Differences between Credit Scores and Credit Reports
What is a credit score?
A credit score is a numerical value assigned to you based on the information in your credit report. This 3 digit value ranges from 300-850 and measures your creditworthiness(reliability to pay back debt) to lenders.
Who calculates these scores?
VantageScore and FICO. These two companies have the most popular scoring models used by lenders today. VantageScore was created in 2006 by TransUnion, Equifax and Experian. FICO was created by Fair Isaac Corporation.
How is my credit score calculated?
- A. Credit Utilization (High Impact)
- The amount of credit being used divided by the total amount of credit available. Also your debt to credit ratio.
- B. Payment History (High Impact)
- The amount of payments you made on time divided by the total number of payments.
- C. Derogatory Marks (High Impact)
- The number of collection accounts, bankruptcies, foreclosures, civil judgments or tax liens on your report
- D. Age of Credit History (Med Impact)
- The average time your accounts have been open.
- E. Total Accounts (Low Impact)
- Total number of open or closed accounts.
- F. Credit Inquiries (Low Impact)
- The number of times a lender has pulled your credit report after an application in the past two years.
What is a credit report?
A credit report is a compiled history of accounts and payments across your credit products as well as your personal identification information.
Who makes these credit reports?
There are three major credit reporting agencies(bureaus). Equifax, Experian and TransUnion.
What makes up my credit report?
- A. Identification
- Name, current and previous addresses, social security, birthdate, current and previous employers.
- B. Account History
- Specific information about each account, date opened, credit limit, monthly payment and status.
- C. Public Records
- Bankruptcy fillings, tax liens and monetary judgements.
- D. Inquiries
- All of the companies that pulled your credit report.
- E. Consumer Statements
- Any statements of disputes you personally put on your account.
What hurts my credit score?
- More revolving credit than in relation to installment loans
- Closing out credit cards, if you’re done using it just cut the card but don’t close it out it reduces your overall credit
- Shopping for credit excessively lenders tend to believe you’re desperate and keep getting denied
- Opening several new accounts in a short time span
- Maxing out credit cards
- Missed payments in 30/60/90 increments stay on your report for 7 years
- When your account goes into collection it stays on your report for 7 years from the date it was reported delinquent
- Bankruptcies can stay on your report for up to 7-10 years.
- Foreclosures stay on your report for 7 years
- Unpaid Tax liens can stay on your report forever
How can I Improve my credit score?
- Pay bills on time and never miss a payment, at worst make the minimum
- Dispute any inaccurate information
- “Time”, this will make negative information less impactful and good information more impactful
- Use no more than 35% of credit limit and under
- Paying down debt
- Increasing your credit limit
- Do your rate shopping for a given loan within a focused period of time
- Manage credit responsibly