Importance of Knowing Your Credit Report and Score

The list of reasons why a person should know the activity on his or her credit report and their credit score is long. If negative information is incorrectly being reported, it will lower his or her score, and the consequences could be expensive. Major decisions are made according to a person’s credit report and score. Lenders use them to determine a potential borrower’s eligibility for a personal loan, and the interest rate they will be charged. Insurance companies decide whether or not to extend coverage based on credit reports. Landlords also use them to screen possible tenants. Cell phone service plans can be priced according to a customer’s credit, and utility companies use them to determine if a deposit is needed to initiate service. A person applying for an employment position that requires a security clearance could be denied employment because their credit report and score is disqualifying.

Credit Score vs. Credit Report

The difference between a credit report and a credit score is a credit report lists the financial accounts a person open and their monthly activity. A credit score is a quantitative score of the credit report’s activity. Currently, there are three major credit reporting agencies, TransUnion, Equifax, and Experian. All three of the major agencies report FICO (Fair Isaac Corporation) credit scores, which are scores calculated solely on the credit report’s accounts. A majority of lenders make their lending decisions according to a borrower’s FICO credit score, which can range between 300 and 850. From a lender’s perspective the higher, a borrower’s credit score the less risk associated with making them a personal loan.