. | A 3-digit number representing a borrower’s credit report. |
| Who gathers this? | The three credit bureaus: TransUnion, Equifax and Experian. | Scoring companies like VantageScore or FICO. Sometimes, banks create their own score. |
| Purpose | To provide lenders with a summary of a borrower’s creditworthiness. | To provide a comprehensive account of a borrower’s credit history. |
| What does it contain? | A credit report contains information like details of credit accounts, information on debts, current credit balance, loan amount, history of payment, etc. | A three-digit score that remains between 300 and 900, depending on the scoring model. |
| How is this obtained? | The lenders update the credit bureaus with borrower’s credit information, and the credit bureaus update the information on the credit report. | The credit scores are calculated based on five factors: payment history, the amount owed, credit mix, new credit applications, and length of credit history. |
| How to procure? | DueFactory can provide you with the credit report. | FICO, credit bureaus, lenders, or DueFactory can give you this information. |
Wrapping up
Credit scores and credit reports are important in the banking and credit world. you must know the differences between credit report and credit score. Your credit score represents your creditworthiness, and your credit report is a detailed summary of your financial habits. It is suggested that you monitor your credit report regularly and work on improving your credit score. DueFactory, your credit mentoring company, can help you in this regard!
Disclaimer: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
FAQs
1. Are there differences between credit report and credit score?
Ans. Yes. While a credit score is a three-digit number showing your creditworthiness, a credit report is a detailed summary of your credit history.
2. What does a credit report contain?
Ans. This report contains essential credit insights on outstanding balances, past payments, loan history, credit score, late payments, closed accounts, old accounts, new accounts, bankruptcies, etc.
3. Which is more important: credit score or credit report?
Ans. Both your credit score and credit record are vital to determine your creditworthiness. Your credit score is calculated based on the credit report information, and the credit report contains comprehensive details of your credit history.
4. How is credit score calculated?
Ans. The credit scores are calculated based on five factors: payment history, the amount owed, credit mix, new credit applications, and length of credit history.
5. How to get my credit report?
Ans. Visit DueFactory.com to get a credit report for free.