You know that your credit is important. However, many people focus on their credit scores without realizing the impact that their credit reports are having. Indeed, in some cases, it can be difficult to separate your credit score from your credit report. However, these are two information sources for lenders and others to use when determining your creditworthiness. Understanding the relationship between the two can help you make better credit decisions that will benefit you in the long run.
Your Credit Score is Based on Information in Your Credit Report
Your credit score is a number. This three-digit number is based on information in your credit report. A credit score is a way for financial service providers to get an idea of the sort of risk you are quickly. Combing through a credit report can be time-consuming. Your credit score reduces your borrowing behaviors to a single number that is fairly easy for most financial service providers to understand.
In order to come up with your credit score, information from your credit report is used. Your credit report contains detailed information on the following items:
- Your payment history: Whether you pay on time, miss payments, or have some huge default, such as a foreclosure, is recorded in your credit history. In many cases, the last 36 months-or more-are shown, detailing which months saw on-time payments, and which accounts are 30, 60, 90 and more days late.
- Your credit accounts: All of your loans are detailed. This information includes what types of loans they are, where you got the loan, whether you are up to date on your payments, the balance of your loans, and whether or not the account its closed. For credit cards, information on how much of your credit limit you are using might be included. Also included is how long you have had your credit accounts.
The information in your credit report is weighted and analyzed. Then using a complicated statistical formula, your habits are compared to the habits of others with similar consumer profiles. The formula then results in a number–your credit score.
Improving Your Credit Score
If you want a better credit score, you need to make sure that the information in your credit report accurately reflects positive financial habits. If you have had made late payments in the past, you can improve your score by paying on time going forward. Eventually, your credit report will show many more on-time payments than late payments, and your score will be adjusted to reflect this. Paying down debt, so that your credit account information in your file shows that you have paid off some of your obligations, will also help your credit score.
You can also fix errors on your credit report. Check your credit report regularly so that you can find these mistakes and have them corrected. You can request that the credit bureaus correct mistakes so that your credit report is accurate. When you have an accurate credit report that shows your good financial decisions, you are likely to have a high credit score.
