03/25/2014 11:06 am ET | Updated May 25, 2014

How Your Credit Score and Credit Report Are Examined by Lenders

Your credit score and credit report go hand in hand, but they are actually two different entities that can impact your finances. Your actual credit score determines your overall worthiness as a borrower, while your report is a full summary of how you've handled credit within recent years.

Knowing the difference between a credit score and credit report can help you make the right financial decision when it comes to applying for lines of credit, and can also help you get better interest rates on loans.

Someone who wants a quick glance at your current standing can take a look at your score to determine your eligibility for a loan, what interest rate to charge, and how much of a risk you appear to be. Yet, it is still important to have a solid report, because it is a comprehensive breakdown of your personal credit history and your borrowing habits.

Credit scores play a vital role

Think of a credit score as a lender's way to get a glimpse into how you manage to pay your debt down and whether you do so on time. Credit scores range from 300 to 800, with a higher score having more value. Whenever you get pre-approved for things like credit cards or a home purchase, your credit score is going to determine how a lender treats you. So do your best to get your score as high as possible to give a good first impression to lenders.

Having a solid credit report is important

You need a solid credit report for at least a few years in order to apply for more complicated loans such as a mortgage. When you apply, your credit report will be pulled up and analyzed in detail. Lenders look at your payment history, how much of your overall credit you are using, the amount of loans you have taken out, how many lines of credit you have applied for recently, and a few other factors on your report to determine how worthy you are to receive a home loan.

You could have a weaker credit score, but if you have made a serious commitment to pay off your debts, that effort can help give you leverage when applying for a loan. Before a lender hastily rejects you, or offers you a line of credit with high interest, you can show them your credit report. Inform the lender of your recent effort to pay down your debt -- you may not be aware of it, but you have negotiating power when it comes to taking out a loan, especially if your have recently improved your credit score and report.

Overall, Americans maintain a below average credit score. The average VantageScore credit score is 736, according to Experian. A credit score of 736 may appear high, but for VantageScore standards that is below mediocre. When it comes to VantageScore, a score of around 790 is considered as average. It's important for you to be aware of your credit score and history, and that way you know where you stand in relation to your score.

Remember to check your credit report each quarter to ensure there are no errors or fraud.

Gerald Morales is a writer for

10 Costs You Should Always Negotiate