Your Credit Report Matters More Than Your Credit Score

Are you obsessed with your credit score? Do you check it every month to see if it’s gone up or down? If you are looking only at your credit score and not at your entire credit report, you’re missing the point.

What Your Credit Score Isn’t
Your credit score is a grade that measures your overall credit risk to lenders. Your credit score is based upon one of several complicated formulas that take PhDs to understand and are as tightly guarded like the recipe for Coca Cola. But the fact is, credit scores reduce highly unique information on your credit report to the simplest possible form. Therefore, they provide an inherently incomplete picture of your credit health—to both your lenders and to you.

For example, two people could have the exact same credit score (let’s say 660), but have vastly different credit histories. For example, let’s say Jane has had credit for only a year and only has two accounts, but she has paid both those accounts on-time, every time. Her score is 660.

Then we have Jim, who has had credit for 15 years, has over 10 accounts and, while most of them are in good standing, he has been late a handful of times on a few accounts in the last few years. His score is also 660. They have the same credit score, but they are vastly different borrowers. Only a full credit report can contains that that information.

What Your Credit Report Tells You That Your Score Can’t
Lenders look at your credit report to find out lots of things your credit score alone can’t tell them. Some of these things include:

• How much debt do you have compared to your credit available?
• How much credit do you have available? (Could you rack up a lot of debt if you wanted to?)
• How much credit have you applied for recently?
• What types of credit are you using? Do you own a home? Are debts the result of credit cards, or medical bills?

Finally, both you and your creditors have the right to place comments into your credit file. These comments can explain certain items on your credit report—for better or worse. For example, if you find something on your credit report that is inaccurate or fraudulent, it can take months to remove it from your report. You can, however, immediately insert a comment on your report indicating to potential lenders that you are disputing the information.