A credit report is a detailed report on the credit history of an individual or entity; specifically their repayment ability. A credit bureau collects financial data such as loan and credit card information from banks and financial institutions and then presents it in the form of a Credit Information Report. The report is used by lenders along with other details to determine a loan applicant's credit worthiness.
A credit score is a numerical expression of the credit worthiness of the individual or entity. It is a parameter of your credit performance i.e. it shows how much credit you have taken, your repayment history i.e. details of regular or delayed payments, any loan settlement details, number of loan enquiries etc.Thus, the credit score is a part of the credit report and is an indicator of the probability of you repaying the loan.
Significance to a borrower
In the past few years the Indian financial market has become quite stringent. Therefore, it is important to maintain a good credit score. Every potential creditor refer to the information in a consumer’s credit history i.e. credit report before deciding to extend credit to that consumer and also to determine their eligibility. More negative information in the credit report would lead to a lower credit score and thus would have an adverse effect on your eligibility. In case of a high score, the lender will consider the application and move on to evaluate other factors before approving the loan. Responsible and timely repayments will help improve the credit rating.
How the credit report influences the borrower:
1. Approval of credit by mortgage lenders or banks or other financial institutions is dependent on the credit score of the consumer. A bad score will lessen the chances of getting credit without any hassles.
2. Better interest rates - A good score will help you get the best interest rates and terms.
3. A borrower can inculcate financial discipline by analysing the credit report.
In Indian some of the players providing credit ratings & scores are Credit Information Bureau (India) Ltd, (CIBIL), Experian Credit Information Company India Pvt Ltd., Highmark Credit Information Services and Equifax. It is recommended to assess your credit score from a registered credit bureau at least once a year so as to get an indication of your credit rating.