Credit Reports and Credit Scores
Credit history is used by banks, utility companies, employers, and landlords to determine the creditworthiness of a person. So, it is important to be aware of the main differences between credit reports and credit scores, compiled by the credit bureaus. A credit report is a document that reflects the history of the credit behavior of a person.
Based on the information on the credit report, a three-digit number is generated, which is called a credit score. Several people often misconstrue the important differences between credit reports and credit scores. A credit report is a person’s credit history, prepared by the credit agency considering their details and their bill-paying habits.
It encompasses information such as name, address, birth date, Social Security Number, and the amount owed to creditors. Furthermore, a credit report includes information concerned with any court verdict if the person has filed bankruptcy.
A credit report is like a report card of how a consumer handles debt in the past. It also evaluates how often a consumer pays the debt on time if you take more debt than you can afford.
Credit Score Definition
A credit score is defined as a three-digit number, which highlights the information of the credit report. It helps to anticipate the chances of repayment when it becomes due for payment. This information is used by the banks and financial institution whether to grant a loan and what terms it is to be sanctioned and the interest rate. The credit score is based on several factors, including number, type of the account, outstanding debt, collection action, payment of the bill, currently available credit, etc.
The higher the credit score, the greater the chances to qualify for the loan, apartment rental and so forth.
Key Differences Between Credit Reports and Credit Scores
There are key differences between credit reports and credit scores. Credit reports can be understood as the summary of credit history, typically concerned with the ability to discharge obligations. Conversely, credit scores are nothing but a statistical number of a person’s financial trustworthiness, depending on their credit history.
Credit reports are a standalone document that summarizes credit history whereas the credit scores are based on the details of the credit report.
A credit report is taking into account payment history, credit history, and types of credit to determine how the consumer manages credit. A credit score implies the total number of points that determines the creditworthiness of a person; the possibilities of a person who is going to repay and make loan payments on time.
A Credit Score is Judgment Based, a Credit Report is Not
Credit reports and credit scores are of utmost importance to banks, money lenders, landlords, and other parties. It anticipates the risk involved in lending money and helps reduce losses as a result of bad debt. It is also helpful to a bank to decide whether a person is eligible for a loan, the rate of interest to be charged, and terms of credit.
