Everyone knows that one of the keys of (or, at least, the goals of) personal finance is to have a good credit score and a positive credit report. However, a recent article on Wisebread points out that not all credit customers may fully understand the difference between the two. As the article notes, many people think that “credit report” and “credit score” are synonymous. While they do go hand in hand, there’s actually more to it than those “free credit report” website ads would lead you to believe.
Speaking of those “free” credit reports, one of the first things Wisebread warns against using third party sites that might charge you in order to get this information. Instead, AnnualCreditReport.com is the only site authorized by all three credit bureaus (Experian, Equifax, and Transunion) that allows you to get a copy of your credit reports once a year completely gratis.
That credit report will give you basic information (birthdate, address, social security number, employment history, etc.), any foreclosures or bankruptcies, a list of all your credit accounts, and a list of all the times your credit history was requested. Also, since there are three separate companies reporting, you will have three different credit reports with different accounts listed on them. Sidenote: it’s not completely uncommon for these reports to have errors that can negatively affect you. If you find any, be sure to follow up with the bureaus reporting the error and try to get it resolved.
Simply put, all of this information is then boiled down to create a credit score. According to FICO, payment history makes up 35% of your score while the amount you owe in revolving credit accounts makes up 30%. The rest of the score compiles length of credit history (15%), credit mix/type of credit you use (10%), and new credit (10%).
In a way, your credit score is like a headline while the report is the actual story. Or, as Jason van den Brand, chief executive officer Lenda put it, your credit report is like your report card while the credit score is more like a GPA. No matter which analogy you prefer, it’s important to know the difference between a credit score and a credit report. Of course monitoring both is a must for ensuring against identity fraud and maintaining a solid financial foundation.