Credit reports and credit scores are terms used interchangeably, but they have vastly different meanings. Did you ever though of the real difference between them? A credit report is a log of data, whereas a credit score is an extremely important number derived from that data.
Here’s what you need to know about both:
Credit reports contain information that is reported to a credit bureau by a lender. When you borrow money to buy a home or car, open a credit card account, or agree to accept a line of credit, these facts are reported on your credit report. Each month, lenders submit new information about your available balance and credit limit, the amount that you owe, your payment history, and whether or not you have made all payments as needed.
Credit scores are derived from the information in your credit report. Using a mathematical algorithm, the credit scoring bureaus assign a score to your credit history based on the types of accounts you have opened, how long you have used credit, how much credit you have available to you, and how well you have managed your accounts by making on time payments.
Having a good credit report is the starting place to having a good credit score. By paying on time and making at least the minimum payment, you’ll build the most important part of your credit score: payment history. By keeping your balances low, you’ll always improve the utilization portion of your credit report, giving you a higher credit score. Always be sure to check your credit report at least once per year for false or inaccurate information.