Credit Score is an important factor that is considered by credit card issuers/lenders when approving or rejecting one’s credit application. It is a three-digit number that determines how creditworthy or risky you are as a borrower. If you are using a credit card for a long time, you would have surely heard of the terms ‘Credit report’ and ‘Credit Score.’ Many people use these terms interchangeably as they think that both are the same. But, it is an essential fact to be understood that both these are connected, but are different things.
A credit report and a credit score both are used by the card issuers/lenders to check an individual’s creditworthiness, but are used differently. One gives them a brief idea, however, the other gives them the detailed information about your credit history. In this article, we will make you understand the difference between credit report and credit score. Keep reading for further information:
What is Credit Score?
A credit score is a three-digit number ranging between 300 and 900 that represents the creditworthiness of an individual. The higher the number is, the more creditworthy is the person. Generally a number less than 500 represents a risky or non-creditworthy person and that above 750 represents the most responsible people. There are various factors based on which the credit score is calculated by the Credit bureaus. These factors include:
- Payment History: Payment History is the most important factor that is considered while calculation of your credit score as it makes 30% of your score. This represents your payment behavior with past lenders or credit card issuers. If you have made all the payments on time, your payment history would be considered an amazing one, but if you have defaulted payments very often, your payment history wold be considered a and one and consequently, it will lead to a major drop in your score.
- Credit Utilization Ratio: Credit Utilization ratio is the ratio between your total credit limit and your used credit. When you are provided with a credit limit, you are not supposed to exhaust the whole limit every month as it doesn’t represent you asa a responsible borrower. In order to maintain a good credit score, you are advised to utilise only 30% or less of your total credit limit. This is the second most important factor that should be kept in mind.
- Credit Mix: Credit mix means how diversity an individual has in his credit accounts. In order to achieve or maintain a good score, it is advisable to have more than one type of credit accounts. For example, you can have a credit score, a personal loan, home loan, etc. This shows that you are responsible enough to manage multiple accounts together.
- Number of Hard Inquiries: Hard Inquiries are performed on a credit profile when it is checked by a card issuer or lender in order to get an idea about the creditworthiness of an individual. Whenever you apply for a new credit card, a hard inuiry is performed on your profile. A large number if hard inquiries in a short time period may cause a drop in your credit score.
- Average Age of Accounts: The older credit accounts you have, the better is your credit score. If you have multiple credit accounts, the average age of all your accounts is also an important factor affecting your credit score and hence it is not advisable to close very old credit accounts unnecessarily.
Check here: A Complete Guide To Credit Score
What is a Credit Report?
A Credit Report is a document that contains detailed information about an individual’s credit history, i.e, this contains detailed analysis of how different factors like the payment history, credit utilization ratio, etc, are going to affect your credit profile. The credit bureaus prepare these report after receiving your information from different banks/card issuers with whom you have your credit accounts. They check your credit history, credit mix, credit utilization, etc, and mention each & every small detail about the same. For example, there would be a section payment history that will contain information about how many payment have been paid on time by you and how many have been missed or delayed. Similarly, information about the number of hard inquiries, credit utilization ratio would be mentioned very clearly in your report. The following are a few things that are mentioned in your credit report:
- There will be section containing your personal information, like your name, registered address, mobile number, date of birth, employment status, etc. This is included in your credit report in order to identify you.
- Your credit report will have another section containing the basic information about all your active credit accounts, including the names of all the card issuers/lenders and type of credit you have borrowed from them. Your total credit limit, account balances, etc, are also mentioned under this section.
- Another section contains the information about the inquiries on your credit profile. There are two types of inquiries, including; Hard inquiries’ and ‘Soft Inquiries.’ The Hard inquiries do affect your credit score but the Soft ones do not.
- Other than all these sections, there is the last section where the record of bankruptcies or collection accounts is mentioned. This might have a negative affect on your credit score.
Difference Between a Credit Score and Credit Report
We have seen that the credit score is just a number that determines your creditworthiness whereas the credit report is the detailed analysis of how that credit score has been calculated. To make it more clear for you, we have come up with the following comparison table:
Now, we hope that you have understood the difference between a credit report and a credit score. If you are a credit card issuer and want to make your credit journey the best one, it is essential to be are of such terms and the basic information about them. Many people who consider a credit report and credit score as the same thing, only check their score, but they ignore their credit report as they are not aware of the fact that there is something like a credit report. You should check your report time to time in order to ensure that their are no errors that are causing a drop in your credit score.