Whenever you apply for a loan or a credit card, your credit report and credit score play a crucial role in determining your eligibility and in deciding the terms of lending. This is why it is advised to maintain a healthy credit report and regularly keep track of your credit score. Platforms like paisabazar.com have made it easier to check your credit score and credit report online.
The terms ‘credit report’ and ‘credit score’ are often used synonymously. However, though related, both these terms have different meanings. Credit Report contains the details of your credit history, while Credit Score is a numerical score based on your credit profile as shown in the report. Both affect your chances of approval for new loans or credit cards, allowing the lenders to assess the risk linked with lending you money.
Let us understand in detail what these terms mean and what their significance is.
What is a Credit Report?
A credit report is a collection of details covering all your credit-related activities as reported by your credit providers. It includes the information on all your credit lines and your repayment history. Credit bureaus like TransUnion CIBIL, Experian, Equifax, and CRIF High Mark collect this information from the credit providers and use it to prepare your credit report.
A credit report contains your personal information, including name, address, date of birth, etc., along with information on your past and current credit accounts with the respective repayment history. It has records of when a loan was taken, what was the loan amount and your history of timely or late payments. It also lists any recent credit inquiries that might have been made to check your credit report, which usually happens when you apply for a new credit product like loan or credit card. Even if you delay in clearing your credit card dues or loan EMIs, the same will be reflected in your credit report under the ‘Days Past Due’ section.
What is a Credit Score?
A credit score is a numerical value that is calculated on the basis of the information recorded in your credit report. It usually ranges from 300 to 900 and it is preferable to maintain it above 700. A higher score represents a higher probability of you repaying your credit timely and responsibly. A low score suggests that you are a high risk borrower. With a low credit score, it may be difficult to get approved for new loans and credit cards. On the other hand, an excellent credit score not only opens doors to multiple credit opportunities but also gives you the advantage of comparing offers from different lenders along with the power to negotiate the rates of interest to some extent.
The credit score is determined by considering and analysing various factors, like your debt repayment history, the total amount you owe, length of credit history, your credit mix and new credit enquiries. These factors together show your creditworthiness in the form of a three-digit credit score. One can consider the credit score as a snapshot of entire credit profile summed up in a 3-digit number.
So, the major differences between a credit report and credit score can be described as follows:
- Credit report is a summary of your credit history and your credit score is a numerical measurement of your credit worthiness.
- Credit report is a detailed information based on the data that the credit providers share with the credit bureaus about how you are handling your credit currently and how you have handled it in the past.
Why are Credit Report & Credit Score Important?
Both credit report and credit score are signifiers of your past credit handling behaviour and your current creditworthiness. Though you might get a pre-approval for a loan or a credit card based on your credit score, lender would also go through your credit report to get a better understanding of your credit profile, before giving you a loan.
In addition to the approval or rejection of the loan, credit report also plays an instrumental role in deciding the loan amount that you would be eligible for, rate of interest on the loan and other terms and conditions of lending. If you have a high credit score and have paid your past dues on time without missing any payment, then you are more likely to get a new loan or credit card at low interest rates. You may also be eligible for a higher credit limit or a higher loan amount; however, several other factors come into play in deciding the credit limit/loan amount.
On the other hand, if you frequently miss or delay bill payments, it would reflect badly upon your creditworthiness, making it difficult to avail new credit at reasonable interest rates.
So, in order to ensure that you can avail a new credit line when required at more favourable terms, it is advisable to track your credit report regularly and improve your credit score. You can do so by paying your dues on time and using the available credit mindfully without opening too many credit accounts to avoid looking credit hungry.
