Credit score or credit report? Don’t confuse these two financial tools

Many people link an individual’s overall credit behaviour to their credit score. However, the credit score only summarises it with a three-digit number. There is much more beyond the credit score that can be found in an individual’s credit report. It provides comprehensive details of an individual’s credit behaviour. These details help financial institutions underwrite credit applications and make informed decisions. Thus, an individual’s overall credit behaviour can be evaluated from their credit score and credit report. 

In this article, we will understand the difference between a credit score and a credit report.

What is a credit score?

A credit score is a three-digit number provided to an individual with a credit history. The credit score is provided by Credit Information Companies (CICs) like CIBIL, CRIF High Mark, etc. An individual’s credit score is a reflection of their credit worthiness and ranges between 300 and 900.

Financial institutions usually consider a credit score of 750 or above good for approving credit applications like loans and credit cards. The higher the credit score, the better the chances of loan/credit card approval. However, it doesn’t mean individuals with a credit score of 750 will not get credit.

Banks and NBFCs consider credit applications with a credit score of less than 750 and approve them on a case-to-case basis. In some cases, the financial institution may ask the borrower to provide collateral or get a co-applicant or guarantor. In some cases, the financial institution may charge a higher interest rate than others or reduce the loan amount.

The credit score is arrived at from a proprietary algorithm that takes into account various factors. Some of these include the following:

1. Timely repayment of loan EMIs and credit card outstanding
2. A credit utilisation ratio of 30% or lower
3. A good mix of secured and unsecured credit
4. Ageing of credit products (the higher, the better)
5. Not making too many credit applications simultaneously or within a short period.

The credit score being a number, is arrived at taking into account the above factors. However, the credit score doesn’t give the details of these factors. The details of these factors can be found in the credit report.

What is a credit report?

A credit report is a comprehensive record of an individual’s credit footprint. It provides the following information about the individual:

1. Credit score
2. Personal details
3. Identification details, address details, contact details, employment details, etc.
4. Details of all credit accounts (loans and credit cards) and their current status (open or closed)
5. Enquiry details

Thus, a credit report goes far beyond the mere credit score and provides a lot more details about an individual’s credit behaviour.

Difference between a credit score and a credit report

Some of the differences between a credit score and a credit report include the following.

A credit report provides details that the credit score may not reveal

In the earlier section, we saw how the credit score is a part of the credit report. Sometimes, a borrower may have a good credit score, but it may not reveal certain vital information. For example, a borrower may have defaulted on a loan repayment or settled a loan account. When that happens, there is a sharp fall in the credit score immediately. However, over a period of time, with good credit management, the credit score recovers.

So, a loan applicant may have a good credit score. However, the lender will know about any loan default or loan settlement only when they check the applicant’s credit report. Even though the credit score may have recovered, the loan default or settled status will stay on the credit report for a long period.

The ‘credit accounts’ section of the credit report provides these important details to the lender. It helps the lender underwrite the credit application and make an informed decision.

Similarly, a loan applicant may have a good credit score. However, the lender will come to know about any multiple loan applications with other lenders simultaneously or in the recent past only when they check the applicant’s credit report. Whenever a credit application is made, the lender makes a hard enquiry of the applicant’s credit report. The enquiry details stay in the credit report for a specified time and cannot be removed by the applicant.

The enquiry details section of the credit report provides the lender with the details of all hard enquiries. The details include the lender’s name that made the enquiry, the date of enquiry, and the credit product (credit card or loan) for which the enquiry was made. Multiple credit enquiries simultaneously or in a short time span cautions the lender who look at these as credit-hungry behaviour.

Credit score or credit report: What is more important for an individual?

The credit score is an important indicator of your credit health. If the credit score is healthy, it indicates all is well. However, if the credit score has fallen, the reason(s) for it can be found in the credit report. Go through your credit report to check whether any credit card/loan EMI payment has been missed. Your credit report gives details of your credit utilisation ratio, the mix of secured and unsecured credit, the ageing of each credit instrument, the number of enquiries made, etc. Your credit report will indicate if any course correction is required in any of the above areas.

Thus, the credit score and report are both important. While a lower credit score may point to some issue(s) with the credit profile, the cause and solution can be found in the credit report.

Gopal Gidwani is a freelance personal finance content writer with 15+ years of experience. He can be reached at LinkedIn.