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Understanding the Difference between Credit Score and Credit Report

Confusion between credit score and credit report is a very common thing among the people. Many people understand their importance. However, when it comes to understanding the difference between them, they get confused. If you are one of them, then the first thing you need to understand about them is that both, credit score and credit report are inter-related terms. Moreover, both of them influence your overall credit status. Banks or lending institutions check your credit score and credit report before giving you any type of loan.

If you are planning to apply for a home loan in the near future, you must understand the basic difference between them both.

Credit Report:

Generally, a credit report consists of your credit history of the last 36 months. It is a record of your entire credit history, so it includes your details like name, address, and phone numbers. Moreover, a credit report also includes information about your employment status, all loan accounts, credit card history, etc. Lastly, if you have enquired to obtain a loan or credit card, then it is also reflected in your credit report.

In other words, your credit report keeps a track of how well you have been keeping up with your payment agreements with creditors and current balances.

Credit Score:

It is simply a numeric summary of your credit report described in three-digits. The number of credit score reflects your credit-worthiness meaning the likelihood to repay the debts. Your credit score is highly influenced by your payment behaviour. Your credit score is evaluated from your last 24 months of credit behaviour.

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Your credit score is estimated by analyzing your loans against credit limits of all loan accounts, history of repayments, and credit history. Therefore, a higher credit score is a sign of lower credit risk. In simple words, your credit score is a representation of your relationship with various types of credits.

Although credit score and credit history are different things, both of them impact your home loan eligibility. For example, if you have delayed paying credit card bills, then it reflects negatively in your credit report and eventually reduces your credit score. On the other hand, having a clean credit report with timely payments reflects positively on your credit score and loan eligibility, which eventually increases increase chances of the lender approving your loan application.

Along with the home loan documentation, your credit score and credit history also play an important role during the process. As the amount of home loan is considerably high and it takes several years to repay it, banks or other lending organization consider your credit score and credit history to decide your home loan eligibility. Ideally, your credit score should be above 750 to be eligible for a home loan.

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