Your Credit Report and Credit Score

When you hear the words credit report and credit score, you may be confused as to the difference between the two. There are major differences though that you need to be aware of. When you go to borrow funds for any reason, a lender will look at your credit score. This number is nothing more than a snapshot of your past credit history and gives lenders an idea of how much risk they will be taking on if they provide you with the funds you are after.

Your credit report contains your past credit history. When a lender pulls this report up, if he or she chooses to, they will be able to see your personal information. This will include your name, address and social security number along with what types of credit you have or have had in the past. For each credit line, the lender will also be able to see when the account was opened, if you paid your bills as agreed and how much credit you currently have available to you. The credit report will also show how many credit inquires you have made lately so they can determine if you looking to obtain numerous sources of credit. Banking information and public records such as judgments and bankruptcies are also found on this report. With a quick glance at the report, a lender can determine if you have paid past debts back. You can obtain a free credit report once an year thru

A credit score on the other hand is used to determine the interest rate you will pay when you borrow funds. This is a number, ranging from 300 to 900 in most cases, which tells a lender how risky it will be for them to provide you with funds. Most lenders use the FICO score which was developed by the Isaac Corporation. The number is calculated by looking at your payment history, how much you owe to creditors, the length of your credit history, new credit and the types of credit used. Each is given its own weight with your payment history accounting for 35% of your score. Amounts owed counts for 30%, length of credit history counts for 15% and new credit and types of credit used each count for 10%. The higher your score, the lower your interest rate will be in most cases. In addition, car insurers and employers may look at this score.

Of these two items, your credit score is of more importance. If you have a high score, there is no need to pull your credit report although you may receive one free copy each year from the three major reporting agencies. If your credit score is low, you should pull your credit report to look for errors. If no errors are present, but you have issues with creditors, it is best to clear those up before applying for a loan. This will save you a great deal on the interest you pay.