Key Differences between credit report and credit score

The credit report and credit score are the two most important indicators of your financial wellbeing. These two factors determine various financial decisions like loan approval, mortgage qualification, interest rate calculation, credit account opening, etc. While the terms credit score and credit report may sound similar, but they are not the same.

Some people use these two terms synonymously, but when you take a closer look, you will find key differences between credit report and credit score. Understanding their meaning individually and how they work will help determine when to use what!

What is a Credit Report?

A credit report is a record of your credit activity. It mentions the details of your credit history. The information is gathered from the three main credit bureaus: Experian, Equifax, and TransUnion.

The information on your credit report includes past payments, credit card balances, loan history, debt management, etc. The credit report also includes your personal information, credit score, late payments, closed accounts, delinquent accounts, old accounts, number of credit inquiries in recent years, credit utilization percentage, a mix of your credit lines amongst secured and unsecured segments, etc. Also, the age or vintage of credit availed by you that reflects how long you have been serving your repayments is included in the report. The negative remarks by any of the lending institutions that you have had a loan or credit card are also a part of the credit report.

When you need new credit, like a personal loan or a new credit card, the lenders check the information on your credit report. This is done to determine your creditworthiness or your ability to repay the new credit. A credit report is quite exhaustive, considering it contains so many of your credit details. But knowing what your credit report has, will help you with credit improvement.

Checking your credit report often also helps you discover cases of fraud and anomalies. For example, if you see a recently opened account that you haven’t, you must immediately write to the credit bureaus. It shows that someone has used your personal information and opened the accounts in your name. This will save you from bad credit activity damaging your credit bureau score and legal hassles. You may also consider signing up for a credit repair service like Ava Finance. They provide you with free credit reports, help you with credit building, and guide you in your credit journey.

What is a Credit Score?

A credit score is a three-digit number that remains in the range of 300 to 900, depending on the type of credit bureau or scoring model. The credit score is a numerical representation of your credit report. The credit score is calculated using a variety of different scoring methods. Two scoring models are used in lending decisions – the FICO scoring model and the VantageScore model. Since their scoring algorithms are different, you may give a different credit score for these two. Experian reports your FICO score, and Equifax and TransUnion (CIBIL) report your VantageScore.

According to the FICO score model, the credit score ranges and its meaning are:

Very poor: 300 to 579

Fair: 580 to 669

Good: 670 to 739

Very good: 740 to 799

Excellent: 800 to 850

According to the VantageScore model, the ranges are:

Very poor: 300 to 499

Poor: 500 to 600

Fair: 601 to 660

Good: 661 to 780

Excellent: 781 to 850

The higher your credit score, the likelier the chances to get loan approval. Also, with a good credit score, you will get credit cards and loans at lower interest rates. This will help you save money on your monthly payments. The creditors also offer better loan or credit terms to borrowers with high credit scores, like lower interest rates, higher loan ratio, free rewards, etc.

A low credit score will prevent you from getting a new line of credit. Hence, knowing your credit score before applying for a loan or credit is important. If your score is low and it will be challenging to obtain credit, you can consult Ava Finance, the credit repair partner, for all your credit woes. To begin with, we can help you repay your old outstanding loans immediately or over a period of time. We can also guide you to improve your credit score.

Before moving on to credit report vs credit score, it is vital to know about the five factors that determine your credit score:

1. Payment history: Making timely monthly payments for your credit accounts is one of the most crucial factors for calculating your credit score. It carries a weightage of 35%, the largest portion of your score.

2. Amounts owed: The total amount of credit and loans against your credit limit is another primary determinant of your credit score. Carrying a 30% weightage also measures your credit utilization ratio. A lower utilization means a higher credit score, and vice versa. If you can keep your utilization ratio below 30%, you can build a great credit score.

3. Credit History Length: A weightage of 15% is the average amount of time you have your credit accounts. The longer the account, the higher your credit length and the better your credit score.

4. New credit: How often do you apply for a new pay 10% role in your credit card account? Multiple credit applications can upset your credit health.

5. Credit Mix: having a variety of credit products, like credit cards, loans, mortgages, etc., is better for your credit score and constitutes a 10% weightage.