What’s the difference between credit report and credit score?

Credit report, credit history, credit score. You’ll hear these terms all the time, but what do they mean? What impact do they have on your daily life?

If you’re trying to learn basic finance, you’ll see these terms constantly, especially when you apply for credit cards, loans or a mortgage.

If you know what they are, you know how to handle them, which is what this post is all about.

What’s a credit report?

A credit report is like a financial report card. It’s a document that shows how responsible you’ve been with money.

It’s prepared by credit reference agencies that keep an eye on how you manage your money and debts.

They collect information from various sources, like banks, lenders, and even the electoral roll.

Your credit report has a lot of important information:

1. Personal information: Your name, address, and sometimes your birthdate.
2. Credit accounts: All the loans, credit cards, mortgages, and other accounts where you owe or deal with money.
3. Payment history: Your payment track record. It shows whether you’ve been paying your bills and debts on time or if you’ve been late.
4. Credit enquiries: Credit enquiries show when someone checks your credit report, like when you apply for a loan or a credit card.
5. Public records: If you’ve had serious money problems, like bankruptcy or court judgments, these might show up here.

Whenever you want to borrow money or get something on credit, like a phone contract, lenders and companies look at your credit report.

If you’ve been good at managing money, your credit report looks good. Lenders are more likely to lend you money or offer you credit because you always pay it back.

If your credit report isn’t great, they might be more cautious.

Being careful with your money and paying bills on time helps you have a good credit report, and that can make your financial life smoother.

How can I improve my credit report?

Improving your credit report takes time and consistent effort, but it’s definitely possible.

Here are some steps you can take to help boost your credit report:

1. Pay bills on time: One of the most crucial factors in a good credit report is your payment history. Make sure to pay all your bills, loans, and credit card payments on time. Even a few late payments can hurt your credit score.
2. Reduce debt: If you have existing debts, work on paying them down. High levels of debt relative to your credit limits can negatively affect your credit score. Aim to keep your credit card balances low, ideally below 30% of your credit limit.
3. Don’t apply for too much credit: Each time you apply for a new credit card or loan, it’s recorded on your credit report. Too many applications in a short period can make you look risky to lenders.
4. Use different types of credit: Having a mix of different types of credit accounts, like credit cards, loans, and mortgages, can positively impact your credit score. It shows that you can handle different kinds of financial responsibilities.
5. Keep old accounts open: The length of your credit history matters. If you have old, well-managed accounts, keep them open. Closing them might shorten your credit history and potentially lower your score.
6. Regularly check your report: Request a free copy of your credit report from each of the major credit reference agencies (Experian, Equifax and TransUnion) annually. Check for errors and make sure everything is accurate.
7. Correct errors: If you find mistakes on your credit report, dispute them with the credit reference agency. Errors could be affecting your score negatively.
8. Register on the electoral roll: Being on the electoral roll can verify your address and positively affect your credit score.
9. Use credit responsibly: If you have a credit card, use it wisely. Make small purchases that you can easily pay off, and don’t max out your card limit.
10. Be patient: Improving your credit takes time. Consistently following good financial practices will gradually reflect in your credit report.

Remember, there’s no quick fix for a credit report, but by being responsible with your finances and making smart choices, you’ll definitely see positive changes over time.

What’s a credit score?

Imagine your credit score as a number that tells lenders how well you’ve managed your money in the past. It’s like a grade for your money skills.

As the days of knowing your local bank manager are long gone, your credit score and credit report are the only way a lender can assess whether you’re a good risk or not.

This number helps banks and companies decide if they should lend you money or give you credit.

Here’s what it considers:

1. Payment history: Have you paid your bills and debts on time? If you have a history of paying things when they’re due, you get top marks.
2. Credit balances: How much do you owe compared to how much credit you have? If you’ve borrowed responsibly and kept your balances in check, you’ll get a good score.
3. Credit history length: How long have you been managing money? A longer history can be a sign of experience and can help your score.
4. Credit types: Have you dealt with different kinds of credit, like credit cards or loans? Handling a mix of credit can show that you’re good at handling different financial tasks.
5. Recent credit applications: If you’ve been applying for lots of credit recently, it might lower your score. Lenders will wonder why you suddenly need so much money.
6. Public records: Serious money problems like bankruptcy can hurt your score.

The credit score number usually ranges from around 300 to 850. The higher the number, the better.

Different credit reference agencies use different scoring so you don’t just have one score, you’ll have 2 or 3.

If you have a high score, lenders are more likely to say, “Sure, we trust you with our money.” But if your score is low, it might be harder to borrow money or get credit.

How can you check your credit score?

Checking your credit score is quite easy, and you can do it for free.

Here’s how:

1. Credit reference agencies: There are three main credit reference agencies in the UK: Experian, Equifax and TransUnion (formerly Callcredit). Each keeps a record of your credit history and assigns you a credit score. You can get your credit score from any of these agencies.
2. Online platforms: Many online platforms offer free credit score checks. Websites like ClearScore (uses Equifax data), Credit Karma (uses TransUnion data), and MoneySavingExpert’s Credit Club (uses Experian data) provide free access to your credit score and credit report.

3. Credit card companies and banks: Some credit card companies and banks offer free access to your credit score. Check with your bank or credit card company to see if they provide this feature.
4. Annual credit reports: By law, you’re entitled to a free credit report from each of the credit reference agencies once a year. You can request these reports online through the respective website.
5. Credit score apps: There are mobile apps available that can provide you with your credit score and credit report.
6. Credit monitoring services: Some credit monitoring services provide ongoing access to your credit score and report, along with alerts for any changes to your credit history. Some of these services are free, while others may have a subscription fee.

When checking your credit score, make sure you’re using legitimate and secure sources.

Be cautious of websites or services that ask for sensitive information or charge you for access.

Remember, your credit score might vary slightly between different credit reference agencies due to the information they have and their scoring models.

It’s a good idea to check your credit score regularly to ensure that the information is accurate and to keep track of your financial health.

So that’s most of what you need to know about credit reports, credit history and credit scores. As they play such an important role in our lives, knowledge very definitely is power!