Credit Score vs Credit Report: Know the difference for financial success
Credit scores and credit reports are important in finance and banking. Your credit score represents your creditworthiness, while your credit report provides a detailed account of your financial decisions. It is advisable to review your credit report regularly and work on improving your credit score.
Credit scores and credit reports are among the most widely discussed subjects in the realm of finance and banking. Whenever you use a payment app or visit a bank or fintech’s website, they suggest checking your credit score and reading your credit report carefully.
So, what are these things, and are they really important? The answer is a definite 'yes'! Your credit score, a three-digit number from 300 to 900, and your complete financial report in your credit report are indeed worth the attention they get.
What is a credit score?
Your credit score is your creditworthiness. Based on the calculation of your past credit history and financial information, your score gets calculated. The higher your score, the better your creditworthiness is and vice-versa and so does a loan borrower consider you for lending the loan you applied for. A score above 750 is mostly considered a good credit score and is accepted by most financial institutes to move forward with your loan. Your credit score is calculated by the authorized and licensed credit rating agencies and is based on the following five factors:
1. Payment history
2. Credit utilization
3. Length of credit history
4. Credit mix
5. Number of credit accounts recently opened
What is a credit report?
A credit report or Credit Information Report (CIR) is your detailed summary of credit information which results in your credit score. The information includes the number of credit cards you are using, the number of active loans in your name, overdraft facilities, the number of loans you have applied for, and even your loan repayment behaviour. The report consists of six sections including information regarding your
1. Credit score
2. Personal information like name, age, Permanent Account Number
3. Contact details like address, contact number, email IDs, etc.
4. Employment details
5. DPD, late payments and defaults (if any)
6. Credit account information
7. Credit inquiries information
Credit scores and credit reports are different
The names, credit scores, and credit reports themselves signify the difference between the two. While the score represents your financial standing, the report provides a detailed account of both positive and negative financial decisions you've made. Besides the detailed score and report, there are various other aspects in which they differ.
- Your credit score is the mirror of your creditworthiness considered by financial institutions, but it is the result that you can check regularly and work on improving. However, your credit report is viewed and studied by financial institutions before moving ahead with your credit application, even if you have a good credit score. The report helps the lender get a comprehensive account of your credit history.
- When you generate a credit score, your score might differ with changes in the credit rating agencies. One agency could say your credit score is 780 and another may say it is 810. This happens because of the different credit score calculation formulas used by different agencies which may be unknown to you. But when you generate a credit report, you get the complete details about each section and can report to the credit rating agency for any inaccurate information in your credit report.
- A credit report is mostly accessed and used by loan lenders to understand loan applicants and learn more about their credit behaviour. You can generate your credit report from a banking or credit rating company to learn about your opened or closed credit and factors affecting your credit score. However, your credit score is the mirror of your credit behaviour and is most helpful to keep track of it.
While an 18–20 page credit report shows your whole credit history, a credit score below 685 is difficult to justify in front of a lender. But checking your credit score regularly and working on it to improve is an easy task. A good credit score not only facilitates the smooth processing of your loan application but also has the potential to secure a lower interest rate on the loan amount. It is advisable to review your credit report every 6-7 months and monitor your credit score regularly to take appropriate steps to improve it.
Amarjeet Tiwari, Head – Technology, SahiBnk, Powered by Manipal Business Solutions
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First Published:25 Nov 2023, 11:35 AM IST
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