What’s the Difference Between Your Credit Score and Report
Alright we're talking credit scores and credit reports. So this is a big heavy-hitter for a lot of people, a lot of questions, so I will say for those in the room and for those tuning in, please feel free to drop you questions in throughout. I will be pausing to take questions, because there's a lot to break down here, and definitely a lot of myths to debunk, which we will get to towards the very end. So here's how we're gonna break it down today. First we're gonna talk about the difference between a credit score and a credit report, and why that actually matters. We focus a lot on the credit score and very rarely on the report. Next, we're gonna learn what exactly is on your credit report and also importantly, what is not. As well as the kind of things that don't factor into your credit score. There's a lot of misinformation out there, so a big part of today, for me, is making sure that you have all of the correct information so that you can move forward, and make sure you have a very...
healthy credit history. And then, of course, talking about how your credit score is determined. Spoiler, there are five factors, they are not all weighted equally. We'll definitely be digging into that in order to understand, a quick way to improve your credit score. It's gonna sound a little bit like a diet scheme or a get-rich-quick scheme. I promise it is not that, but I do have some tips about how to effectively rebuild, especially if you're in a situation where maybe your score either recently tanked or you might not have ever had credit history to begin with and you're trying to rebuild. And then knowing how to get access, where can I go, what is safe, what isn't. What costs me money, what is free, really understanding how to gain access and credible access to all of this information. And then, finally, my favorite part, is debunking common credit myths. There are so many dangerous myths that exist out there around credit scoring and reporting. So I wanna make sure that we are all on the same page, we all have the right information, so we are not keeping ourselves in debt unnecessarily, all in the name of this almighty credit score. But first, what is the difference between a credit score and a credit report? Now, one of the, perhaps, scandalous examples that I like to have is, a credit score is kind of like the Victoria Secret model, if you're thinking about the Victoria Secret fashion show. It gets all the press, all the attention, it's what everybody talks about. But the credit report is the juice diets and the cleanses, and the workouts and everything that those models did to look like that and get us talking about it. So it's the important back-up part. And credit scores, like I said, get all the attention, reports contain the information. And all of these things are housed under this idea of what's know as credit history. So when you hear someone refer to credit history, it's kind of the all-encompassing term for your credit report and score and all of the ways in which you have interacted with debt over your lifetime. Now another more pc way, if you will, to think about this is the credit report is the essay that you wrote. During school you had a midterm paper, you wrote the paper, the credit score is the grade you earned. Now the score is determined by the report. You have to have that essay you wrote in order to get that A+ at the top of your paper. So we focus so much on the score but we really need to think about the credit report, what is on there and why it's there. Don't worry, I'll still pay a lot of attention to the score, 'cause I know that's what we all came here to talk about today, and that's what everybody always has questions about. But I do really wanna emphasize the importance of the report. I like to think about these as your report card for adult life. And it's also kind-of like an insurance policy on your financial life as an adult. Because it's not just lenders who actually get access to your credit report and score, and we're gonna get into that in a minute. But a lot of times you might hear people refer to a credit score as a debt score. And that's a little bit of misinformation, because your credit score can also be built by simply using a credit card properly, and if you're paying your credit card off on time and in full every single month and you never, ever have carried a balance, that means you've never paid a penny in interest. Question. Oh I know what this question's going to be too.
Okay, I've asked this question before, but I know this is a question for a lot of people. One time I was, when I first got a credit card, I was paying it off every week because I was like, I don't understand how this works. When you say, "in full," are you referring to the statement balance or the current bal- Like, what are you talking about there?
That is a really great question. I think, unfortunately, a lot of times when you get your credit card bill, it's very confusing up at the top. First of all, they make minimum due look really big. Like, that's all you have to pay. Well sure, it's all you have to pay to stay current, and technically have paid off your bill. But it also means that you're carrying a balance month-to-month and you're starting to create debt. So it's the minimum that you're allowed to pay and kind of get away with it is a way to think about it. In order to be paying it off on time and in full, you wanna be paying off the statement balance. Because that's the amount that is currently owed to the credit card company. And what they do, and if you wanna pay off current balance, that is A-okay and great. But it also means you're kind of paying ahead is a way that I would kind of think about that. It's like you have actually also made some charges that's gonna show up next month, but if you wanna go ahead and pay those off right now, you can. If you're in a financial position to at the end of every month, always pay off current balance due, I would just do it. Because it always keeps you on the ball. But in order for the sake of not carrying debt month to month, it's every month, on time and in full, the statement balance. That's the amount that's owed, and if you're carrying anything over, that's what they're gonna be charging you interest on. That's a good way to be thinking about it. And yes, that can be very confusing with credit cards. I think the biggest thing that I wanna get across is never just be paying the minimum balance. If you're in a financial situation where there is no way in hell that you are paying off that total, either the current balance or the statement balance, every little bit above the minimum balance due makes a huge difference. So pay as much as you possibly can. We will definitely be coming back to that idea. But when I am referring to paying off on time and in full, when you get that bill, what it says it is due, paying the full amount, that is the best way to be building a non-debt-focused credit score, if you will. Otherwise, loans, anytime you've taken out a loan, that's also going to be information that's getting reported. And that's another reason it gets referred to as a debt score. But one thing I want you to think about is other times that your credit report and score matter 'cause it's not just when you're going to a lender. It can also be when you're trying to rent and apartment. A lot of times landlords will pull your credit report and/or your credit score. And they use this as a metric to determine whether or not you're going to be likely to pay on time. Another one, it could happen when you apply for an insurance policy, whether it's renter's insurance, car insurance. They could be pulling your credit history, and that could actually be impacting the rate that you're going to be paying for insurance. And then when you apply for a job. Now there's actually a little bit of misinformation here. Sometimes you hear that your employer is going to pull your credit score. That's actually not the case. They pull a truncated version of your credit report. Your credit report does not have the score on it when it gets pulled. It's just the information. So when you pull it, it doesn't have the numbers up at the top. So if you do have an employer that's pulling your credit report, first of all, they're supposed to ask you for your permission to do that. Second of all, it is not actually harming your credit score. And we'll get into that for sure a little bit later today. But some employers do want to see how you interact with credit, what your credit history is. There's a variety of reasons that this could happen. It could be as simple as, they're gonna give you access to a corporate card. They wanna see your behaviors with a credit card. It could be something like, you are applying for a high-level security job with the government. And they wanna make sure that you're not in a financial bind that could get you compromised to leak information and trade secrets. So sometimes it is that intense, but usually it's because you might be handling something financially for the company and they wanna see if your financial house is in order. Does that always translate? Maybe you can do a great job at work and not be doing such a great job in your own financial life. Sure, that definitely happens. But that could be a metric that they're using to determine whether or not you're a good fit for this job. Now another reason that I say good credit history is like having an insurance policy on your financial life is because the stronger your credit score, the stronger your credit history, the better financial products your going to have access to. And the better products means lower interest rates. And if your interest rate is lower, then you're going to be paying less over the life of the loan. So it is the way to keep your life cheaper. Now do we want to have to borrow money? No, we don't. We'll let's be honest, there's definitely times in our life that we do. It might be because we cannot afford to pay for a car in full right now, and we have to have a car in order to get to work and to live our lives. Or maybe you wanna buy a house, and you're like, frankly, I live in an area where I don't have two million dollars to drop on a house in cash. I'm definitely going to need a loan. Or maybe it's I don't have $80-thousand to drop on a house in cash. I'm going to need a mortgage. So I want you to really think about the importance of this as an insurance policy for your financial life. Keeping a strong, healthy credit history helps keep the rest of your financial life more affordable. And maybe you have no plans to ever have to own a car or buy a home or anything. You're thinking, I'm never gonna need to go to a lender. That's great, but if everything goes wrong for you at some point, and you do have to turn to either getting a financial product, like a credit card; or if you do need to take out a loan; I still want you to be in the best possible financial position. So that's why I like to kind of position it like an insurance policy.
<b><p dir="ltr"><b></b></p><p dir="ltr">Erin Lowry is the author of Broke Millennial: Stop Scraping By and Get Your Financial Life Together and Broke Millennial Takes On Investing: A Beginner’s Guide to Leveling-Up Your Money.</p></b>
Erin really helps breakdown how to create SMART realistic goals and provides some amazing handouts to help you know what you don’t know! I wasn’t even sure what financial health looked like beyond paying down debt or buying a house or car.
a Creativelive Student
Very good material, coverage and presenter. Too bad they are all planted "that is a very good" questions.