Learning the difference between your credit score and your credit report can be confusing. Both are important, but they contain different information and are used differently. Learning to check and manage both your credit score and your credit report are important parts of maintaining your overall financial health.
What Is a Credit Score?
Your credit score is a number between 300 and 850 that is used to grade your creditworthiness, or how good of a candidate you are for a loan. It is updated monthly and determined based on a number of different factors to predict how likely you are to be a responsible borrower, such as:
- Your history of late and on-time payments
- How long you’ve had your credit accounts
- The diversity of your credit accounts (across credit cards, mortgages, student loans, etc.)
- What percentage of your credit limit you’re currently using
- How many new credit cards or loans you’ve applied for recently
- How much debt you have overall
All of these things are weighed to come up with one three-digit number. Generally, anything above 800 is considered exceptional, the 740–799 range is considered very good, and 670–739 is considered good. Any score below 670 could be improved, and scores below 580 are considered very poor and will severely limit a person’s creditworthiness.
What Is a Credit Report?
Your credit report is a documentation of all the factors that are used to calculate your credit score, but doesn’t include the actual three-digit “grade.” Credit reports list every account you currently hold as well as all of your closed accounts, all hard inquiries into your credit, a list of your late and on-time payments, and a record of any accounts that have ever needed to be sent to a collection agency.
There are three credit bureaus that generate credit reports: Experian, TransUnion and Equifax. You can order one copy of your credit report for free from each bureau annually. It’s wise to request these copies one at a time throughout the year and check regularly for potential errors that could be damaging your credit.
Do People Know the Difference Between a Credit Score and a Credit Report?
Everyone should understand what a credit score and credit report are as well as how to monitor both. But how many people are actually getting this essential financial education?
We surveyed over 3000 people to learn how many people know the difference between a credit score and a credit report. Here are some key takeaways we found:
- One in four people don’t know that there is a difference between a credit score and a credit report
- Less than 20 percent know how to read their credit report
- 70 percent don’t know how long credit history remains on a credit report
Most People Know Credit Reports and Scores Are Different…
The first survey question simply asked whether there is a difference between a credit score and a credit report. In a group of over 1000 respondents, just under 75 percent correctly answered that there is in fact a difference between a credit score and credit report.
The percentage of correct answers for this question increased steadily by age, with the most correct answers coming from respondents aged 55 and older at 83 percent. But every age group answered correctly in the majority except for one: Among 18–24 year olds, only half knew that there is a difference between a credit score and a credit report.
This could be explained by simple financial experience. A 2016 Bankrate survey showed that only 33 percent of 18–29 year olds owned credit cards as compared to 68 percent of people over 65. This suggests that young adults aren’t learning about credit cards until they have one, which could lead to dangerous mistakes early on in their credit history.
…But They Don’t Know What That Difference Is
The second of the two survey questions quizzed participants on what is and isn’t true of a credit score or a credit report.
Across both surveys, just over half of respondents answered four or more of the six total choices incorrectly. This is actually comparatively positive performance compared to larger financial literacy studies, which have found that a full two thirds of Americans can’t pass a basic test.
About 12 percent completed the quiz with one or no mistakes.
Financial Literacy Remains an Essential and Underdeveloped Skill
The results of our survey are in line with broader research on the topic that has consistently shown concerningly high rates of financial illiteracy among adults in America. The high rate of financial illiteracy highlights an inadequacy in the American school system, which is failing to properly equip students with the money skills they need. These survey results also predict further far-reaching economic consequences as financially illiterate adults continue to make dangerous mistakes with their money.
Financial illiteracy causes costly money mistakes that can result in overwhelming debt, poor credit, high spending habits and even personal bankruptcy. Additionally, studies show that a well-rounded financial education is more difficult to get later in life, so even when people realize they’re uninformed, the problem can be hard to fix.
In these cases, it’s important for people to seek out available resources to get caught up on the basics of credit in order to prevent possible missteps. A professional can also help an adult fix mistakes in their financial history and work to repair their credit going forward. And finally, financial authorities can help parents figure out how to pass on their knowledge to their kids in order to end the cycle of financial illiteracy and prepare the next generation for a credit-healthy future.