Ask the Experts: Credit Score vs. Credit Report (and More)


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Credit is an important measurement of our overall financial health. It plays huge part in how much we pay in our monthly bills, and all of those extra dollars spent in high interest and fees add up significantly over time. Yet, credit is still a huge mystery to millions of Americans. Since no one likes to talk about it, we’re making credit a little easier to understand (just like what we do with car insurance).

What is Credit?

Simply put, credit is borrowed money. A credit grantor (credit card company, bank, lender, etc.) agrees to let a consumer borrow money, and the consumer agrees to pay it back with interest and/or fees. As Experian explains, there are four types of credit:

Revolving credit — The most common example is credit card. Consumers are given a maximum credit limit that they’re able to charge up to and can carry a balance (aka revolve a debt) up to that amount. Payments are made on a monthly basis, and balances carried forward are charged interest.

Charge cards — These are similar to credit cards except the total balance must be paid in full each month, so no revolving debt is carried forward to the next month. There are two benefits to using a charge card: zero interest (though there are fees) and often no spending limit. Diner’s Club cards are charge cards.

Service — Agreements made with service providers (gyms, cell phones, utility companies) where payments are made on a monthly basis. These agreements may or may not show up on your credit report.

Installment credit — Auto loans, mortgages, student loans are all examples of installment loans where the creditor grants you the loan for a specific amount, and the payments for the loan amount, fees, and interest are made for an agreed period of time.

What’s the Difference Between a Credit Score and a Credit Report?

A credit score is a three digit number between 500 and 800 that rates your credit worthiness. The higher the number, the better your score.

A credit report, on the other hand, is a detailed breakdown of your credit history. There are three credit bureaus in the United States that collect this data: Equifax, Experian, and TransUnion.

Your credit score is also known as a FICO score, named as the Fair Isaac Corporation, the company that created the analytics behind the credit scoring system. A common misconception is that there is only one credit score. However, there are many variations of the score because not all credit grantors report to all three credit bureaus.

What Does Credit Impact?

Your credit score determines whether you can qualify for credit and if you do, how much you will pay in interest. Higher credit scores mean lower interest rates, so a consumer would pay less in interest over the period of time of the credit agreement.

In most states (except California, Hawaii, and Massachusetts), drivers with poor credit scores can pay twice as much for car insurance than drivers with excellent credit. You can read more about it right here. Your credit score can also impact your homeowners insurance rates.

Employers may look at credit reports (not credit score) of potential employees as part of a background check.

Utility companies and cell phone carriers will often check credit to determine whether an applicant must pay an additional fee or deposit prior to setting up service.

Credit Best Practices

Keeping your credit in check requires work. Here are some best practices to make sure you are keeping your financial report card looking sharp.

Pay your bills on time.

This seems like an obvious one, but sometimes life happens. (If you find yourself struggling to keep up, these tips can help.)

Check your credit regularly.

You’re entitled to one free credit report per year from each of credit bureaus. You can obtain them at AnnualCreditReport.com, the official website to get your free credit reports, as guaranteed by Federal Law.

Sign up for a free credit monitoring service (like Credit Sesame) to check your credit score and report throughout the year. Your credit card company may also offer free credit monitoring, as well.

Even if you’re not applying for credit anytime soon, it’s still important to monitor your credit in the event of any inaccuracies or identity theft. It’s best to know now before you are in a time crunch for a loan or mortgage.

Keep credit utilization under 30%.

Keep credit balances low. It demonstrates that you’re able to use credit responsibly. If you have a credit limit of $1,000, using more than $300 of your available credit can have a negative impact on your score.

Don’t apply for too many credit cards or loans at the same time.

Too many credit inquiries (applications for credit) lower your credit score and is often seen as a red flag. The exception is when mortgage shopping, though lenders may require you to write a letter or fill out a form to explain the multiple credit inquiries.

Be patient.

If you’re new to the game, building your credit profile takes time. The same rule applies to someone who’s made some mistakes along the way. Derogatory items (such as accounts in collections) can stay on your report for seven years. Other items like bankruptcies will stay on your report for 10 years. And the way credit is calculated can change. New rules went into effect on July 1st that removed civil debts and tax liens from credit score calculations, improving the credit scores of 7% of Americans.

#ZebraChat Recap: Understanding Your Credit Score

We took to Twitter, along with our featured experts, to discuss credit and how it impacts our day to day. Here are some highlights from our conversation.

Q1.) What is credit and why should we care about it?

Q2.) What’s the difference between a credit score and a credit report?

Q3.) How often should we check our credit scores and why?

Q4.) What tools/apps/websites are you using to monitor your credit?

Q5.) What are some important things to monitor on your credit history?

Q6.) What are some unexpected or surprising ways your credit can impact your day to day?

Q7.) What are some common credit mistakes people make?

Q8.) What advice would you give to someone who is in the process of establishing credit?

Missed our monthly Twitter chat? Follow us on Twitter or subscribe to Quoted to find out when the next #ZebraChat takes place.