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What's the difference between my credit report and credit score?

There's a lot of misinformation and misunderstandings out there about credit reports versus scores. Hopefully by the time you're done reading this, you'll be clear on the difference and how both work.

What's the same?

First, it's important to understand that your credit report and your credit score are both important aspects of your ability to take on credit, for example to borrow money to buy a car or home or to open a credit card. Your credit report is the information that is used to determine your score – if you think of your credit score as your grade, the report is the homework that explains why you got the grade that you did.

What makes up your credit report

There are three credit bureaus that keep track of your credit-related behavior: Experian, Equifax and TransUnion. These three companies collect information on you from various places including utility companies, debt collectors and of course banks, which share information on any mortgages, car loans, credit cards and other accounts where you're making payments.

They also collect publicly available information on you including name changes, addresses and bankruptcies. Finally, your credit report shows any recent applications for credit where another lender pulled your report to make their decision – this is called a hard inquiry.

How you can access your credit report

US federal law requires each credit bureau to provide you one copy every 12 months of the report they have on your free of charge through the website If you're ever declined for credit, you may also request a copy of the report that was used for free as well.

A best practice is to request one of your reports every 4 months so that you can regularly check for errors and signs of fraud. It's important to understand though that not all companies report to all 3 bureaus, so it's very possible that your 3 credit reports could contain different information.

How a credit score is different

Your credit score is based on a mathematical formula that uses the information available in your credit report to give lenders of indication of how likely you are to pay them back – the higher your score, the more likely you'll pay them back. An excellent credit score basically reflects that all of your bills are current and that you aren't stretching the credit available to you to the max.

There are several different companies that sell credit scores – while the information on your report is factual and reflects your actual financial activity (if it doesn't, then you'll want to get that corrected), how credit scores are calculated is a bit of a "secret sauce." Some of the more commonly used companies are relatively transparent about their formula, telling people that a large part of their score is reliant on payments being on-time, for example, but each one varies slightly.

There are some credit score formulas that exclude medical debt, for example, while others emphasize credit utilization at a higher rate than others.

How your credit score is used

While it's important to have an idea of what your score is, when you apply for credit, you typically don't get to choose which score the lender uses. So while it's nice to know that there is a version of a score that doesn't factor in medical debt, especially if that's the thing that is holding your score down, that fact is only helpful if the lender you're applying with uses that particular companies score.

Depending on what you're applying for, the lender may use just your credit score or they may also look at your credit report as well. An example of this is most landlords – they'd rather see the detail behind your payment behavior rather than just your score. Some employers also look at your credit report for a variety of reasons.

Many lenders will use both – a score to give them an idea of your creditworthiness, but also the report to give them the detail.

How to check your credit score

These days many credit card companies will tell you your score for free if you just log on to your account and request it. Doing this does NOT affect your score.

There are also free services that you can sign up for that will help you monitor your score. These services can be helpful if you're looking for a bigger picture view of your credit situation or looking for ways to improve your credit. It's important to know though that the score that the free monitoring services calculates can sometimes vary wildly from the score a bank may receive when you apply for credit.

What you can do to maintain the best score possible

Pay your bills on time. All credit score calculations place a high amount of value on your credit report showing on-time payments for all accounts, so this is the #1 most important thing you can do to improve and maintain a higher credit score. Once a late payment is reported, it will drag your score down and the only thing that will diminish the effect of that fact is time passing.

Keep your credit utilization low. When it comes to how much of your credit card limit that you've used, most scores give the highest points for 30% or less of the available credit. So if you have a credit card with a $1,000 credit limit, carrying a balance over $300 will start to drag your score down. The good news is, getting your balance to a lower utilization will give your score an immediate boost, so work to pay down any cards close to the limit.

If your credit is otherwise in good shape, you may also consider calling your card company and asking for a credit limit increase, which will immediately decrease the percentage used. Just be sure not to go out and charge it back up!

Avoid applying for new lines of credit before applying for "important" credit like a mortgage or car loan. Having more than 1 or 2 hard inquiries in the past six months will temporarily reduce your score, so if you're planning to apply for a mortgage or car loan in the near future, try to avoid applying for other credit if at all possible until after you've closed on your home or purchased your car.

Be patient. A few aspects of your credit score have to do with the length of your credit history and how long it's been since a negative item has posted. If you're just getting started on building credit or re-building after an event like a bankruptcy, then part of getting there will simply be letting time pass. In the meantime, be sure to practice the other good habits of responsible credit like paying on time and being sure not to over-utilize your limits.

Keep it in perspective

One mistake that people can make with their finances is being so focused on keeping a great credit score that they loose sight of maintaining good financial habits. While having a small balance on a credit card will give your score a boost, nowhere does it say that you can't pay that balance off each month and still have the highest score.

Having a great credit score means that you've done the work to maintain a clean credit report, which will enable you to qualify for the best lending terms when it comes time to borrow money for things like buying a house or a car. Be careful that you're not just opening lines of credit for the sake of boosting your score, and be especially careful of letting too much credit card debt build-up. It's possible to be drowning in debt and still have a great credit score but that's a trap. The score is ancillary to good habits, and not the goal.