Credit score vs credit report: What’s the difference and why they matter

A credit score is a three-digit number that predicts how likely someone is to repay their debts on time. It’s calculated using a mathematical formula that analyzes a person’s credit history, which includes information such as repayment history, total credit balance, number of loans and credit cards, credit utilization, and more. 

Financial institutions use credit scores to make decisions about lending money, offering credit, and other financial services. For example, if you go to a bank to seek a personal or home loan, the bank will first check your credit report. They are more likely to approve your loan if you have a good credit history. 

A credit report is a detailed record prepared by credit bureaus based on several factors, primarily including repayment history, credit utilization ratio, credit account age, total number of credit accounts, and hard inquiries. Each bureau uses this information to calculate a score out of 900, which becomes your credit score. 

In essence, while a credit score provides an overview of your financial health, a credit report serves as a detailed map, or “financial kundali”, of your credit history. 

Also Read: Your ultimate guide to maintaining a good credit score

How many credit bureaus are there in India, and which one is most important? 

Currently, four credit bureaus operate in India: TransUnion Cibil, Experian, Equifax, and CRIF High Mark. All four are regulated by the RBI. Credit scores from different bureaus can vary for the same individual. For example, my Cibil score is 803 as of today, but my Experian score is currently 847. 

In India, financial institutions primarily check an individual’s Cibil score before offering a credit product, making Cibil the most prominent and important credit bureau. However, the other bureaus are also significant and should not be overlooked. 

Also read: How a single late payment can decimate your credit score

Why are credit scores and credit reports important? 

• Whenever you apply for a credit product, such as a personal loan, home loan, or credit card, the issuer will check your credit score and credit report first. If they find any issues in your report, they may not offer you their product.
• People with good credit scores can secure better deals from banks. For example, person A and person B visit SBI for a ₹30 lakh home loan, with a Cibil score of 730 and 800 respectively. The bank will offer a loan with a lower interest rate to person B due to his better credit score while person A will likely receive the loan at a higher interest rate.
• If you have a good credit score, you can negotiate a lower interest rate with the bank. Banks prefer offering loans to individuals with good credit scores and reports, so you’ll be in a stronger position if your credit score is high.
• Some insurance companies offer discounts on health and life insurance policy premiums based on credit scores. For example, when I recently ported my parent’s health insurance policy to ICICI Lombard, I received a ₹3,700 discount because I have a very good Cibil score.  

Keep in mind the two main factors –  repayment history and hard inquiries made on the credit report – that impact your credit score.   

Sumanta Mandal is founder, Technofino

Also read: Why banks flag business expenses paid on personal credit cards