If a lender ever asks about your credit, often what's in question is your credit history. Your credit history plays an important role in determining creditworthiness and whether or not you will be granted a loan or line of credit.
Your credit history includes information like:
- How many credit cards you have
- How many loans you have
- Your repayment history
You can find information about your credit history in your credit report, which helps to determine your credit score.
What is a credit report?
Your credit report is a summary of your credit history, and you have a report with each of the three major credit reporting bureaus — Experian®, Equifax® and TransUnion®. Whenever you apply for a loan or line of credit, your credit report is reviewed.
Examples of items you'd see on your credit report include:
- Credit accounts
- Balances due
- Total outstanding debt
- Details of your payment history
- Charge-offs (a declaration by a creditor that an amount of debt is unlikely to be collected)
- Foreclosures or repossessions (something being taken back by a lender)
Why is your credit report important?
It's important to be familiar with your credit report and the information on it because it will affect your future finances. Lenders may use your credit report to determine your eligibility for loans, credit cards, mortgages, rentals, insurance policies and more. Your credit score is calculated using the information in your credit report. You can obtain a copy of your credit report once a year for free at: AnnualCreditReport.com.
Negative entries can remain on your credit report for up to 10 years and are typically red flags to lenders. Having positive entries like an account in good standing is important to maintaining and improving your credit score.
What is a credit score?
Your credit score is a three-digit number calculated from data in your credit reports. Lenders use your credit score to help determine your credit health and the likelihood that you'll pay off debt. Credit scores usually range from 300 to 850.
FICO® vs. VantageScore®
You may hear of two types of credit scores: FICO Scores and VantageScore. Both credit scores are important, though their criteria and scoring models are slightly different.
These were created by the Fair Isaac Corporation and are commonly used by most lenders. For FICO to develop a score based on your credit reports, you must have a credit account at least 6 months old and activity on an account during the past 6 months.
These are the FICO® Score ranges:
- Exceptional Credit 800+
- Very Good Credit 740-799
- Good Credit 670-739
- Fair Credit 580-669
- Poor Credit <580
This was introduced in 2006 as a different way to calculate credit scores. They can calculate your score as long as your credit report has at least one account in it and it doesn't matter how old the account is.
VantageScore® ranges break down like this:
- Excellent Credit 781-850
- Good Credit 661-780
- Fair Credit 601-660
- Poor Credit 500-600
- Bad Credit 300-499
Why is your credit score important?
Your credit score is important because it can impact your ability to get a loan or new line of credit. Credit scores help indicate your creditworthiness and how responsible you may be as a borrower. If you're considering applying for a credit card or auto/home loan, or making another major financial move, you'll want to know your credit score.
The higher your score, the more likely it is that you'll be approved for the loan, credit card, mortgage, etc. A high credit score may also help you get better interest rates and qualify for credit card rewards programs.
Several organizations might look at your credit score, including:
- Credit card companies
- Mortgage, auto loan and student loan lenders
- Property managers and landlords
- Insurance companies
- Potential employers
Your scores can fluctuate depending on your payment history, amount of credit used, the number of lines of credit you have open and other factors, so it's important to keep an eye on your score and be aware of any significant decreases, which could be because of an error or fraud.
Credit report vs. credit score
Still unsure of the difference between credit report and credit score? There's a lot of data that goes into both, but here's one way to think about it: a credit report is like a compilation of credit activity and history, whereas a credit score is like a snapshot.
Disputing errors on your credit report
If you see information on your report that you believe to be inaccurate or incomplete or something that could be the result of fraud, file a dispute with the credit bureau. You can complete the bureau's online process for disputes or call the credit bureau directly. When you file a dispute, the credit bureau will investigate and contact you typically within 30 days with the results.
Now that you know the difference between credit report and credit score, you might be ready to take action toward your financial future. An annual review of your credit report with each of the three major credit bureaus may highlight specific information about your credit accounts and help you find errors or signs of fraud. You can also track and understand your overall credit health through Chase Credit Journey. It's free to check your credit score and can help you manage, monitor and protect your credit.