We all know the importance of credit scores. A higher score means you can borrow money at a lower interest rate. Low numbers and you’ll be hard pressed to get anyone to loan money to you.
Most of the time we use the terms credit report and credit score interchangeably; however, there are some important differences between the two.
A credit report is a detailed list of your credit history, including every instance of when you borrowed and paid back money. Bankruptcies are included, as is your timeliness in making those payments.
A credit score is assigned based on the information included in your credit report. Scores range from 350 to 850. Credit scores are used when you are buying a car, applying for a credit card or setting up payment plans for car insurance or utilities, for example. If you are applying for a home loan or loan for another larger purchase, banks or other lending institutions look at your credit report to better assess timeliness and any additional circumstances that might have impacted your credit score.
So which is more important, your credit score or your credit report? That is a subject for debate. The report is the basis for the score, so many people feel it is the crucial piece of the puzzle. However, many of us are motivated by the credit score, which is a quick and easy way to evaluate the quality of our fiscal life.
There is also a difference when it comes to the cost of these two documents. The credit report is free. The Fair Credit Reporting Act requires that each of the three credit reporting agencies (Experian, Transunion, and Equifax) provides you with a free copy of your credit report annually. To get your free copy, go to www.annualcreditreport.com or call 877-322-8228 to get the form required for the report. You will be required to provide identifying information such as your Social Security number, date of birth and full name.
Each of these companies will have different information because each emphasizes different items in its scoring formula. To get the most bang for your buck, stagger your requests from the three companies. Request a report from one company now, then work on improving your fiscal practices. In three months, request a report from the second company. Continue to work on improving your fiscal practices and request from the final company after another three- or four-month period. By staggering your requests, you will be able to determine if you are making progress in improving your credit report.
Though you usually have to pay for your score, there are ways to get your credit score for free. Several websites, banks and credit card companies are now offering you the opportunity to find out your credit score at no cost. Try Credit Karma, Credit Sesame or Quizzle to get a free score.
My credit card company sends me a note each month to update me on my credit score. If it goes down or up, they also provide me with an explanation of why it moved. The note also serves as a reminder to pay on time, pay the outstanding debt down or quit spending, which are all great ways to increase my score.
The most important thing is to be sure to check your credit report each year. It is also a good way to catch any erroneous information on your report quickly.
Both the credit score and the credit report are important. Don’t ignore either of these scorecards of your financial life.
Roxie Rodgers Dinstel is associate director of the Cooperative Extension Service, a part of the University of Alaska Fairbanks, working in cooperation with the U.S. Department of Agriculture. Questions or column requests can be e-mailed to her at firstname.lastname@example.org or by calling (907)474-7201.