Credit scores and credit reports are often mixed up. It isn’t actually difficult to get the two confused because they are very similar at times. If you don’t really know much about either of them then they are easily mistaken for one another.
However, there are millions who don’t know the differences between a credit score and a credit report. As strange as it sounds, its true and yet many struggle to understand the two concepts. The following is just a few facts you may need to know about your credit report and credit score for the future.
What Is a Credit Report?
As most will know a credit report is basically a detailed report, almost like a record, of all your personal information. The report contains information such as your name, address, date of birth, social security number, your employment history and even lists the lines of credit you have ever had. A report can cover almost every section of your personal finances with credit including when the line of credit was opened, how much you had available and your payment history. These can all help to determine your eligibility for loans.
What Is A Credit Inquiry?
If you were to apply for a loan or even look to take out a line of credit from a department store, the lender would seek a copy of your credit report. This is really called a credit inquiry, a hard inquiry in fact; and the lender wants to see your history in a sense. They need to see how often you have had credit extended to you as well as whether or not you are able to repay. However, be warned every time a lender takes out credit inquiries on your history, it will be shown in your report and remains there for two years.
What Are Credit Scores?
The credit report helps to make up a person’s credit score. Now, the way in which this works is simply through small percentages. Percentages are taken from things such as old credit history, new credit history, amounts owed, and your payment history and of course the length of credit history you have established and used to help calculate your credit score. Usually the score can range from around four hundred to eight hundred though it can be considerably lower if you have a terrible track record or have defaulted on previous loans or debts.
However, the credit score can be used to offer smaller lines of credit. They are easily used each and every day to obtain things such as televisions, jewelry, and smaller scale items. The credit score is quite important because if you have a terrible score it means you have a poor credit history and that is bad no matter who you are.
Is Your Credit Score More Important Than Your Report?
In all honesty, both a credit score and a credit report are just as important as the other. They may have a similar purpose but the way in which they are used is slightly different. When you are looking to get a line of credit or a revolving line of credit say from a store or obtain a credit card, a credit score will be used. Credit scores are used in order to determine someone’s eligibility for credit.
However, a credit report is necessary when someone wishes to apply for a mortgage or a large loan. Lenders want to take a good in-depth look at your credit history and require your report to see how good a candidate for a loan you are. Every section within your report is closely looked at and checked to ensure you will be eligible for a loan.
Clean Credit Is Always Crucial
However, too many people believe if their credit score is good now, it doesn’t matter what is in their past. That is far from true because any debts, loans and defaulted credits are all listed on a credit report and remain there for years, seven possibly more. You may be in a great position today but if there is bad or negative credit within your report it can do a lot of damage.
It will be important to ensure your credit remains healthy or as good a position as possible. Credit scores are important today as they are tomorrow and every little line of credit will be noted in your credit report. Remember that before taking out unnecessary loans or co-signing for a friend.