Your credit score, mentioned in your credit report, is a crucial representation of your financial profile. Lenders use it to assess if you qualify for credit and use it to decide the key terms of your loan if you are eligible.
It ranges between 300 and 900 and has a specific meaning. In most cases, you will find a breakdown of your score in your credit report.
Read on to learn more about these crucial elements that define your financial profile and how they differ from each other.
What is a Credit Score?
Your credit score refers to a 3-digit numeric summary of your creditworthiness. This score is a reflection of your past borrowing behaviour, including the credit mix you have had experience with, your utilisation of credit, repayment history, and other factors.
Typically, a credit score of 750 or above is favourable, providing you with easy access to credit. Conversely, a lower credit score may indicate the necessity to improve your financial practices. It may limit you from getting a high loan amount or a competitive rate of interest or even from accessing credit at all.
What is a Credit Report?
This report gives an overview of your credit rating which includes past credit and repayment records. A credit report also contains a snapshot of your personal data. Credit bureaus like Experian, Equifax, and TransUnion CIBIL compile these reports by gathering relevant data through diverse sources. These include banks, NBFCs and other financial institutions.
Your credit report is divided into various sections. Have a look at what they are.
- Personal Details: Your personal details include your address, full name, birth year and date, and other related information, such as your mobile number and email address. It also includes your PAN information, in most cases.
Your employer’s details and your occupation are also mentioned either in a separate section or under the personal information. This is based on what you had last reported when accessing a credit facility from a lender.
- Credit Accounts/Information: This section includes various types of active and past credit accounts you have. These include credit cards, unsecured loans like personal loans, secured loans like home loans and more.
It is the most vital part of your credit report and contains data on the following:
- Lender, you have taken the credit facility from
- Loan or credit card account number
- Date of opening and closing the account
- Last payment record
- Existing balance, if any
- Outstanding amount, if any
It also contains a record of the recent payments you have made. This may go back to the last 3 years or so, based on the bureau. In case you have filed for bankruptcy or defaulted in the past, this, too, may be mentioned. In addition, any payment or account under dispute will also be highlighted.
- Recent Enquiries: Any credit enquiries you have made in the recent past are listed here. The data contains the credit product you have applied for, lender’s name, application date, amount and more.
What are the Key Differences Between a Credit Score and a Credit Report?
Here are some of the main differences between a credit score and a credit report that you must know about:
- Purpose
The primary purpose of a credit score is to help lenders determine the risk you pose as a borrower, such as the likelihood of missing EMI payments or defaulting on loans. It is a summary of your credit history, and a particular score may also be a term related to eligibility set by lenders.
Conversely, a credit report aids in comprehending your creditworthiness in detail. It helps lenders get a picture of your credit history, including your credit accounts, repayment record, credit utilisation ratio, and other essential factors.
- Range
Credit scores fall in the range of 300 to 900. Higher scores are indicators of positive financial health and better creditworthiness. There is no such range for credit reports.
- Basis of Data
Your credit score is evaluated based on your credit report, which contains your past repayment record, credit mix, credit utilisation, existing debt, and other factors.
Conversely, credit reports are based on information that banks and other financial institutions report.
Why is Checking Your Credit Score and Credit Report Important?
Regularly monitoring your credit score and report comes with many benefits. Some of them include the following:
- Helps You Improve your Credit Habits
By consistently checking your credit report and credit score, you can monitor the effect of your financial behaviour. This can help you avoid actions that negatively impact your credit score.
For instance, you may notice that your utilisation of credit is too high, which is bringing your score down. By reducing your dependence on credit, you can improve your credit score and thus get pocket-friendly rates and quicker approval on your next application for credit.
- Aids in Identifying Inaccuracies
There may be instances when your actual and reported transactions do not match, or there is an incorrect amount or missing transactions. By checking your credit score and report, you can catch such errors or discrepancies and report them. By getting them rectified, you can boost your score.
- Safeguards Against Fraudulent Transactions
Reviewing your credit report can also aid in detecting unauthorised transactions or new loans taken in your name. This may be due to fraud, such as identity theft, and can negatively impact your credit score, also causing financial loss. By reporting them, you can set the record straight and minimise damage.
Now that you understand how the score and report are different from one another, track them consistently. This instils a sense of confidence in your personal finances and also lets you know when you need to work on your credit score.