Credit RatingPersonal Finance

Credit File VS Credit Score – What’s The Difference?

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You may hear the terms “Credit File” and “Credit Score” thrown about loosely, without any real understanding of what they are, how they’re different, or what they really mean. When you take out a loans, such as payday loans, it’s important to properly get to grips with the terminology being used and how it affects you as the borrower. 

Credit Score vs. Credit File: Key Differences

The key difference between a credit score and a credit file is that a credit score is a single numerical grade, while a credit file is a compilation of information, providing a more detailed look at your own financial situation.

A credit file entails information of how you have handled your finances and credit in the past. Looking at your report allows credit providers to answer important questions about you, the borrower. These include:

  • How much debt do you currently have?
  • Are you someone who usually pay your debts on time?
  • Do you ever take on more debt than you can afford to repay?

Once these questions have been reviewed by the lender, they will then decide whether they can give you credit at all, or whether they can give you credit on certain terms, such as specific interest rate and repayments schedules.

How Are Credit Scores And Credit Files Linked?

Although different, credit files and scores are certainly linked. The score is derived from the report, and both can be used by lenders to decide whether or not they will grant you credit.

Your credit file is the detailed record of all your financial behaviour, whereas a credit score is a number, calculated by credit reference agencies and lenders, which sums up the information in that report. Your credit score is important, but to really dig into your credit history, credit files are essential. For those who wish to raise their credit score, the first step to make is to clean up your credit file. This is done through the correction of any errors and weak spots, such as outstanding balances, that need improvement. It is important to bear in mind, any positive changes to your credit score will take time.

Is A Credit File All That A Lender Will Consider?

All lenders interpret your credit scores and files differently, so it will depend on their own policy. Your score sums up all the assorted information in your file into one number, which is what many lenders are looking for. However, don’t be disheartened, as this is not the only factor that all lenders consider, and other pieces of data like past relationships with you as a borrower, your current income and affordability at present also come into the equation. Different providers also work out their credit scores using their own tailored equations, with some rating higher and some rating lower, which is why using a broker is often a productive move when searching for the best deal.

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