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Difference Between Credit Score and Credit Report

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It seems like you can’t turn on the television or the radio without hearing a catchy jingle about your credit score. And if you listen to some of the personal finance gurus like Dave Ramsey or Clark Howard you will hear frequent references to checking your credit reports for accuracy. While these two items both deal with your credit, they are quite different, and quite important.

The difference between credit reports and credit scores

Your credit score is a numeric value based on a weighted formula and your credit history is just that – a list of your credit accounts, payment history and more. These two items are often used to determine your credit worthiness and the likelihood you will repay your loan.

The difference between credit reports and credit scores

What you need to know about your credit report

Your credit report, sometimes called credit history, tracks your credit reliability based on your history of making payments on your loans and other debts. Your credit report usually goes back 7 years, or up to 10 years in the case of a bankruptcy. Your credit history is tracked by the Credit Reporting Agencies such as Equifax, Experian, and TransUnion, which maintain records of your current and past lines of credit, payment history, age of your credit accounts, collections or settlements on your loans, credit utilization, bankruptcies, and other information. Your credit report will also list credit pulls, or inquiries made against your credit (what is the difference between a soft and hard credit pull?).

Why is your credit report important? Your credit report is considered the definitive record for your credit history and is used to judge your credit worthiness. Your credit score is based from the information contained within your credit report. You should check your credit report at least once a year to ensure accuracy, or before applying for a loan. You can get a copy of your free annual credit report at www.annualcreditreport.com.

Note: Your credit score is not contained within your credit report. You usually need to pay to receive your credit score.

What you need to know about your credit score

There are several credit scoring systems out there, but the most widely used is the FICO credit score, which is a proprietary formula from the Fair Isaac Company (FICO). (find more information at the MyFICO website). You credit score is a numeric value used to rate your credit risk at the time the score is reported. The FICO credit score system ranges from 300 to 850, with a higher score representing a lower perceived credit risk.

This graphic shows the factors used to determine your credit score.

credit-score-breakdown.png

What makes up your credit score?

Credit score uses. Your credit score is used to judge your credit risk and is referenced by lenders when you apply for a loan, landlords, and some employers when you apply for a job. The lower your score, the higher your perceived credit risk, which will result in a higher interest rate or the inability to secure a loan. Low scores may also prevent you from being able to rent property, apply for some jobs, or get a security clearance. A good credit score can make it easier to obtain credit, get approved for a mortgage or refinance, and other loan applications.

How can you improve your credit score? The best way to improve your credit score is through on time payments and maintaining a clean credit history. Here is more information about how your credit score is determined and how to improve your credit score.

Ensuring accuracy in your credit report is important

Your credit score is based upon your credit report so you should check your credit report for accuracy at least once a year to ensure everything is as it should be. You should contact the 3 major credit reporting bureaus if you find information that appears erroneous. Another benefit to checking your credit report is to verify you have not become a victim of identity theft, as any new lines of credit will show up on you credit score. You should file a police report and contact the credit bureaus if you discover you have become a victim of identity theft.


Published or updated October 29, 2012.
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{ 7 comments… read them below or add one }

1 Megastar

good information. A lot of people don’t know the five factors that can help improve their credit score. A low credit score can definitely cost you money in terms of what you pay in finance charges for various credit products, like mortgages and credit cards.

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2 Ryan

A poor credit score can easily cost someone hundreds of thousands over a lifetime if they take out multiple loans and don’t work to improve their credit score.

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3 LeanLifeCoach

One of the great tools myFico.com provides is a credit score simulator. Once you have your score you can play with different scenarios to see how taking out more credit or paying off debt will affect your score.

Recently I wrote a post on the experience of obtaining a credit score from myFico.com. While many advisors say to keep credit/debit ratio under 50%, by using the simulator I learned that my score was greatest between 1% -10% credit/debit ratio!

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4 Ryan

That is a great tool to help people visualize how they can improve their score and which actions to take first. thanks for the tip. :-)

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5 Craig

Good visualization. Is it possible to have a good short term credit score but maybe a bad long term credit history from the past?

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6 Ryan

I think if your past is long enough out, then it’s possible. The credit reports usually only have information from 7-10 years out. I believe your credit score is more heavily weighted toward the recent history, so the more good history you can put between the negative aspects (late or missed payments, defaults, etc.), the better.

A good way to increase your credit score is to make all payments on time and reduce your credit utilization (percentage of credit used vs. amount of available credit).

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7 camran

I am new to the US and I have one piece of credit card, last 3 month my score now is 727. What is the next card I can get?

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