February 22nd, 2017 5:35 AM by Jackie A. Graves, President
By now, you probably know that
taking care of your credit is a good thing if you’re trying to meet money
milestones like moving into your first home or finally upgrading that old
clunker. After all, lenders assess your credit to decide whether you’ll get the
best loan terms or the not-as-great ones—or even whether they’ll lend to you at
But what you might be a little foggier on is exactly how to tell
whether your credit is in good shape. The keys to knowing that lie in your
credit score and your credit report—and yet, only 51% of millennials have ever
obtained their credit score, and only 57% have ever gotten a copy of their
credit report, according to the Consumer Federation of America’s 2016 credit
While the two terms sound almost interchangeable, they offer
different insights into how you’ve handled credit in the past. So keep reading
to understand the primary differences between the two—and why it’s important to
keep tabs on both.
What’s a Credit Score?
In a nutshell, your credit score is a three-digit numerical grade that provides
a snapshot of your creditworthiness to credit card companies, mortgage
lenders, auto lenders, etc.—pretty much anyone who wants to loan you money or
extend you a line of credit. Non-lenders, like a future landlord or cell-phone
service provider, may also look at your credit score to get a quick indication
of your financial health. Here are a few other important things to keep in mind
about credit scores.
widely used credit score is the FICO score. Although
other types of credit scores exist (for example, the VantageScore),
the FICO score
is the one that’s most often referenced by lenders. FICO scores range from 300
to 850; the higher your score, the more likely lenders will be to believe
you’ll pay back the money you’re borrowing. In general, a good score is
considered to fall between 700 and 749, and a score of 750 or higher is
typically considered excellent.
factors make up your FICO score. These include:
Payment history (35% of
your score). Whether you make credit
card payments on time is the most important factor in calculating your score.
In fact, according to MyFICO.com,
just one 30-day delinquency could cause as much as a 90- to 110-point drop on a
FICO score of 780 for a consumer who has never missed a payment
before. Multiple late payments can tarnish your number even further.
Amounts owed (30%). This takes into account, among other factors, how much you owe
across all your credit accounts as well as the percentage of your available
credit that you’re actually using (your credit utilization ratio). A higher
utilization ratio typically indicates to creditors and lenders that you’re at
risk for overspending.
Length of credit history
(15%). This includes the ages of your oldest credit
account, your newest credit account and the average age of all of them. Lenders
like to see that you’ve had a long history of managing credit responsibly.
Members of the credit-monitoring service CreditKarma.com with credit scores
above 750 have an average age of open accounts of 7.5 years.
Credit mix (10%). Having a combination of different types of credit accounts, such
as credit cards, installment loans and a home mortgage, can boost your score.
New credit (10%). When you apply for a new credit account or loan, you trigger a
“hard inquiry” on your credit, which dings your score. Thus, opening several
lines of credit within a short period of time can hurt your number. Also keep
in mind that each time you open a new credit account, it reduces the average
length of your credit history.
credit score reflects information found in your credit report. Knowing
the factors that contribute to your score doesn’t necessarily shed light on all
the details behind your specific credit history. For that, you’ll need to turn
to your credit report.
What’s a Credit Report?
If your credit score is a grade, consider your credit report a transcript that
details the past borrowing behaviors that have influenced your score. Here’s
what to know about a credit report.
contains your credit history. Aside
from basic identifying details like your name, address and Social Security
number, your credit report contains information like the date you opened your
various credit accounts and loans, your balances, the total loan amounts and
credit limits on your accounts and your payment history. It also contains any
public-record information like bankruptcies or tax liens that could impact your
credit. Most negative dings, such as late payments or accounts in collections,
can stay on your credit report for seven years—except for Chapter 7
bankruptcies, which will stay on there for 10 years.
order your report for free three times a year. Every 12 months, you’re entitled to one free
copy of your report from each of the three major credit bureaus—Equifax, Experian
and TransUnion—at AnnualCreditReport.com.
(FYI: Credit bureaus are also referred to as “consumer reporting agencies.”)
Checking your credit reports does
not trigger a
hard inquiry, so pulling a report will have no negative impact on your credit
report likely won’t contain your credit score. “Many people think that a credit report
always comes with a score, when in reality the score is like the leather seats
in a car—it’s an upgrade,” says John Ulzheimer, credit pro and author of “The
Smart Consumer’s Guide to Good Credit.”
credit reports might look different. Equifax, Experian
and TransUnion operate independently, which means their reports may contain
slightly different information, as some creditors might report to only one or
two of the bureaus (there are no legal requirements to report to all three).
The Biggest Differences Between the Two
reports give you more insight. This is perhaps the biggest
difference, as your credit score is just that—a score—but usually gives no
indication as to what contributed to the number. That’s where the more
exhaustive credit report comes in. If you notice your score has dropped, the
only way to determine the cause is to look at your credit report and comb
through the details for things that could have caused the drop, like missed payments
or hard inquiries.
only entitled to get credit reports for free. Your credit score, on the other
hand, is a little harder to get free of charge. Some credit
card companies, such as American Express, Bank of America and Chase,
provide customers free FICO score monitoring, including an estimate of their
score either online or in their monthly statements. If your issuer doesn’t
offer such a service, MyFICO.com has a free
score estimator that
you can use to get a rough idea of where you stand.
You can also use sites like Credit.com, CreditKarma.com and CreditSesame.com to get free score estimates from the
three major credit bureaus. “Free scores [at least] give you an idea of where
your credit stands,” says Beverly Harzog, a consumer credit pro and author of “The Debt Escape Plan.”
But for frequent or detailed updates on your credit score, you’ll likely have
to pay for a credit-monitoring service.
employers can check your credit report—but not your score. Potential employers can pull a copy of your
credit report with your permission. To a hiring manager, a good credit report
might indicate that you’ll be responsible on the job or less of a risk for
corporate crimes like embezzlement. Indeed, an estimated 47% of employers run
credit checks on select job candidates, one Society
for Human Resource Management survey found. However, prospective employers
do not receive your credit score when they view your report.
credit report can reveal mistakes and identity theft. One in four Americans said they spotted
errors on their reports in a 2013
Federal Trade Commission survey. The mistake can be something as
innocuous as a typo or incorrect credit limit—or it could be something as
serious as finding out someone else has opened accounts and racked up debt in
your name. (All the more reason to check your three free reports each year!)
To get errors fixed, you’ll need to contact both the credit bureau
and the company that reported the information. Pro tip: Tell each agency in writing what information you believe is
inaccurate, as recommended by the Federal
Trade Commission. By filing your dispute via certified snail mail,
you’ll have confirmation that your complaint was received, which can come in handy
if the credit bureau doesn’t respond within the required 30-day window.
credit score is likely to change faster than your credit report. If you already subscribe to a credit score
monitoring service, you know that your score can fluctuate frequently. This is
because creditors are reporting your activity to the credit bureaus on a
regular basis. Some credit card issuers do this each month based on your
Meanwhile, your credit reports will look fairly similar from month
to month, as long as you’re consistently paying your debts on time and you
don’t open and close accounts frequently.
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