Although the two terms are often used interchangeably, your credit report and credit score are actually two separate things. Your credit report is a detailed history of all your borrowing and repaying activity, while your credit score is a three to four digit number that summarizes this information and helps lenders decide how risky it would be to lend money to you.
Even if you have never missed a payment or incurred any late fees, you could still have a low credit score if you have a limited credit history. Conversely, you could have a perfect payment history but still have a low credit score if you owe a lot of money relative to your income.
What is a ‘good’ credit report?
A good credit report is one that shows you’ve borrowed and paid back money responsibly with several lenders. Thing that can attribute to a good credit report include:
- Using a variety of credit like credit cards and loans
- Always paying your bills and loans on time
- Having loans repaid in full
- Little to no credit card debt
Credit reports show a thorough overview of your loan, credit card, and other debt activities. But credit scores come into play for a fast mathematical evaluation. Credit scoring businesses use your financial data from your credit report to build their scoring model, then spit out a three-digit number that reveals lenders how risky you are as a borrower.
What is a ‘bad’ credit score?
A bad credit score is generally considered to be a score that falls into the lowest brackets defined by the major credit reporting agencies. These range brackets are below 509 for Equifax, below 550 for Experian and below 500 for Illion.
While the scoring methods evaluate credit report data differently, there are several similarities: Your credit scores should be on the high side as long as you have a consistent pattern of on-time payments with a variety of credit options.
There are several sorts of credit reports that appear appealing at first sight but have poor scores. If the only credit accounts you have are quite new, your credit scores will also be low. Developing a strong credit history takes time and knowledge.
Several factors can contribute to a bad credit score:
- Late or missed payments on bills, credit cards, or loans
- Defaults on loans or accounts
- Multiple credit inquiries in a short time
- Applications with payday lenders or buy-now-pay-later services
- Having too many open credit accounts
- Court judgments or bankruptcy
Another misunderstanding about reports and scores is that they’re unchanging. If you’ve used a variety of credit products without difficulty and handled them all, your scores may be high. That doesn’t imply they’ll stay that way; in fact, if you stop borrowing and repaying, your scores will plummet.
It seems that if you have a poor credit score based on what you think is a good credit report, you should make sure they are comparable. Use a combination of credit products frequently and responsibly, dispute mistakes, and handle significant or late payments. In time, your ratings will be where they belong—and lenders’ perceptions of your creditworthiness will be clear.
