Credit Score vs. Credit Report vs. Credit History
You’re not alone if you don’t understand the difference between the terms used to describe your financial health and history. Your mortgage lender may use different words related to credit. Learn the difference between a credit score, a credit report and your credit history.
What Makes up your Credit Score?
- How much credit you owe vs. credit available
- This makes up about 35% of your credit score. This highlights how much you spend each month and how well you can pay your bills. It is vital to make sure you are paying off credit card bills each month and not spending more than your available credit.
- Payment history
- This makes up about 35% of your credit score, as well. Payment history highlights your ability to make monthly payments on time and in full.
- Length of credit history
- This makes up about 15% of your credit score. Period of credit history refers to the amount of time your accounts have been open, and how long you’ve been making monthly payments. A more extended history may give a mortgage lender a better picture of your abilities to handle debt.
- Credit mix
- This makes up about 10% of your score. This refers to the different types of debt you have – credit cards, student loans, auto loans, etc.
- Brand new credit
- This makes up about 5% of your credit score. This highlights how often you open up new accounts or take on new debt.
Paying your monthly payments on time will help you maintain a good credit score. Borrowers with strong credit scores may have access to loans with better interest rates for credit cards and other investments, such as a mortgage.
What are Credit Reports?
Your credit report shows a comprehensive list of all your lines of credit and payment history. Your credit score is based on the information presented in your credit report. There are three major credit reporting companies: Equifax, Experian and TransUnion. Everyone is entitled to one free credit report yearly.
What is Credit History?
Credit history is the main component of your credit report. Credit history is a record of how you have managed to repay debts such as credit cards and other loans.
What is reflected in your credit history?
- The number of accounts you have opened and closed
- List of accounts you have opened and closed
- The balance remaining in each account
- Your payment history, as well as negative marks like delinquencies or accounts you have in collections
Credit history is important because lenders, employers, and landlords may all use this information (with your permission) to help evaluate if you are the right candidate for a loan, job or apartment.