Credit reports and credit scores are two important components of an individual’s credit history. Credit cards are one of the most widely used financial products in the world today, thanks to the numerous advantages offered by them. These cards allow customers to borrow a certain amount of finance against a line of credit, which will have to be repaid within a stipulated amount of time. Credit cards also provide a number of perks and benefits such as dining offers, travel discounts, surcharge waiver and others.
A record of cardholders’ credit card transactions is referred to as credit history. This history is essential for individuals to understand their financial transactions. A summary of an individual’s credit history is known as a credit report. A credit report contains information such as the individual’s credit score, account information, contact information and so on. One aspect of the credit report that is equally important, is a credit score. If a credit report is a summary of the individual’s credit history, then a credit score is a 3 digit numeric summary of that individual’s credit report. This score can range between 300 to 900 and scores above 750 are considered to be good.
Although a credit report and a credit score may seem like similar concepts, there are a number of differences between the two. A credit report can be compared to a report card, whereas a credit score is similar to a grade point average. The table below explains the differences between both these topics in detail.
|Credit Report||Credit Score|
|What is this?||This is a summary of an individual’s credit history and acts as a credit reference.||This is a 3 digit summary of an individual’s credit report and measures credit risk based on the information given in the credit report.|
|Who makes this?||TransUnion, Equifax and Experian, which are credit reporting bureaus.||Banks can sometimes create their own score or they can refer to the scores provided by companies such as VantageScore or FICO. FICO scores are most commonly availed.|
|How many of these exist?||Three credit reports exist, maintained by each of the above bureaus. Since lenders and creditors do not have to report information regarding an individual’s credit history to all three bureaus, the information provided by each of them vary slightly.||Once FICO 9 is implemented fully, there will be 65 different FICO scores available. VantageScore has 3 generations of credit scores. There are numerous bank proprietary scores that exist.|
|Can it exist independently?||This is a stand-alone documents.||Credit score is provided solely based on the information available in a credit report.|
|How does it help in judging creditworthiness?||A credit report contains all information regarding an individual’s credit accounts, both current and past along with information regarding their debts and third-party collections. Credit reports also contain details such as current balance, loan amount, history of payment, and so on.||FICO credit scores are most commonly used and contain five factors which are considered while calculating the score. These factors are - amount owed, history of payments, mix of credit, new credit and length of credit history. Scores above 760 are deemed to be good and individuals having this score are considered to be creditworthy.|
|Where can this be procured?||Customers can procure these reports from any of the bureaus mentioned above.||FICO and other credit bureaus provide this information and sometimes lenders give this information as well.|
Credit reports and credit scores are used by a number of individuals based on the requirements, such as landlords, employers, insurance companies, banks and so on.
How are Credit Reports and Credit Scores Used?
Based on the requirement, the following utilize credit reports and credit scores in different ways -
- Mortgage Lenders
Mortgage lenders use credit reports to see if there are any red flags that pop up, which may prevent borrowers from returning the amount owed. These lenders also check credit scores from all three bureaus and take the middle score as reference.
- Auto Lenders
Mortgage lenders use credit reports to see if there are any red flags that pop up, which may prevent borrowers from returning the amount owed. Credit scores are used to determine the customer’s eligibility to procure loans and their rates of interest.
- Credit Card Providers
Credit card issuers are largely dependent on credit scores than credit reports as most applications are approved online and quite quickly. One credit score is considered, usually the middle one.
Insurers consider an individual’s credit report prior to approving their requests. The traditional credit score provided by FICO is not generally used and instead, a separate algorithm is used by these providers to come up with a credit score.
- Collection Agencies
These companies use an individual’s credit report to understand and decide which account can be paid off first. Credit scores are used by collection agencies to predict the likelihood of the individual paying back his/her dues.
This is not a very common occurrence but sometimes employers may check an individual’s credit report as a part of their background checks to reduce legal liability for negligent hiring and to prevent embezzlement. Credit scores are however, not used.
Credit reports and credit scores are two very important aspects of a credit cardholder’s financial life. If these two aspects are not satisfactory, it is difficult for them to procure loans in the future. Credit card providers and banks provide products to those applicants who do not pose a lot of risk in terms of finances. Higher the chance of individuals repaying their dues, higher is the chance of their availing loans at economical interest rates and tenure. Hence, cardholders must ensure that they maintain good credit scores.
TransUnion CIBIL is one of the leading credit information companies in India. The company maintains one of the largest collections of consumer credit information in the world. CIBIL Score plays a key role in the lives of consumers. Banks and other lenders check the CIBIL Score of the applicants before approving their loan or credit card application. Consumers can visit the official website of CIBIL to check their CIBIL Score and Report.