We all have frequently heard of the term credit report and credit score while applying for a personal loan and often confuse both to be the same, which is not true.
This article will help you understand what a credit score and credit report are and the actual difference between the two.
What is a Credit Score?
A credit score is a 3-digit number ranging from 300 to 900, and it indicates the creditworthiness of an individual. Lenders use credit score as deciding factor as it shows the ability of the person to repay the debts without defaulting. If you have a score of above 750, you can quickly get a personal loan at a comparatively low-interest rate.
Factors that play a significant role in your credit score
FICO Score and VantageScore models provide credit scores ranging from 300 to 850. The score is calculated based on various factors such as:
● Payment History: It shows your transaction history. If you have made payments on time, your credit score will increase considerably. It accounts for 35% of your FICO Score.
● Credit Utilization Ratio: The Credit Utilization Ratio (CUR) shows how frequently you spend using your credit and how credit-dependent you are. High credit utilization reduces your credit score. Therefore, make sure that you have credit utilization below 30% of your income. It accounts for 30% of your FICO Score.
● Length of credit history: Your credit score will increase if you have a long and consistent credit history. It accounts for 15% of your FICO Score.
● Credit mix: Having diverse credits like a car loan, student loan, mortgage, etc., can increase your credit score by indicating how well you manage your debts. It accounts for 10% of your FICO Score.
● New credit and hard inquiries: Opening too many recent credit accounts or making frequent hard inquiries can hurt your credit score. It accounts for 10% of your FICO Score.
Credit Score Table
|Credit Score||Credit Rating|
|300 to 600||Very low|
|601 to 700||Low|
|701 to 760||Fair|
|761 to 800||Good|
What is a Credit Report?
As the name suggests, a credit report shows a detailed description of your financial history, such as the history of credit cards, loans, etc. The report consists of personal information, credit accounts, public records, and credit inquiries. The three major credit bureaus namely Equifax, Experian, and TransUnion compile the credit report.
The credit report does not display your credit score. However, it has several pages that include:
● Your personal information
● List of credit accounts that are opened and closed
● Credit inquiries that you have made
● Public records such as bankruptcies, foreclosures, tax liens, etc
The credit reports can have errors when you don’t update them regularly. Hence, make a habit of reviewing your credit report once a year regularly. If you find any errors, report them and get them corrected immediately.
|Credit Score||Credit Report|
|A credit score is a 3-digit numerical grade showing the creditworthiness of an individual.||A credit report is a compilation of detailed information about your financial history.|
|Banks can create their credit score or refer FICO/ Vantage score model.||The credit bureaus such as TransUnion, Equifax, and Experian provide the credit report.|
|The credit score is provided based on the information from the credit report.||Credit reports are the sole documents|
|You can get your credit score from FICO, VantageScore models, or banks.||You can get your credit report from the credit bureaus.|
What is the connection between Credit Score and Credit History?
● Your credit score and credit report are connected directly. If you have a good credit report, your credit score will also be high.
● If there are errors in your credit report, it will impact your credit score negatively.
● The higher your credit score, the greater your creditworthiness, and therefore, you are a low-risk borrower.
With the credit report containing your overall financial history, your credit score is the snapshot of your credit history showing all your past and present debts. That is why lenders check your credit score before lending you money. Reviewing your credit report once a year can help you increase your credit score. You can also check your credit report instantly from Buddy Score to know your credit score. Therefore, having a score above 750 gets your loan approved instantly and enables you to get the loan for a lower interest rate.