Credit Report vs Credit Score

8/17/2020

When you apply for a credit card, home loan, or auto loan, lenders typically assess your credit report and credit score. Your credit account and personal information will show detailed information about your credit history. Usually, a lender will view things such as payment history, score range, accounts open, credit defaults, and more to determine your “worthiness” for whatever your purchase or financing may be.

Both your credit score and credit report are indicators of your financial assessment. However, you may be confused about the difference between a credit score and a credit report and how they relate to one another.

What Is a Credit Report?

A credit report is a comprehensive list of your credit history. Your lines of credit and payment history will be reflected on your credit report. However, they usually do not contain your overall credit score. There are three credit reporting companies that make up the overall credit report: Equifax, Experian, and TransUnion.

Credit reports often run the entire breakdown of your credit history, all of your accounts, what you have paid off, what is left to pay, and other details of your financial lending and payment history. Negative credit history will be reflected on your credit report as well. If you have filed bankruptcy, defaulted on loans, or have any repossessions, it will appear in your credit report.

It is important that you check your credit report at least once every year for errors and mistakes. Because the credit bureaus are independent of one another, this could leave room for error, making it difficult to apply for credit cards, loans, and other financing options.

Additionally, it is important to to keep up with your credit report because there are a list of people who may be able to see it such as:

  • Employers
  • Insurance Companies
  • Banks and Credit Unions
  • Government Agencies
  • Other Creditors

Before choosing to do business with you, any of these organizations can view your credit report.

What Is a Credit Score?

A credit score is a number that your bank or credit union may use to determine how risky of a customer you are. For example, if you are applying for a credit card, a lender will use your credit score to see if you make payments on time, don’t have any bad marks, and the types of credit you have.

The best known type of credit score is known as your FICO score. It is a single number that ranges from 300 to 850 and takes into account five factors to make up the overall score:

  • Payment history
  • Amounts owed
  • Length of credit history
  • New credit
  • Credit mix

Credit scores can usually fluctuate depending on how active you are with financial accounts, how long you have had credit, your history of repayment, and more. There are different types of credit scores such as good, excellent, and bad credit that will reflect on your score.

The FICO scores say that anywhere between 670 and 739 is considered good credit. Anything above is excellent and anything below is considered fair or poor credit.

Before applying for a new credit card, it is important to check your credit score and determine what you can qualify for and what is the best decision for your financial well being.

How To Build Good Credit

If you’re looking to boost your credit score or improve your credit report, there are a few options you can use. Good credit is crucial when you’re applying for an auto loan, home loan, or a credit card. Having good credit can provide you with better interest rates, lower monthly payments, lower down payments, and more.

Building your credit can take some time but if you already have a credit score, there are a few options you have that can help boost your credit score before you apply for a new credit card or loan.

Make all of your payments on time.

If you have existing credit, it is important to make sure all of your payments are made on time. Often credit lenders penalize you for making late payments or missing payments. Late payments can dramatically affect your credit score. When you make your credit card payments on time, lenders view you as trustworthy and may be more willing to approve you for more credit.

Keep your credit utilization low.

If you’re using credit cards, your credit utilization ratio can greatly impact your credit score and report. Credit utilization is the ratio of outstanding credit card balances to your credit limit. It measures the limits of your credit. If you have a high percentage of utilization of credit, it can lower your credit score. However, keeping your utilization at about 30-40% can improve your score and will have a more positive reflection on your report.

Check your credit score.

Contrary to popular belief, checking your own credit score won’t hurt the score. It may be useful to check your credit every few months to have a better understanding of the areas of improvement. Several financial institutions offer free credit score checks as well as a summary of your report.

Avoid applying for multiple lines of credit at once.

If you are opening multiple lines of credit in a close timeline, this could negatively impact your credit score. Anytime you move to a new apartment, apply for a credit card, buy new furniture, etc. lenders will run a check on your credit. Anytime your credit score is run like this, it can hit your credit score. When several credit checks are being conducted around the same time or within a few weeks from one another, it can hurt your score.

Correct any errors.

As previously mentioned, there may be times when credit is wrongly reported. It is important to check your credit report to dispute any errors or wrongful credit inquiries. If you check your credit report or score and find that an error has been made, you can dispute it and boost your score.

Understanding credit can be overwhelming, especially when you’re applying for credit cards or loans. Arkansas Federal Credit Union offers many different perks and benefits to members. If you’re looking to apply for a credit card, we offer a variety of cards and benefits to choose from. Contact us today to speak to one of our experts.

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