Most of us know from our days in school that when we’re learning about a new topic or mastering a new skill there’s vocabulary we need to tackle in order to fully understand the subject matter.
While this is often challenging enough, it gets even more complicated when related terms sound similar but are actually different concepts. In teacher talk, these are known as “confusing pairs.” And in the world of personal finance, there’s no better example of a confusing pair than ‘credit report’ and ‘credit score.’
Differentiating between your credit report and your credit score may seem trivial – after all, they’re so closely intertwined that it may seem like splitting hairs to spend the time becoming familiar with the ins and outs of each.
However, having a clear picture of what both of these important entities mean to your financial life is vital, and it starts with understanding the fine difference between the two:
- Your credit report is a detailed accounting of your past handling of credit that’s been extended to you. This document is a record of your history with bill paying, credit accounts that you’ve had and how much you owe on each, how frequently you’ve requested new credit accounts, and a list of delinquencies and missed payments. In short, your credit report is the story of your financial life.
- Your credit score is a numerical representation of the information on your credit report, ranging from 350-850. If you’ve been responsible with money in the past, your score will be high. If you’ve made poor financial decisions (paying bills late, taking on too much debt, etc.) your score will be lower. This figure is a quick reference tool for creditors when they’re deciding whether or not to lend to you. If your credit score is low, there are many methods of credit repair that can help.
Ok, now that this confusing pair isn’t confusing anymore, it’s important to discuss why you should be paying attention to both your credit score and your credit report.
Why you should pay attention to both.
For starters, the items on your credit report determine your credit score. If your credit report shows on-time payments of bills and low levels of debt, your credit score will be high. This means that creditors are likely to extend you money for a home or a car at a competitive interest rate.
Obviously, it also means that you should be regularly reviewing your credit report for accuracy and correcting errors that you catch. Otherwise, you could be unfairly penalized for money mistakes you didn’t make.
Your credit score is incredibly important because it impacts your ability to do everything from get a loan to rent an apartment to get a job because your credit score is checked all the time, and not just by lenders.
If your credit score is low, you should make efforts to improve it. This starts, of course, with reviewing your credit report and figuring out what’s dragging your credit score down. As soon as your credit report starts showing improved financial habits, your credit score will rise and your financial life will get much easier.
The takeaway: even though they seem like the same thing, your credit score and your credit report are different beasts that both need to be looked after. Monitoring your credit is an important step towards a healthier financial future, so be sure to start keeping tabs on them right away!
Lindsay writes for Quizzle.com, the only place on the web to get your free credit report and score
Do you know what your credit score is? How often do you check your report?