September 17, 2024 · 12 mins read
Difference between CIBIL Score and Credit Report
Santosh Kumar
People often have misconceptions about the difference between CIBIL score and Credit report. Lenders or banks emphasize the credit history of the borrowers before lending loans and advances. A good credit history will minimize the risk of default for lenders. Lenders use the credit score or Cibil score to determine whether the borrower is responsible enough to repay. More information on CIBIL score vs Credit report is given below:
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India's major credit bureaus include CIBIL (Credit Information Bureau (India) Limited), Equifax, CRF Highmark, and Experian, all of which are licensed by the RBI (Reserve Bank of India). CIBIL is part of TransUnion, which is why credit scores in India are known as the CIBIL Transunion score.
CIBIL is a 3-digit numeric that summarizes a person's credit history, rating and report. It ranges from 300 - 900. Higher score will lead to a better rating
1. Payment History: Payment history includes every delayed or missed payment. On-time payments will have a positive impact on the credit score.
2. Total debt: Reducing total debt and managing it will significantly impact the CIBIL score, as it is one of the major factors.
3. Types of Credit: different types of credit, such as personal loans, credit cards, etc., can influence the credit score. A diverse credit portfolio will be advantageous
4. New credit applications: Multiple credit applications in a short period of time will negatively impact the credit score as they indicate that the borrower needs money and will likely have trouble repaying it.
5. Credit utilization: Credit utilization is the percentage of available credit. If it is within reasonable limits, then it will not impact the CIBIL score.
Read More: Get Loan with Low Cibil Score
A higher CIBIL score means that it is easier to get loans and credit from lenders. Lenders minimize the risk of default if the borrower has a good credit history. It allows borrowers to get their loans approved faster. Those with lower scores will face difficulties in getting their loan applications approved and may even get loans for a higher rate of interest. The borrowers with high CIBIL score always get the advantage of getting their loans at lower interest rates compared to those with lower CIBIL scores. An excellent CIBIL scores increases the chances of getting a loan approved of higher amount along with lower rates of interest. So having a good credit score can simplify the process of getting approved for rentals or leases.
A credit report is a detailed summary of a person's credit history prepared by the credit bureau. Credit bureaus gather financial information and create credit reports based on that information. Lenders use these reports, along with other data, to assess a borrower's creditworthiness. Insurance companies, employers, and landlords may also review credit reports.
Credit bureaus or credit reporting institutions and agencies collect and store financial data submitted by creditors. Lenders use these reports to determine the borrower's creditworthiness and the rate of interest to be offered. They also determine whether or not the borrower will meet the terms of an existing credit account.
Read More: Tips to Improve Your CIBIL Score Fast
1. Payment history (35%)
2. Amounts owed (30%)
3. Length of credit history (15%)
4. Credit mix (10%)
5. New credit (10%)
1. Payment History: This includes detailed information on all financial obligations and whether the bills were paid on time. On-time payments can have a positive impact on the credit report, while delayed payments can lower a credit score.
2. Amounts owed: This includes the percentage of credit used compared to the available credit, which is called the credit utilization ratio. A lower credit utilization ratio would be better for the credit score.
3. Length of credit history: A long credit history will negatively impact the credit score as it provides more information on payment reliability.
4. Credit mix: having a diverse credit type, like loans mortgages, can be of benefit to the individual
5. New credit: New credit applications will lead to hard inquiries, which can negatively impact the credit score as it means there is a need for money in a short period, which increases the risk of default.
Read More: How to Improve CIBIL Score after Default
Credit reports contain many different financial information, such as new credit inquiries and bankruptcies. Positive information can stay in the report indefinitely, and negative information is removed after a certain period.
1. New credit: When applying for new credit, a hard inquiry is conducted, which can have a negative impact on the credit score and stay on the report for up to 2 years.
2. Late payments: When a payment is missed or delayed, creditors typically wait up to 180 days before charging off the debt. This charge-off will take around 6 months to appear in the credit report but can stay for up to 7 years from the end of that period.
3. On-time payments: When payments are made close to the time a creditor reports them, they are immediately reflected in the reports. If creditors report after the payment is made, it shows up in the report within a month.
4. Bankruptcy: Bankruptcy is an adverse event that remains in a credit report for 7 to 10 years. It indicates that repayment was not made on time, which can negatively impact the credit score. Bankruptcies are elements that stay the longest in a credit report for up to 10 years.
Read More: CIBIL Vs Experian
Credit monitoring services protect against identity theft or fraud by tracking a person's credit report and credit score. Identity theft and other criminal activities include unauthorized purchases, stolen credit card numbers, etc. Credit monitoring services notify their customers when there is credit activity. They offer services like tracking credit scores and informing about credit quality. These monitoring services allow the account holder to plan and repair issues related to credit-based activities.
Credit monitoring services alert their customers when suspicious activity is detected. Some services also scan the dark web for personal information being sold. Each credit monitoring service has its features and services, but most of them have the service of giving access to credit reports and credit scores. Some service providers include offers like restoration assistance, theft insurance, dark web surveillance, etc.
Read More: How To Read Your Credit Report
Credit scores and reports are determined based on information given by lenders and NBFCs, also known as Credit Bureaus. TransUnion CIBIL, Experian, Equifax, and CRIF High Mark are the four major credit bureaus in India. TransUnion CIBIL is the most trusted and preferred credit bureau as it allows customers to check and download CIBIL reports for free and provides monthly updates without any cost.
Though there is a CIBIL score which is a simple digital number summarising one’s credit responsibility, the credit report is the story of affection between an individual and a creditor. Both the CIBIL score and the credit report are important in assessing credit applications from borrowers, but they are used in different ways in the overall assessment process. The CIBIL score serves as a quick guide on the potential of a person to repay the loan as contracted, while the credit report presents the information that would be needed to understand the situation thoroughly.
CIBIL Score (also referred to the Credit Score/Credit Rating): The term Cibil score is used as a Cibil rating which means a three digit numerical inference weighing one's ability to repay debt. From 300 to 900, and ranges over a summary of credit history to evaluate an individual's ability/temper to repay borrowed money. The higher the score, the better his credit profile, which means more chances for loans or credit cards. This helps the creditors to manage the credit application and perform risk assessment in record time.
**Credit Report: **The credit report is an elaborate and detailed document reflecting an individual's entire credit history. The report is inclusive of outstanding balances of credit accounts, history of payments made on the accounts, and a note on credit request, among other things. The credit report reflects a more complete picture of the individual credit activity and is used for assessing all aspects of the applicant’s finances.
Read More: CIBIL Score Role in Loan Application Process
CIBIL Score: CIBIL score computation involves various measures determining income, credit utilization as well as repayment levels. It is measured as a single number and which is basically based on several factors:
1. Payment history (payments made on time)
2. Credit utilization ratio (how much of available credit is used)
3. Length of credit history (the time taken when revolving credit accounts were opened)
4. Types of credit (loan accounts as well as credit cards) 5. Recent credit inquiries (a number of credit applications made lately
Credit Report: Credit Reports contain various items associated with:
1. Personal Information: Namers, address, date of birth among other attributes.
2. Credit Accounts: Comprehensive updating concerning all present and previous credit accounts such as credit cards, loans and mortgages along with their payment status and balances.
3. Public Records: Information regarding any legal collection or bankruptcy among other legal records affecting credit rating.
4. Credit Inquiries: A record of all hard and soft inquiries made by lenders, stakeholders and other parties on the person’s credit history.
5. Computation and Communication
CIBIL Score: The score is determined by employing the special software tools made available to the creditors like CIBIL. This includes looking at the amount of credit information that is offered by various credit granting entities such as banks and other financial institutions, and putting it into one comprehensive figure. The lowest score is300, while the highest is 900 where the higher scores means improving credit of the individual.
Credit Report: The credit reports are prepared by credit agencies, who have lent such reports to other borrowers only after gathering details from several creditors. It is an overall depiction of a person’s credit reporting which includes repayment of debts over a period of time. The CIBIL score, is a number depicting the credit worthiness, while this report is devoid of any number and is in fact a story on how the individual performed with regard to credit.
CIBIL Score: 750 plus score is considered good and means good creditworthiness which is favorable and more credits will be given which means more loans will also be easier to get as only a few favorable terms will be present . While those scoring below 750 are less likely to exhibit low credit risk and hence more costs in securing credit may be incurred.
Credit Report: It include factors both, positive and negative credit behaviors, like timely payments, delinquencies, credit application, credit usage and how recent the credit activity is. This detail works to the advantage of any lender who desires to know the contribution of any aspect to the CIBIL score.
CIBIL Score: A CIBIL score is best suited for the lenders since it helps them quickly approve or disapprove any loan application or credit application. Simply put, the score provides a quick snap of approval assurance but doesn’t quite go into the details of the reason for the score.
Credit Report: This section aims to assess a complicated problem like a person’s credit history and therefore uses a number of reports. This report is used by lenders for a better understanding of the credit score and also for investigating the complete picture of credit usage including core accounts and previous usage of credit.
Read More: How Students with No Income Can Get a Credit Card
Credit reports and CIBIL scores are critical for evaluating a person's financial health and determining the status of credit accounts. A credit report contains detailed information about a person's payment history, credit accounts and all related financial and non-financial information. On the other hand, a CIBIL score is a number derived from credit reports summarising a person's creditworthiness to determine whether or not they are eligible for a loan. Credit reports allow the borrower to maintain higher scores and monitor and maintain their finances. It also helps them secure favourable financial opportunities and benefit from financial institutions.
Are credit scores and credit reports the same?
A credit report is a document containing all the information about a person's financial and non-financial elements, whereas a credit score is a numeric value that determines a person's creditworthiness.
Is 700 considered a good CIBIL score?
Credit scores between 690 and 719 are considered good and creditworthy.
How many credit reports are provided by CIBIL?
Every year, CIBIL provides access to one CIBIL score and report.
What should be the ideal score for a loan/credit application?
Although CIBIL does not set a specific or minimum score, credit scores above 750 are generally considered good enough to get a loan or credit application approved.
How to improve your credit score?
1. Pay all dues on time
2. Have a healthy credit portfolio
3. Check credit reports regularly
4. Clear old dues and accounts
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