In some cases, credit reports and credit scores are used interchangeably – which can be confusing to some. They are related terms, but they are not the same. In this article, we’re going to explain some details that will help you understand these two terms.
What Exactly Is a Credit Score?
For starters, credit score is a means to evaluate your financial position, which affects your ability to obtain a loan whether for financing or personal use. Thus, let us dig deeper to understand this concept, which can directly affect your financing capability.
Your credit score is just like your grade which is given on your report card (credit report). According to the standard FICO (Fair Isaac Cooperation) score, this three-digit number ranges from 1000 to 2000. The higher credit score you have, the more chances that you may qualify for a specific loan.
Moreover, your credit score is computed with the help of the secret algorithm, otherwise known as the black box. It uses different factors to identify your risk of default.
Now, What Is A Credit Report?
On the other hand, credit report pertains to the record which includes information on your existing and past credit agreements like mortgages, credit card accounts, and student loans. It also includes the inquiry list concerning your credit history.
It is an outline of the amount you owe from the creditors, your consistency in making on-time payment, and the duration of every account has been open. Additionally, it also includes all related public records like tax aliens, bankruptcy filings, and etc.
For you to access it, call your credit reporting agency or simply buy a credit monitoring service which gives this information. Right now, only DP Credit Bureau and Credit Bureau of Singapore are legible to give credit report in the said country.
How to Maintain a Good Credit Report?
Once you already have a credit card, it is your responsibility to keep track of it. You don’t want to be labeled as an impulsive buyer. This would ruin your chance of achieving a good credit score. The following list is the most common guide to maintaining a good credit history:
- Pay your credit bill in full and on time, whether you have a credit card loan or any other type of loan. You should not have a bad reputation of paying beyond the due date, which normally falls to collecting agencies.
- Keep at least two credit accounts. Too many would result in a lower credit score.
- Always check the balance on the credit reports you are getting. This is to raise any discrepancy or error if there’s any. Then, keep the credit account open as long as you can.
Following the above-listed tips would significantly have a direct impact on how your credit score would rate. Expect a lower credit score when you max out your limit and have due payments. Diligently paying all of it on time and staying at 30% would give you an optimistic result.
There you go—the basic concepts so that you can understand and maintain a credit report and credit score.
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