We often come across terms as Credit Score, Credit Rating and Credit Report, but are they all the same or is there any difference? Let’s have a brief information about them.
A credit score in layman terms is a statistical number that evaluates a consumer’s credit worthiness and is based on their credit history. It indicates lenders about your repayment capability for the loans you apply for. Timely repayment track boosts your credit score and helps to maintain a good credit history. In India the credit scores are the domain of 4 credit bureaus – CIBIL, Experian, Equifax and CRIF High Mark. These bureau assigns credit scores to individuals in the range of 300-900 based on their repayment track from of at least 6 months.
A score of 750 and above is deemed excellent by lenders and can make them approve the credit application without any delay. Even if the score reads 700 to 750, it is deemed good and ensure the loan or credit card application gets approved easily. If the score is below 700, lenders can at least be reluctant offering an unsecured loan or credit card.
Credit Rating is assigned to any unit, be it individuals, companies, state governments, local governmental bodies, special purpose entities, non-profit organizations, etc, on the basis of their ability to repay their debts. It also indicates a possible default from the entities with respect to payment obligations. The rating is assigned by companies such as Credit Information Services of India Limited (CRISIL), Credit Analysis and Research Limited (CARE), ICRA Limited, Brickwork Ratings (BWR), India Rating and Research Pvt. Ltd. Different rating scales, such as AAA, AA+, BBB, BB, B, CCC, CC, C and D for default are used. While the triple As, Bs, Cs indicate a sound repayment potential of the concerned entities, the double As, Bs and Cs indicate moderate safety of the credits sanctioned to the entities. The B, C and D rating indicates high risk.
It is an exhaustive report consisting of your payment history of the past 3 years. It consists of CIBIL Trans Union Score that is referred by the lenders to check your creditworthiness when you apply for a loan.
Both credit score and credit rating can be a part of credit report showing the amount of debt owned by individuals or entities, the payment made to creditors, the payment schedule, debt settlement, if any, etc. Lenders access the credit report to get an idea of your credit behavior. The credit report of companies, on the other hand, helps investors take a right investment decision.