Credit Reports and Credit Scores

Which has more impact on your credit score: getting a raise at work or putting a thousand dollars into a savings account? Now, let’s say you decide to pull your credit report. Where would you expect to find your credit score – at the beginning or the end of the report?
 
These are both trick questions. Neither salary nor savings has any impact on your credit score whatsoever. Your credit score is not part of your credit report, so it is not found within the document itself.  
 
If you were stumped by either question, don’t take it too hard. In a 2019 survey of credit knowledge, more than 60% of respondents said income had an impact on credit score, while nearly 80% thought that credit scores were included within a credit report.
The sad truth is that most of us enter our working life with little understanding of how the credit reporting process impacts our ability to borrow money and grow wealth. I can’t go into a detailed explanation of everything credit here, so I’ll just focus on a few basic facts about credit reports and credit scores.
 
What is a credit report?
A credit report is a summary of how you have handled credit accounts and loans. It contains detailed information about the types of credit accounts in your name, your payment history, loan limits, and other personal and legal information about you.
 
I don’t use a lot of credit. Do I even have a credit report?
To have a credit report you must have: (1) at least one active credit account that reports to the credit bureaus: and (2) at least one documented credit activity, such as a charge or payment, in the last six months.
 
Who can access my credit report?
The Fair Credit Reporting Act (FCRA) allows current and potential creditors to request your credit report. When you move, landlords, utility providers, and insurance companies may also check your credit before doing business with you. When you apply for a job, a potential employer may also ask for permission to see your credit report (although a few states do not allow employers to base hiring on credit report data).
 
What does a credit score actually mean?
A credit score is really a risk management tool for lenders. It is a numerical estimate of your likelihood to default on a debt. Your credit score is calculated from whatever data is in your credit report the moment it is accessed (or “pulled”). A high credit score indicates a positive record of past debt repayments. According to most scoring algorithms, the higher your score, the less likely it is that you will default on a future debt. Lenders like high scores – not because it indicates a “good” credit consumer, but because it means they probably won’t lose money by lending to you!
 
You can find more details about the basics of credit on the FTC website.
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