DELHI:Credit scores and reports are still relatively new to the Indian psyche. To most people they are one and the same and are often used interchangeably in conversation. Though credit scores and credit reports are interrelated, they are not the same thing. Here is the difference between them and why it is important to know the differentiation
Chetan Shah, a successful businessman, applies for a credit card. He is told by the bank that his credit card application has been rejected because of some delays in payment of credit card bills last year. The delays were due to a dispute and showed on his credit report. Chetan was surprised that the bank knew about a dispute he had with another bank. He was under the impression that with a credit score of 720 he would pass muster and his credit card application would be accepted.
What Chetan did not realise was that there is a distinction between a credit score and a credit report. While a credit score is an excellent indicator of what the overall picture looks like, it is the credit report which has the nitty gritty details.
Credit score – a quick glance
A credit score is a statistical compilation of the facts that are present in your credit report. It puts into numbers various borrowings and payment patterns and histories. The credit score predicts the probability of customers defaulting on credit. The variables that go into shaping the credit score include past payment history, balance outstanding, credit account status, age of accounts etc.
There are four Credit Bureaus in India – CIBIL (Credit Information Bureau (India) Limited), Experian, Equifax and Highmark. The scoring pattern of each bureau is somewhat different. CIBIL has a score band of 300-900 whereas, Experian has 1-1000 and Equifax has a range of 1-999.
When a credit application comes to a credit manager, his first opinion is formed on the basis of the credit score. There is high probability that your credit application will be rejected on the basis of the credit score, if the score is below 600 (we take the scores of the most commonly used bureau ie CIBIL). Between 600-750, the credit risk assessment is done on the basis of your credit application, as well as a detailed scrutiny of the credit report. Getting credit is possible when the score is above 750, unless the credit report shows some strongly adverse behavior, especially in the recent past.
Credit report – a detailed scrutiny
A credit report is a detailed account of your credit history. It has five sections:
1. Credit Score
2. Personal Data
3. Employment Information
4. Accounts Information
5. Enquiry Information
As someone who is assessing your ability to repay, the credit officer perusing your credit report will look for information in the credit report which includes any delays or non-payment of past loans, current outstanding credit of both secured and unsecured loans, number of bank accounts and credit cards and their age, number of enquiries for borrowing etc. Basically the credit history is looking at past behaviour and predicting the future credit behaviour to analyse if you would be a good borrower.