A credit report is a detailed list of a person's debt history and information. A credit score is a numeric value place upon the information in the credit report to show a person's likelihood of paying a bill.
Significance
Any time a consumer goes to take out a new form of debt, from a credit card to a mortgage, the lending institution will pull both a credit report and a credit score. Some lending institutions will only pull one score, but others will pull a tri-merge report.
Function
The overall result of a review of a borrower's credit report and score will let the lending institution make an educated judgment as to the person's likelihood of prompt and complete payment. The higher the score, the less the bank's risk in lending the money.
Considerations
Past errors in judgment and extenuating circumstances can be taken into consideration if the banking officer making the loan has loan authority. For example, a person who was in a bad car wreck may have several medical collections on their credit report pulling their score down; however, they may have had to resort to litigation to get their insurance company to pay the bills. Proper explanation on the borrower's part can help their cause if the information presented is accurate.
Misconceptions
Many people feel as if a small collection, such as one under $25, is no big deal; however, any unpaid bill will lower credit scores and reflect poorly on a credit report. All bills should be paid on time and in full to receive the best possible scores and reports.
Benefits
While the credit score and the credit report are two entirely different entities, each one can help the lending officer understand the other. If the credit score is low but the credit report displays a prompt payment history, the lender may have to look closer at the whole picture to be able to make an accurate judgment on the loan.
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