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If you’re in the market for any kind of debt, lenders will want to see your credit score and credit report. Aren’t these basically the same thing? Not really.
While there is some overlap between credit scores and credit reports, they are used differently by prospective lenders, employers and others with a financial interest in your life. Let’s examine credit scores and credit reports to better understand what each of them entails.
A credit score is basically just a snapshot of your financial standing. Most lenders use the FICO score to determine your creditworthiness.
Scores range from 300 to 850. Scores below 600 put borrowers on shaky ground and, it today’s economy, may disqualify them from certain loans – such as mortgages. Scores above 800 are considered to be “Excellent.” The higher your score, the easier time that you’ll have in getting credit and you’ll do so on better terms.
So, how is your score determined?
The exact formula for doing so is a trade secret. FICO and it’s lesser-known competitors don’t release their specific formulas, but information is available as to what factors are considered. These include the following:
- Payment history
- Level of debt
- Age of credit history
- Types of credit
- Credit Inquiries
There are also other factors that may be considered, but this is the gist of it.
A credit report offers a more detailed analysis of your financial situation than a credit score does. It offers specific facts as to what is going on in your financial life, not just a number.
According to Colorado Attorney General John W. Suthers, your credit report contains your key identifying information, such as your date of birth, social security number, home address and employer. It also lists your credit accounts (such as home loans and auto loans), the amount of your debts, your payment history and other key aspects that a potential creditor may want to know. Negative information stays on there for 7 years and bankruptcies stay on for 10 years.
Think of it in sports terms. Suppose that you are comparing the seasons of 2 football teams as they head into the playoffs. Both finished with 10 wins and 6 losses and you’d like to bet on 1 of them. Think of that 10-6 record as a credit score – it gives you a brief snapshot, but doesn’t tell you how things are going lately with the team and doesn’t give the specifics.
Now, supposed that you learned that Team A has won 4 games in a row by large margins while Team B started out with 9 wins and has lost 6 of it’s last 7 games. Also, Team A has just regained 2 players who were injured and Team B has just lost their starting quarterback. See where this is going?
You’re probably going to bet on Team A unless you are really feeling lucky. This is similar to how a credit report works, as it gives a more accurate big picture than a credit score.
Your credit score and credit report are generally used for similar reasons. The main difference is that your credit score is less specific than your credit report.
So, while a credit card company may get all the information it wants just by checking your score, a potential employer may rather rely on your credit report. After all, if someone wants to hire you as a debt counselor, he or she will probably want to know that you manage your own debt well before you counselor others on how to do so.
In the end, a credit report is a more accurate description of your financial history than your credit score. A credit score is only as accurate as the model that made it and, as each bureau calculates their scores differently, they can’t all be right. A credit reports says what happened in your financial history and when it happened – leaving the reviewer to make a decision based on the facts, not just a number.
So, remember to keep both in mind when you seek credit or employment, as, depending on the situation, they may be reviewed. Also, it’s a good idea to check your credit report regularly to catch any errors, as they could cost you that next job or home loan