The details of how credit scores work can easily become confusing. The way they are required for a loan, yet a loan is needed to build them; the differing agencies; and the myriad of things credit scores are applicable to make the subject quite complex.
Many people may not want to delve very deep into what credit scores mean to them, but if you ask just a few questions, it is easy to understand credit scores better than most. In addition, knowledge on the subject can lead to a better score.
The following are a few important questions to ask in regard to credit scores:
What is the relationship between a credit score and a credit report?
These two are certainly not the same thing, though they are similar and the terms are used interchangeably by some, USA Today explained. Your credit report consists of how you've handled credit in the past, and it is thorough. Included are what kinds of loans you've taken out, how well you paid them off and recent credit inquiries.
They may also contain information on bankruptcy or foreclosures. The three credit bureaus differ in their report compilation methods, so depending on where you get your report, they may vary.
A credit score is similar to your report, but not exactly the same. It actually represents the details of your credit report numerically. In general, the two most important factors in grading your credit report are payment history and credit utilization.
What does my credit score influence besides my ability to get a loan?
You may think that your credit score is only applicable to loans, but there are others who care about it as well. It is seen among many as a sign of an individual's financial responsibility. A few instances in which you may undergo a credit check include renting an apartment, setting up utilities and applying for an insurance policy.
Because of the frequency with which your credit is reviewed, it is important to stay on top of it.
Why are there only three credit bureaus?
There aren't actually, though it may seem like it because of how often the main three are mentioned. There are actually numerous credit bureaus, though the major three are the most often accepted.
However, alternative credit scores can take into account things the main three do not – this can be a great way to improve your credit score. Credit reporting agencies such as PRBC take into account things such as cell phone bills and apartment rent in order to paint a more complete picture of your financial history.