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Difference between a credit report and a credit score

Credit report ladderA credit report is a record of your credit history. Think of your credit report as your credit history report card. Your credit report contains biographical information, including your name (and any other names you may have used in the past in connection with a credit account, as well as nicknames), current and previous addresses, birth date, Social Security number, and phone numbers are all included in your credit report.

In addition to current and previous credit accounts, the credit report includes information on the type of account (installment loan or mortgage, revolving credit, etc.), name of the creditor(s), credit limit and amount, current and previous balances on the account, payment history on the account, as well as the dates the account was opened and closed.

Among the public records that are typically included on a credit report are bankruptcies, foreclosures, liens, civil lawsuits, and judgments.

A credit report may also contain information about past-due child support collected by a state or local child support enforcement agency.

In 1970, Congress created the Federal Fair Credit Reporting Act, which regulates the use of your credit report. Businesses and other organizations that have a "permissible purpose" are permitted to obtain a copy of your credit report from credit bureaus.

CREDIT SCORE

With a complicated algorithm based on numerous variables, the credit score is a three-digit number that represents an individual's creditworthiness. Each of the main credit rating organizations determines the score. Your credit score is based on variables including your total outstanding debt, your payment history, and the number and kinds of credit accounts you have and how long you've had them. A credit score is a statistical computation that indicates a consumer's creditworthiness. In summary, the credit score assesses the likelihood that a customer will fulfill his or her financial commitments. Scores may vary from 300 to 850.

A credit score in the 300s or 400s indicates a high credit risk, a number in the mid-600s to low 700s indicates a moderate credit risk, and a score in the mid-to high 700s or in the 800s is considered an exceptional credit risk. For a mortgage, loan, or credit card, those with excellent credit scores receive the lowest interest rates.
To qualify for a mortgage at a reasonable interest rate and with favorable conditions, your credit score should be at least 620.

CREDIT SCORE CALCULATION


Credit score pie chartDebt obligations (30 percent)

1. Credit card balances account for about 30% of a credit score. This category is a comparison of the amount due and the amount that can be borrowed from the lender.

As an example, assume you have a $5,000 credit card with a $4,999 balance and owe $4,999 to the credit card company. There is not a great deal of leeway. Your credit score will be adversely impacted if all of your accounts are "maxed out." Maintain as low a balance as possible. Credit card debt with a high balance will have a negative effect on your credit score.

Reduce credit amounts and keep them at 30% or less of the available credit limit. You might be surprised to learn that paying off debt may actually harm your credit score, since the length of time spent on the credit card is considered a positive attribute. Reduce your credit card balances to 30% or less of the credit limit.

History of payments (35 percent)

2. About 35% of your credit score is based on your payment history. This component of your credit score is the most important category for enhancing your credit score. Make on-time monthly payments. Make sure you never miss or are late with a payment. Keep your loan payments current, and if you fall behind on your loan payments, speak with your lender. Your credit score increases when you pay your bills on time.

Length of credit history (15%)

3. Length is important.
Credit scores benefit from a long credit history. As a consequence, don't cancel any credit cards or accounts that you don't use. Even if your credit accounts have been dormant for a long time, they may help you boost your score.

Diversification of credit (10 percent)

4. The credit combination may contribute to up to 10% of a credit score.
Do you rely only on credit cards? Do you, on the other hand, have school debt, a car payment, and perhaps an installment loan? The credit scoring system considers the total number of accounts you have.

Additional credit (10 percent)

A FICO score may be affected by new credit, which may account for 10 percent of the total credit limit. Assigning many new credit accounts in a short period of time raises credit risk, especially for individuals with a short history of good credit and a limited history of bad credit.

Recent inquiries have also contributed to this credit ranking.
When a lender seeks your credit report or score from a credit bureau, this is referred to as an inquiry. Credit inquiries stay on your credit report for two years, but the scoring formula only considers queries made within the previous 12 months.
Not every inquiry is regarded as a credit risk.

Applying for a job, car pre-approval, or rental does not have a negative effect on your credit score. Installment loans and credit card inquiries will have an effect on your credit score.

What is the credit score range?

Here's how credit scores are generally perceived by lenders and creditors:

Credit Score Rating
300-579Very poor
580-669Fair
670-739Good
740-799Very Good
800-850Exceptional

Steps to fix your credit fast

Contact your creditors who have late payments on your credit report and politely ask them to remove the late payments. Some creditors may actually comply because they want your business.

Pay off any collection accounts and judgments (if any). Failing to pay creditors seriously impacts your credit score. Pay off or catch up on all delinquent debt.

Seek out a consolidation loan as a last resort. Again, pay off past due debt first.

Rotating question markCredit Report and Credit Score Frequently Asked Questions

Q. Is it true that soft queries have an impact on your credit score?
A. Your credit report contains two sorts of credit inquiries: "soft" inquiries and "hard" inquiries. Your own queries about your credit history, inquiries made by your current creditors who want to evaluate your credit (also known as "account-monitoring"), and inquiries made by companies providing you with pre-approved credit card offers are all examples of "soft" inquiries. Potential creditors are not aware of "soft" inquiries.

"Hard" inquiries occur when you have applied for credit, such as a new loan or credit card. Hard inquiries may remain on a credit report for 24 months. While "hard" inquiries do impact credit scores, "soft" inquiries do not.

Q. How much do credit inquiries affect your credit score?
A. According to the Fair Isaac Corporation (FICO). One additional credit inquiry will drop most people's FICO scores by fewer than five points. To put things in perspective, FICO Scores range from 300 to 850. If you have a small number of accounts or a short credit history, inquiries can have a bigger influence. A large volume of queries also entails a higher level of danger. According to statistics, those with six or more queries on their credit reports are up to eight times more likely to file for bankruptcy than those with no inquiries. While inquiries are important in determining risk, they are only a small portion of the equation.

The most crucial aspects affecting your credit scores are, how quickly you pay your bills and how much debt you have overall, as shown on your credit report. SOURCE: MyFico

Q. Does the annual credit report include a FICO score?
A. Unfortunately, the free credit reports do not include credit scores.

Q. Does checking your own credit report affect your credit score?

A. No, requesting your credit report will not hurt your credit score. Checking your own credit report is not an inquiry about new credit, so it has no effect on your score. In fact, reviewing your credit report regularly can help you to ensure that the information the credit reporting companies share with lenders is accurate and up-to-date. SOURCE: Consumer Finance Protection Bureau

Q. Get a free credit report and credit score if your loan was rejected.
A. If a lender denies your credit application based on your credit report, the lender must give you the numerical credit score it used to refuse you credit, as well as the significant factors that influenced your score, if you ask for it within 60 days.
Within 60 days of your credit denial, you have the right to a free copy of your credit report from the credit reporting firm that submitted it to the lender.

Q. What is the difference between a credit report and a credit score?
A credit report is a detailed accounting of your financial and personal situation. For example, a car loan with a monthly payment will appear on your credit report, along with your payment history. A credit score is a three-digit number that gives your credit report and history a numerical value. Credit scores range from 300 to 850.

Your credit report is likely to include the following items:

  • Your date of birth
  • Your current residence
  • Your previous addresses,
  • Your employer,
  • Public record information from state and county courts (including child support obligations),
  • Bankruptcies (if applicable)
  • Collection information (if applicable)