What is a credit score?
A credit score is a number that summarizes your credit risk, based on a snapshot of your credit report at a particular point in time. A credit score helps lenders (banks, credit unions, etc.) estimate your credit risk. These scores are collected by lenders and act as key driving factors for making credit decisions. The most widely used credit scores are FICO Scores (can we insert a trademark symbol?), the credit scores created by FICO, which collects credit information from the three main credit reporting agencies, Equifax, Experian and Transunion.
What is a credit report?
A credit report details your credit history reported by any lenders who have extended credit to you. Your individual credit report lists what types of credit you use, the length of time your accounts have been open and whether you’ve paid your bills on time. A credit report gives a broad view of your credit history, as opposed to information from one particular lender. Since your FICO score is based on information within your credit report, it is important to check your credit report yearly. You have the right to obtain one free copy of your credit report per year from each of the three major credit reporting agencies.
Why are the two important?
Credit scores give lenders a quick measurement of your overall credit risk. As a result, higher credit scores can speed up the credit approval process, lower the interest rates on your credit and help you secure better credit offers. Similarly, maintaining a clear credit report by paying your bills on time, not missing payments and maintaining low balances on credit cards will increase the likelihood of securing favorable credit.