credit score vs credit report

Credit Score vs Credit Report: A Comparative Guide

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Getting a feel for your credit can be a little daunting. If you’re someone who hasn’t examined their credit situation in a while, you might be dreading the day when you pull open the page to see if there’s any damage from the last time you checked. It’s important to keep up on your financial situation, though, and you might be surprised to find that your credit has actually improved. 

Whatever the situation, it’s key that you know how to read your credit score and your credit report. But what’s the difference between a credit score vs credit report? 

We’re going to take a look at those two things today, giving you some tools to get a better understanding of your financial health. Let’s get started.

Credit Score vs Credit Report

You can’t truly improve your credit situation if you don’t know what the different elements of it are or how to interpret your credit information. 

The information below can help you assess your creditworthiness for credit cards, loans, and more. 

What is a Credit Score?

The purpose of a credit score is to let potential lenders and financial institutions know how reliable you will be to repay them. It’s not a judgment of your character by any means, but it does reflect your history of repayment when you’ve been indebted to someone or some organization. 

There are different ranges of credit scores, but the most commonly used ones are versions of VantageScore or FICO. Your score will range anywhere from 300 to 850.

Anything from 300 to 580 is considered very poor. 580 to 669 is considered fair. 670 to 739 is good, and anything above that is considered very good. 

If you have a very good or exceptional credit score, you’re far more likely to receive deals and better rates on loans from lenders. The better your credit, the more money you’ll save and the more options you have to make financial decisions. 

That isn’t to say that you won’t get loans if your score is poor, but you’ll have a harder time and the rates will be higher because your score reflects a higher risk to the lender. 

What is a Credit Report?

A credit report is what VantageScore and FICO use to determine your credit score. 

These reports contain all of your open lines of credit as well as a lineage of your payment history. Pretty much all of the engagements you’ve had with lenders or municipal agencies that required payment are documented here. 

The three companies that tend to run credit reports are Equifax, TransUnion, and Experian. These companies take stock of all of the accessible credit information you have and list it out for you or potential lenders to examine. It’s important to note that credit reports can contain errors. 

Look over yours carefully if you feel like the score you received isn’t correct. The list can be pretty long, considering it goes through all of your financial history, but a single blunder can lead to a significant drop in your credit. 

So, go through your report when you get it and see if everything it contains is correct. You can dispute those errors with the company that you’re getting the report from. 

You are able to get free reports from any of the major companies that run them. 

How to Build Credit

You might find that you don’t have a credit report, and therefore your score is either absent or doesn’t reflect your financial health properly. 

It’s not necessarily a bad thing to have no credit at first. Sure, it means that you don’t have proof of your creditworthiness and it might be hard to get loans, but it also means that you don’t have bad credit. 

If your report shows nothing, it’s time to start building credit. Credit is one of the “need experience to get the job, need the job to have experience” type of situations. 

How can you get opportunities to earn credit if you need credit to get loans? One way is to take out a credit card that you qualify for. There are a lot of options, and many companies are open to offering credit cards to individuals with little credit history. 

You can then use that card once or twice a month and pay it off immediately. It’s not always wise to use a credit card freely if you don’t have the income to support those payments. The smartest move with a card is to pay for something small and take care of the payment as soon as possible. 

It doesn’t matter how much you spend in that month, only that you’re paying your debts back on time. 

Common Mistakes to Avoid

A good credit score comes when an individual pays their debts back on time and only takes out loans that they know they’ll pay back. 

Too many people fall prey to the freedom that a credit card allows. Similarly, a lot of people engage in common predatory lending practices that can destroy a person’s credit. 

Payday loans, for example, are services that give you an advance on your paycheck. It seems like a harmless service, but the reality is that there are fees and rates that far outweigh the benefits. 

Should you fail to repay your loan, your fees will get added to the principal loan, which already has an exorbitant interest rate. These are traps that consistently put people in financial ruin. 

One of the best things you can do for your credit is to avoid dangerous borrowing whenever possible. You have to take risks in life sometimes, but there are some paths that you can be sure that you don’t want to go down. 

That said, there are a number of loan options that are safe, beneficial, and can help you move forward in your life and improve your credit at the same time. 

Want to Learn More about Your Finances?

Understanding credit score vs credit report is an important step toward creating a healthy financial situation. We’re here to help you walk that path and start to see your credit score rise. 

Explore our site for more insight and ideas on how to put more money in your pocket and create financial opportunities. 

Boost your credit scores today!

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