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What is the difference between your credit score, credit report and credit file?

What is the difference between your credit score, credit report and credit file?

If you’ve ever applied for a loan or a credit card, you've probably come across the terms credit score and credit report.

But have you ever wondered how these two are different from each other? It’s possible you’ve also heard of something called a credit file, which is sometimes loosely used to describe your credit report, but they are not quite the same.

What is the difference between your credit score and credit report?

Your credit score is a number that denotes your creditworthiness to lenders. Depending on the credit reporting agency you go through, your credit score can vary from zero to 1200. The higher your credit score, the lesser is your likelihood of defaulting on a loan according to lenders, and they are likely to offer you better rates or deals compared to other borrowers.

To calculate your credit score, each of the three credit reporting agencies (Equifax, Experian and illion) uses the information on your credit report, which lists your personal details and financial history. However, each credit reporting body uses a slightly different algorithm to calculate your score. As a result, your credit score may vary depending on the credit reporting agency you check with.

The information that goes on your credit report is based on the information available from various lenders, utility providers and telecommunication companies you contract with. Besides your financial behaviour, your credit report also lists public record information, such as any court judgements against you.

Here are some examples of the type of information that's listed on your credit report:

  • Your personal information, including your name, date of birth, and address.
  • Details of the credit accounts you hold, including the name of the provider, the type of account and your credit limits.
  • Overdue accounts.
  • Your repayment history, such as whether you meet your repayments on time and any missed or late payments.
  • Any credit applications made by you, including the type and the size of the loan you requested.
  • Payment defaults.

As you can see, your credit report lists both positive and negative information. Positive information refers to positive financial behaviours, such as paying bills on time, closing loans and reducing the limit on a credit card. Negative information could include loan defaults, applying for multiple credit products in a short span and paying your bills late.

Before the introduction of comprehensive credit reporting, only negative information was included in a person's credit file. Having both positive and negative information allows credit reporting bureaus to assess a person's credit situation comprehensively. When it comes to your credit score, a series of positive actions can help you build your credit score. Even if you defaulted in the past and your credit score isn't as good as it should be, positive financial behaviour, such as paying bills on time, can help you boost your credit score and improve your chances of qualifying for credit in the future.

You can find out the condition of your credit by checking your credit score and credit report regularly. You can check your credit score as frequently as you'd like, but ideally on a platform that doesn't charge you for the service and only carries out a soft credit check. With Ratecity, Australians can get their Experian and Equifax credit scores at no additional cost without affecting their score adversely.

It's also recommended to get a free copy of your credit report from each of the credit bureaus at least once a year. However, if you plan to order a copy of your credit report more than once a year, you may be charged for it by that credit bureau.

What is the difference between a credit report and a credit file?

The information on your credit report is derived from your credit file, which is basically a collection of raw information about your personal and financial details obtained from various banks and credit providers. If you have applied for a credit card or a loan in the past, or you have a telephone connection in your name, it’s likely there’s a credit file or a database of your information maintained by the credit reporting agencies.

However, each time a lender or a credit provider pulls out your credit information, instead of providing them with a jumble of raw data, credit reporting agencies provide them with a neat credit report, which is nothing but an organised presentation of the data from your credit file. 

You could think of your credit report as a condensed version of your credit file, listing specific information, which is useful to lenders in assessing your financial behaviour. It means not everything on your credit file appears on your credit report.

For instance, most late payments shouldn't appear on your credit report if they are older than seven years. Similarly, credit inquiries made by you a couple of years ago should not appear on your credit file. It’s thus possible to boost your credit score and get rid of the black marks on your credit report through consistently positive financial behaviour.

Is it possible that I don't have a credit file?

If you have never used any form of credit or you have had very few credit accounts, there may not be enough information about your financial track record. This is known as having a thin credit file or no credit file, as is commonplace for many young Australians. 

When you apply for credit with a thin credit file, your credit report is going to have hardly any information, resulting in a low or no credit score. A low credit score can make it difficult for you to qualify for various credit products, such as a home loan or a credit card, or you may find yourself paying more than others. 

If you have a thin credit file, you could try some of these tips to build a healthy credit history:

  • Postpaid phone plan - One of the simplest ways to build your credit is by applying for a postpaid phone plan. Postpaid phone plans are considered credit accounts, and they are reported on your credit file. They are also one of the more accessible products to apply for to begin building your credit, compared to a car loan or mortgage.
  • Join your household utilities account - You may also arrange to have a regular household bill in your name, such as energy, water or broadband. If you still live with your parents, you may want to ask them about adding your name to the family account to help build your credit history. However, do remember to pay your bills on time to build your credit score. If you forget to pay on time, it could lead to negative information being listed on your file. 
  • Build a savings nest egg - If you are a regular saver with a big nest egg, it may give card providers the impression that you are responsible with your finances, increasing your chances of credit card approval. Consider automating direct deposits into your savings on a weekly or monthly basis to ensure you keep up with your savings goals.
  • Joint applications - If your partner’s credit score is better than yours, you may consider applying for a joint credit card to improve your chances of getting approved. When you make a joint credit card application, the credit provider will assess both the applicants together, which means an excellent credit score may balance out a lower score. However, there are only a handful of banks that allow you to apply for a joint credit card with a partner or another family member, which may limit your options. Another drawback of this arrangement is shared debt. Sharing a credit card with your partner means you are both responsible for each other’s debt. If one partner overspends or is unable to pay off their share of debt, it’s going to have consequences for both partners financially and relationally.

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This article was reviewed by Personal Finance Editor Alex Ritchie before it was published as part of RateCity's Fact Check process.

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