Most People Confuse These 2 Credit Tools — Here’s Why It Matters, According to a Top CFP

What’s the difference between a credit score and a credit report, and how does each affect my finances?

If there’s one thing you know about your credit, it’s that it has to be good. That may sound like a glib assessment, but the closer your credit score gets to 850, the easier it is to hit many of your life goals — like buying a car or renting the apartment of your dreams. Need a loan for anything, such as a home or a new business? The higher your score, the lower your interest rate is likely to be. So much you need to move through your life — and master your personal finances — depends on your credit.

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As you work to raise that number, you’ve probably come across the terms “credit score” and “credit report.” At first glance, they may seem interchangeable — but they’re not. They’re closely related, but they have a few key differences. Understanding these differences can help you improve your credit.

To break it all down, GOBankingRates caught up with Jay Zigmont, Ph.D., CFP, and founder of Childfree Wealth.

When it comes to understanding credit, this is the million-dollar question. As Zigmont explains: “Your credit report is a list of all your accounts, payment records and basic information about you. Your credit score analyzes your credit report against a rating system.”

In essence, think of your credit report like a financial transcript — a detailed record of your history as a borrower. It includes your credit card accounts, loans, payment history, as well as any delinquencies or defaults. Or, if you’re a spy movie fan, it’s your financial dossier, showing how you’ve treated credit over time.

So who compiles this data? Three major credit bureaus — Equifax, Experian and TransUnion — collect this information based on what your various lenders report to them. Each bureau may have slightly different data, so your reports (and scores) might not be exactly the same from bureau to bureau.

Your credit score, on the other hand, is a three-digit number calculated based on the data within your credit report. It’s a kind of shorthand for lenders to determine how risky or reliable you are as a borrower. The most commonly used scoring model is the FICO Score, which ranges from 300 to 850.

OK, you say — now I know the difference between a credit score and a credit report. But does it actually matter when applying for a car loan or credit card? Zigmont says yes, and here’s why:

“Each bank or loan may use different credit score systems, and may pull from all three bureaus or just one,” he said. “Since they use different scoring systems, they may have different cutoffs. In general, the higher your credit score, the better your loan terms will be.”

In other words, your credit score is only part of the picture. Imagine you’ve just applied for a car loan. Your lender might not look at your score alone; they’ll likely review your full credit report to get the context behind that number. A score alone won’t reveal things like delayed payments or even a recent bankruptcy. Lenders want a holistic view of what they can expect from you, and a credit report gives them just that.

To avoid any surprises in your loan application process, you’ll want to regularly review your credit reports across all three bureaus. This will enable you to catch inaccuracies, resolve any issues and spot potential signs of identity theft before they can hurt your score, or worse, interfere with your ability to get approved for a loan.

Your credit report is like the soil in which your score can bloom — or perhaps wither on the vine, depending on how well you tend to that soil. If you nurture that soil with healthy financial habits, your score will thrive.

Start by reviewing your report. If you’ve been dinged for late payments, make on-time payments your top priority. Next, focus on paying down any existing debt, especially on revolving credit, like credit cards, and aim to use less than 30% of your available credit. This is known as credit utilization, and it has a significant impact on your score.

Also, avoid opening new credit accounts right before applying for a major loan. A new application results in a hard inquiry, which can cause a small, temporary dip in your score.

“Paying off your credit cards will have the biggest impact on your credit score, and you can see the impact in a month,” Zigmont said. “Over time, you need to focus on paying on time, not taking out credit unless you absolutely need it, and keeping your total utilization low.”

No, your credit score and credit report aren’t the same thing — but they are closely related. Your score reflects what’s in your report, so you should check it regularly to ensure it’s accurate.

Think of your credit report as the raw data, and your score as the grade. Both play a big role in whether you can borrow money, rent a place to live or even get hired — so understanding how they work together is a crucial part of achieving long-term financial success.

This article is part of GOBankingRates’ Top 100 Money Experts series, where we spotlight expert answers to the biggest financial questions Americans are asking. Got a question of your own? You could win $500 just for asking — learn more at GOBankingRates.com.

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