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Credit score vs credit report: Know the major difference between financial terms
Credit score: Ranging from 300 to 900, indicate creditworthiness, while credit reports detail a person's credit history. Both play significant roles in securing loans and credit cards, and understanding their differences is essential for effective financial management and improving credit standing.
Credit reports and scores are vital determinants in the contemporary financial world as they determine our prospects. Even though these two phrases are frequently substituted for each other, it is worth noting that both terms carry different meanings. Let's explore how a credit report and score vary from each other and then how it impacts our financial life.
What is a credit score?
Your creditworthiness is actually represented by your credit score: a three-digit figure that ordinarily ranges from 300 to 900. This figure determined using data from your credit record shows lenders how risky it is to lend to you. The lesser the risk, the greater the credit score; this also leads to better loan terms and cheaper interest rates.
What is a credit report?
Credit reports include all about a person's credit life history, it tells their credit use, pay status history, different types of credit as well as any open-for-public records showing financial actions. Through it, creditors determine who amongst individuals is qualified for using various credits/obtaining loans/credit cards, etc.
Who offers credit reports and credit scores in India?
Leading credit bureaus, also called Credit Information Companies (CICs), collect and maintain the credit information of customers received from banks and non-banking financial institutions (NBFCs) in India. The leading bureaus are TransUnion CIBIL, Experian, Equifax, and CRIF High Mark. The information received by these organisations is used to create credit scores and credit reports.
How credit reports and credit scores are used?
1. Mortgage lenders: They review credit reports for any red flags that might indicate potential difficulties in repayment. Many lenders also consider credit scores from multiple bureaus and often use the middle score as a benchmark.
2. Auto loan lenders: Just like mortgage lenders, auto loan lenders use credit scores to establish the eligibility of a loan and interest rates, and they use credit reports to evaluate the risks.
3. Credit card providers: If it's a quick decision, often with online applications, the credit card companies typically focus on credit scores. Sometimes, they may take the median credit score.
Difference between credit scores and credit reports
Criteria | Credit report | Credit score |
Definition | A comprehensive outline of a consumer's credit history. | Creditworthiness presented in numbers. |
Purpose | It offers information that influences the credit score. | It indicates the likelihood of timely repayments. |
Contains | It includes enquiries, credit accounts, payment history, and personal information. | It is calculated based on factors like length of credit history, credit usage, and payment history. |
Information | Given thorough credit behavior information, both current and historical. | A summary of overall creditworthiness.
|
Range | It is a detailed record with no set range. | The ranges are from 300 to 900, and 750 or higher is considered good. |
In conclusion, knowing the distinction between a credit report and a credit rating is necessary in order to make intelligent financial choices. One can greatly improve credit worthiness by reviewing his credit report frequently, cleaning out the errors, and cultivating healthy credit habits. This would form a good ground for future safety and prosperity based on one's high credit score and good credit management.
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