How Is Credit Score Different From Credit Rating?

 

The concept of credit involves various other terms that you learn about throughout the journey. Two of these terms are most commonly known - credit rating and credit score. The real-time credit score. The credit score refers to the score that you earn by paying loans and other debts on time while the credit rating is a rating that is given to corporations after assessing if they can meet the final commitments.

To understand the concept of credit score and credit rating and improve the condition of digital lending in India, it is important to grasp the concepts of both credit rating and credit score.

Real-time credit score Vs. Credit rating: Differences

There are significant differences between credit score and credit rating. Let's learn about them.

    1.      What they mean: The credit scores of an individual are calculated depending on the consumer lending decisions. The real-time credit score is determined by three bureaus. This credit score is mostly the score gained by repaying the borrowed money on time, maintaining the right balances and payment of all due bills before the due date. The higher the credit score, the better the chances of availing credit at the time of need.                                                                                            

Credit rating on the other hand refers to all the agencies that set their own scales. The financial history of these agencies includes the repayment and borrowing of loans. The agencies are then given credit based on this financial history.

2.     How are they determined: The credit scores are determined by the agencies based on the individual's credit history. The credit scores are calculated similarly to the credit ratings. You need to maintain your credit score to avoid credit risk management.

But the credit ratings are based on the people who are involved in making high transactions. There are two types of credit ratings- speculative credit rating and investment–grade credit rating.

     3.      The limits involved: The credit score is expressed in numbers. The system of digital lending in India is based on these numbers. The scale for credit scores starts with 300 and goes up to 900. The more the credit value, the greater is the creditworthiness.

A limited rating scale defines the credit rating. They are then represented in a letter-grade format. The highest rating is AAA followed by AA, A, BBB, BB, B and so on. The lowest of this credit rating is D.

      4.      Ways to increase it: The easiest way to improve a real-time credit score is to keep it stabilised. The more you pay your bills and debts on time, the more the chances for the EMI and loans to get sanctioned.

The credit rating can be improved if the individual maintains the credit score. A good credit score does not help in better credit risk management, it also helps to improve the credit rating of the agency.

These were some of the biggest differences between credit rating and credit score. You can always target maintaining good credit behaviour to enjoy the benefits of a good credit score. Try to keep minimum debts in order to keep up a good credit score.