NEW YORK (MainStreet) — If you do not understand the difference between a credit report and a credit score, you are not alone, according to the 2014 Annual Financial Literacy Survey results from the National Foundation for Credit Counseling (NFCC).

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"No one teaches us about credit – and it's very complicated how the scores are computed and how the reports and scores are used," says credit expert, John Ulzheimer. "It's not at all straightforward like the basic recipe for making pizza dough. But it's highly worth it to understand basic facts about your credit reports and credit scores."

Maybe you're focused on making ends meet every month so your credit score or report is not foremost on your mind. But when it comes to paying higher interest rates on your credit cards or home or car loans, or even not getting a higher-paying job based on a poor credit report, understanding your credit becomes very important.

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"It's about wealth-building," says Ulzheimer. "Paying more for interest-bearing debt every month, especially credit card debt with its average interest rates around 15%, is one of the biggest robbers of your take-home pay."

Think you know it all when it comes to credit reports and credit scores? Test yourself with these three simple true or false questions.

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Question 1: True or False? I should review my credit score and credit report every month.

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True. "With a new data breach, scam and fraud alert every few weeks, checking scores and reports monthly is a new benchmark for guarding against identity fraud," says Ulzheimer. "It's also important for tracking progress if you're trying to improve your credit."

But according to the NFCC study, 60% of adults have not reviewed their credit score and 65% have not reviewed their credit report within the past 12 months. Ulzheimer says that number may actually be much higher as only four percent of Federally mandated free credit reports are claimed each year, which means 96% of free credit reports are not.

Ulzheimer says that because there are more free ways to get credit reports and scores (and he has reviewed and tried most of them) than ever before, it's foolish not to take advantage. Any service offered by your financial institution or credit card company is reputable. To boot, the free services offered via CreditSesame.com are based on Experian data, CreditKarma.com uses TransUnion data and Quizzle.com uses Equifax data. "These are all encrypted via bank-level security protocols and based on reputable credit bureau data," says Ulzheimer. He advises always reading the privacy and security FAQs of any online service you are considering.

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So, what are you checking for?

Ulzheimer warns to look for any inaccurate information in balances or open accounts that could cause your credit score to dip or could be a sign of identity fraud. "Focus on what's listed there and whether it is correct."

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Another reason to check your report and score monthly is if you have disputed an entry or made positive credit choices, you want to see those changes reflected in the reports and scores.

Question 2: True or False? Since I already know my credit score, I don't need to see my credit report.

False. You need to check both the report and the score. The NFCC report found close to one in four adults who did not order their credit report in the past 12 months thought since they already knew their credit score, they didn't need to check their credit reports.

Are you one of them?

Credit reports and credit scores are not the same thing, but too many people use the term interchangeably, explains Ulzheimer. The Fair Credit Reporting Act (FCRA) defines a credit report as a type of consumer report including any written, oral or other communication of any information by a consumer reporting agency bearing on a consumer's credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics or mode of living.

Did you realize a credit report may include all of that? Wouldn't you want to know immediately if there was a mistake there or if someone else was using your information fraudulently?

According to FCRA, a credit score differs in that it is simply a numerical value derived from a statistical tool or modeling system used by a person who makes or arranges a loan to predict the likelihood of certain credit behaviors, including default.

Ulzheimer says the score is actually a disqualifier.

"Below a 700 and you will just not get the best rates and terms for anything, which means you are just paying more," he says.

So, just because you know your credit score doesn't mean everything on your credit report hasn't changed or has remained accurate at any time. And both bear checking monthly.

Question 3: True or False? My credit report will tell me my credit score.

False. You have no free right to the score, according to FCRA, but most of us believe we do. More than half of Americans (54%) mistakenly believe that a standard credit report contains their credit score. Ulzheimer explains there is no obligation for the credit reporting agencies to give you the credit scores and historically you had to request it by paying for it.

But recently you don't have to buy the information either. Most companies are selling subscription based monitoring services – and the trend is moving toward offering the scores and even the credit monitoring for free. Even credit card companies, such as Discover, are providing the free credit score on the statement.

Also, according to FCRA, you have the right request a free credit report once every 12 months via annualcreditreport.com from the three credit reporting bureaus (you could request one report from each of the three agencies every 4 months), but they do not include your credit score.

Thanks to amendments to FCRA made in 2003 and 2011, you now have the right to see your credit scores in two cases. You will receive a notice of your credit score when prequalifying for a mortgage loan. And you will receive your credit score if you apply for credit or loans and are denied based on your credit score and receive an "adverse action" letter explaining the reasons you were denied credit.

What you don't know about your credit report and credit score can hurt you

Companies use your credit score to qualify you for a credit card or any type of loan and to disqualify you from highly competitive terms and rates. Credit scores can also be used for insurance underwriting and by utility and cell phone companies to determine security deposit requirements.

And, your credit report can be used for all of that and even for employment screening.

Ulzheimer says ignoring your credit report and your credit score is like sticking your head in the sand.

If you've failed the quiz -- or if it's been a while since you checked in on the state of your credit -- we at MainStreet recommend that you get your free reports from annualcreditreport.com (the only free service backed by the credit bureaus and authorized by federal law) and sign up for one of those other free monitoring services right now.

--Written by Naomi Mannino for MainStreet

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