Credit scores and credit reports are both used as indicators of an individual’s risk but are often erroneously assumed by many as being the same thing. However, there are distinct differences between your credit score and credit report and the purpose both serve in the eyes of a lender.
In essence, a credit score is a numerical value assigned to you and calculated on your history of handling credit, your overall performance in maintaining payments, and how likely you are, as a result of this information, to present a risk to any potential lender. Knowing what a credit score ranges are and how they affects you will give you a better understanding of how to handle your finances.
You may be surprised to learn that, when it comes to credit assessment, things are more comprehensive than simply having one number. Credit reporting companies calculate your individual score slightly differently, but generally on a number of factors, which include:
- Outstanding debt
- Payment history
- How long you have in terms of credit history
- Current credit
- Various types of credit
- Hard credit inquiries (when a lender checks your credit)
- Judgements, liens, and bankruptcy
When approaching a responsible lender for a loan or credit card, your credit score, which changes over time depending on your payment frequency, among other factors, is used to determine your creditworthiness. The lower your score, the less chance you have of being approved. Information such as age, race, gender, salary, and marital status do not contribute to your score.
When it comes to understanding how your credit profile as a whole is calculated, a high number are unaware of the basic fundamentals. The 6th Annual Credit Score Survey found that Millennials had a poorer understanding of the difference between a credit score and credit report, compared to Generation-X’ers.
A credit report, in comparison to a credit score, is more comprehensive in terms of the information it provides to lenders looking to gauge your creditworthiness. This information provides lenders with a better understanding of how you have performed in your history of obtaining credit and how many times your report has been accessed. The following information can be requested from a credit bureau by a lender receiving your application for credit, and sometimes, by an employer:
- The number of loans, accounts and credit cards you have or have previously had
- Payment history and arrears
- Total amounts
- Late payments
- Judgements, liens or debt collection activity
- Name (or name changes), address, Social Security information
- Public records
Credit reports can potentially look different on an inquiry, depending on which of the major bureaus is accessed per any request. Experian, Equifax, and TransUnion are not associated to each other and there is no guarantee that a creditor will report information to all three agencies, often leading to credit bureau disputes. It is likely, however, that the information on each credit bureau accessed will be fundamentally similar, at least.
How to Differentiate Between Both
Your credit reports will effectively provide you and potential creditors with more information. Rather than simply obtaining a score as an indication of your creditworthiness, a credit will provide the details behind the calculation of that number.