Credit Scores V Credit Reports
Are you are often confused when trying to determine the difference between Credit Reports and Credit Scores? You will be interested to know that you are not the only person who is confused about the terms. The confusion often occurs because the two affect your ability to obtain a prime home loan or a non conforming home loan or any other finance arrangement.
But, there is a BIG difference between the two. When you have read this article, you should have a clear understanding of the difference, and be able to, readily determine the difference between the two.
What is a Credit Report?
Credit Reporting Agencies (such as Eqifax and Dun & Bradstreet) prepare a Credit Report in your name and it forms part of your Credit File. The report contains information detailing your credit history. This information can come from a number of transactions occurred by you, during the past five years. Here is a list, which will help you determine the types of transactions listed in your report:
- Applications made for a credit card
- Monthly phone or utility bills received by you
- When you have accounts in arrears or payments in default, which have been sixty days late or more (i.e. the arrears and payment defaults are listed in your credit report as “Defaults “).
- Bankruptcy or Part 9 or 10
- Judgement’s
What is a Credit Score?
It is the actual numerical value assigned to the information in your Credit Report.
How is My Credit Score Calculated?
Credit Reporting Agencies calculate it via a “Credit Scoring model”, which applies a complex mathematical formula to the information contained in your report.
A certain weight is assigned to a number of factors considered in the formula of “Credit Scoring model.” Based on the evaluation of all of the factors, a Credit Score is assigned to you. Here is a list of typical factors considered in the model’s formula:
- Your payment record
- Frequency of your payments
- Amount of debts you have incurred
- The total number of credit cards you are holding
- Use of Buy Now Pay Later (BNPL)
The majority of scores usually range from 300 on the poor end to 850 on the top end. Interestingly, the Equifax credit scoring system begins at 0 and finishes at 1,200. A score of 200 means that you have a 50% chance of incurring an adverse credit event within the next 12 months.
Who Uses My Credit Score?
Lenders will use it to determine your credit worthiness when you are planning a major purchase or when you are applying for your first credit card. It will show the lenders how much of a risk you are in paying back the debt.
“High” Credit Score
The “higher” your score the lesser of a risk you are to the lenders and you will be able to get a lower interest rate for credit cards, home loans and any other finance arrangements.
“Low” Credit Score
If you have a “low” score, you will be considered by lenders to be a high risk and this may result in the lenders:
- Refusing you loan request
- Charging you to pay a higher interest rate
- Making you ineligible for any low-interest rates on offer
- Offering you a less favourable loan term
Why Should I Obtain My Credit Report?
It is advisable to regularly check your Credit Reports to address any incorrect information immediately. You can obtain your Credit Report from agencies like Equifax or Dunn & Bradstreet. You should be entitled to one free Credit Report each year. Knowing the details of your report will help you to better understand your financial situation.
Improving Your Credit Report and Credit Score
Here is a list of steps to help you improve your Credit Report and Credit Score:
>> Endeavour to make all your payments on time, and
>> Avoid taking out multiple credit cards
How to obtain a Home Loan with a Low Credit Score?
Your Credit Score will have an impact on you, especially prior to making an application for a home loan or any other finance arrangement. So, it is better to seek expert and specialist advice from a professionally qualified Non Conforming Lender. It is because he/she will have a thorough knowledge of the impact that unfavourable scores can have on your ability to obtain a loan. With his/her advice, you will be to understand your situation in better light and you will be prepared to visit the lender with a suitable explanation of your low credit score.
