- 1 What Is Credit Rating Or Credit Score? What’s The Difference Between Two?
- 2 MoneySuperMarket.com
- 3 Q: How to Tip the Scale of Credit in Your Favor?
What Is Credit Rating Or Credit Score? What’s The Difference Between Two?
Individuals, going to take loan or credit from any Bank or financial institution must know about the What Is Credit Rating Or Credit Score? In lack of the information of these main factors, you won’t be able to prove your credit worthiness. So let’s know, Credit Score or Credit Rating is a numerical score which represent the worthiness of the borrowers and there are various Factors that can affect your CIBIL Score. In contrast to credit ratings, credit scores are usually expressed in numbers but there is minor difference between in Credit Rating and Credit Score. What’s The Difference Between Two? Let’s know here!!
With the help of credit score, lenders can collect you information on your credit report into one number instead of it, credit rating express the information of borrower in alphabetic order. Both are used to evaluate the potential risk posed by lending money to consumers and to mitigate losses due to bad debt. The most commonly used credit score is the FICO or Fair Isaac Corporation score which takes information from the three major credit reporting bureaus (Experian, Equifax and TransUnion) and uses it to calculate an individual’s credit score. To collect more differences or other mandatory details, please scroll down this page!!
CIBIL Score or Credit Score is just like a tool, used by lenders to check the credit worthiness and capacity to repay loans of the borrower. Credit Information Bureau of India Limited calculates the CIBIL score on the basis of entire information of the borrower. Credit score or CIBIL Score is a 3 digit number and it ranges from 300-900. Appliers for the loan and credit having CIBIL score more than 750 seems as a Good CIBIL Score. In case of good CIBIL Score, there will be many lenders who will be willing to lend to you.
Credit Rating is credit score or CIBIL Score for the individuals. In addition to a credits core, credit report of your credit and payment behavior is provided by Credit Information Bureau of India Limited. Individuals having low CIBIL score can improve their credit rating or CIBIL score within a few months. If you have a low score, you can either take professional assistance or choose to do it on your own. Through credit rating, borrower’s credit worthiness is expressed in letter grade format.
What’s The Difference between Two? Get Here!!
Sometimes, credit score and credit rating is used interchangeably but there are some definite considerable differences which are well presented below, so let’s check it!!
When you apply to borrow money, the lender will assess your creditworthiness. It wants to know whether you can manage your debts, or whether you are likely to run into financial trouble. The higher your credit score, the better your chances of being approved for the most attractive credit card deals.
When a lender decides whether to approve your application for credit, it looks at your official credit file, which contains details of your financial history. It will tell bank or building society concerned whether you have a mortgage, how much you owe on credit cards and whether you have missed any payments.
The importance of your credit file
Your credit report helps the lender to decide whether or not to approve your application for credit, and on what terms. But each lender has its own specific rating system and will also consider your application form and any previous dealings it has had with you to come up with a credit score.
It sounds a bit sinister, but contrary to popular belief, you don’t have a single credit score and there is no credit blacklist. In other words, if you are turned down by one lender you could be accepted by another.
The information on your credit report is important because it can affect your ability to borrow money, perhaps if you need a credit card or want to take out a mortgage to buy a house. It will also impact the terms of any credit offer.
The information on your credit report is important because it can affect your ability to borrow money, perhaps if you need a credit card or want to take out a mortgage to buy a house.
Someone with a spotless record, for example, is likely to qualify for a 0% interest credit card deal. But if your record is blemished, you will either be turned down or charged a higher rate of interest.
It is essential that the details held on your file are accurate. You should therefore check your credit file once a year by requesting a copy from all three credit reference agencies - CallCredit, Equifax and Experian - as there are likely to be three slightly different versions of your credit report.
The Consumer Credit Act gives you the right to obtain your full statutory credit report at any time at a cost of £2 per report, so the total outlay should be no more than £6.
If you spot a mistake on your file, you should contact the relevant agency and ask for a correction, explaining why it is wrong and supplying any appropriate supporting evidence.
Note that information does not stay on your report forever. For example, a missed payment on your credit card will usually be wiped off after three years. Details of a County Court Judgment (CCJ) or bankruptcy should remain on your file for six years.
Your credit score is calculated taking a number of factors into account, including:
• Late and minimum payments: If you are late with or miss a credit card payment or a loan repayment, it will show up on your credit file. You could also find that your record is tainted if you make only the minimum payments on your credit card every month as it suggests that you are struggling to manage your debts.
• CCJ, IVA or bankruptcy proceedings: You will almost certainly end up with a low credit score if you are declared bankrupt or enter into an Individual Voluntary Arrangement (IVA). Lenders are also wary of borrowers who have a County Court Judgment (CCJ) against their name.
• Little or no financial history: It’s not all about poor debt management. You will more than likely struggle to borrow money if you have never borrowed before as you will have little or no credit history. And no credit history makes it tricky for the lender to assess your creditworthiness.
• Access to available credit: People who borrow relatively small amounts or who prudently pay off their credit card bills in full each month are not profitable for lenders, so can be turned down for credit. Similarly, having access to large amounts of credit could worsen your score, as there is a possibility you might draw down a lot in a short space and struggle to service the debt.
• Frequency of credit applications: If you apply for multiple loans or credit cards or apply repeatedly in quick succession, lenders might assume you are in some kind of financial crisis. You should therefore limit your applications, particularly if you have recently been turned down.
It can be frustrating if you are refused credit, particularly as the lender does not legally have to give you a reason. However, you should always ask as they might give you a broad hint. Then check that the information on your credit file is accurate.
You should also make sure that your name is on the electoral roll, as it’s one of the first checks made by lenders.
The timing of your application could affect your score. So don’t be surprised if you are refused credit shortly after moving home or switching jobs. Lenders look for stability and could be put off by any recent changes.
How to improve your credit rating
With no such thing as a credit blacklist or one universal credit scoring system, there are various opportunities for you to improve your score. Here are our top tips:
1. Register on the electoral roll: The significant factor in boosting your score is getting on the electoral roll. If you’re not on it then it’s unlikely you’ll get any credit. It’s free and easy to register on the About My Vote website.
2. Demonstrate financial stability: It goes without saying that the best way to improve your credit rating is to manage your debts well. Don’t miss any monthly payments, stick to the payment deadline and stay within your credit limit.
3. Check your credit report annually: Review your report to check all the information held about you is credit, and correct any errors if you spot them.
4. Close down old accounts: You might owe nothing on the cards, but the lender will look at all your available credit before it makes a decision on your application.
5. Cut financial links with previous partners: if you have any joint financial products, such as a joint current account, they could influence the lender’s decision. You can ask all three credit reference agencies to add a ‘notice of disassociation’ to your file if you have cut financial ties with an ex.
6. Consider a credit builder card: You can then prove to a lender that you can manage your debts sensibly and so improve your score. Just remember that the interest rates on credit cards for people with low credit scores are usually high. So you should only consider this option if you are confident that you can keep your borrowing under control.
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Experts agree what a good credit score is – is a score 720 or above (noting there is very little need to raise a score above that). Experts say good-to-great credit is 760 or above. A credit score score of 680 range is still considered good (noting if you need credit, you’ll probably get it. It just may not be at a desirable interest rate).
- 720+ is typically a Good Score.
- 800+ is typically a Great Score.
- 650+ is typically minimum credit for loan.
Question: What is a Good Credit Score?
Understanding credit scores is requires understanding how the credit scoring works. Credit scoring gives creditors 3 digit numbers that are calculated according to a mathematical formula with the information in your credit report and how it compares to millions of other people’s credit. The credit score number predicts how likely, or unlikely, it is that you will pay your bills. The better a good credit score number is, the higher likelihood you’ll be accepted for the loan and at a lower interest rate.
There are three different credit scoring models most often used by lenders to decide whether or not to extend an individual credit, but the most commonly used credit score is the FICO score.
Q: What’s the Range of Credit Scores?
60% Of Scores Are Over 700
A good credit score range is between 700 and 850. FICO credit scores range between 300 and 850.The general American public credit scores fall on a bell-shaped curve, with most people having credit scores that fall in the center, as follows:
Credit Scores From Different Credit Reporting Agencies
- There are three credit bureaus which keep information on file about your financial history and activity: Equifax, Experian, and TransUnion. Lenders contact one or more of the credit reporting agencies when deciding whether to extend you credit, to get your credit score and copy of your credit report. While the scores from each credit bureau may be slightly different and have different names, they are all developed with software from Fair Isaac, the developer of the FICO score.
- Credit Bureau FICO Score
- Equifax BEACON Score
- TransUnion EMPIRICA Score
- Experian /Fair Isaac Risk Model
Q: How to Tip the Scale of Credit in Your Favor?
Different activities carry different weight in the calculation of your credit score. Here’s the break down of your score:
The most important consideration in the formula for credit score calculation is how you pay your bills. Your credit score considers how you have paid your bills over time, but your most recent activity is more important than years gone past. If you pay your bills late frequently, you’ll have a lower credit score than someone who pays their bills on time.
Debt and Available Credit: 30%
The second most important consideration in credit score calculation is how much money you owe in comparison to how much credit is available to you. This is your debt to credit ratio, and if you have used all of the credit available to you, lenders consider you riskier than someone who has managed their money better and kept their debt low in relation to how much they could be spending. A good rule of thumb is to keep your debt within 30% of your total available credit for the highest credit scores.
How Long You Have Had Credit: 15%
The longer you have had credit, the better your credit score. This is because lenders have a longer period of time to review your payment habits.
What Types of Credit You Have: 10%
Credit scores are higher for individuals who have a mix of different credit types than for people who have just credit cards, for example. Having an installment loan, a credit card, a mortgage and a car loan is considered a good mix of credit and shows you can manage a variety of credit types.
Frequency of Credit Applications: 10%
If you are filling out applications for credit cards and loans every other day, you’re going to have a lower credit score than someone who isn’t applying for credit. This is because applying for credit frequently makes creditors wonder if you’re in some sort of financial emergency and need access to money – so the more you apply for credit, the lower your credit score will be.
Credit Score Range: Good Credit Score Ratings
- 499 or Less (2% of Population) Horrible
- 500-549 (5% of Population) Worst
- 550-599 (8% of Population) Bad
- 600-649 (12% of Population) Poor
- 650-699 (15% of Population) Okay
- 700-749 (18% of Population) Good
- 750-799 (27% of Population) Excellent
- 800 or more (13% of Population) Best
550 Credit Score and Below : You’re considered an “at-risk” buyer, and while it’s not impossible to get credit, interest rates can exceed 10 percent.
551-560 Credit Score : Not considered “good” credit. People that fall into this category should work to raise it so they can qualify for loans at lower interest rates. Often times, with a score this low, they’ll need a co-signer.
561-570 Credit Score : It’s still going to be tough to get approved for a mortgage or a car loan at reasonable interest rates, if at all, with this score.
571-580 Credit Score : This is still a bad credit score that has lenders perceiving you as an at-risk client, putting in jeopardy what you may qualify for.
581-590 Credit Score : A score in this range is evident of a poor credit history, which is a turn-off for many lenders.
591-600 Credit Score : Get your score up to 600 to become eligible for more types of loans and at lower interest rates. This is still borderline poor credit.
601-610 Credit Score : Most people have credit scores in the 600s or 700s, but until you get to that 620 threshold, you’re considered an “at-risk” client by many lenders.
611-620 Credit Score : A score below 620 hints at past credit problems, making it tough to get a low interest loan.
621-630 Credit Score : You’re above the 620 cutoff, which many lenders use as a line to determine whether or not to grant you approval.
631-640 Credit Score : According to the Wall Street Journal, this credit bracket will have you paying higher interest rates. For example, on a $150,000 30-year mortgage, people can expect to pay some $2,000 more in interest than someone with higher credit.
641-650 Credit Score : Focus on getting your score to 650 and beyond, as this will open the door to better interest rates.
651-660 Credit Score : Anything at or above 650 is considered a “good” score, able to qualify for reasonable interest rates.
661-670 Credit Score : You’ve improved upon your “good” score, now work on getting it to 700 to be eligible for better interest rates.
671-680 Credit Score : Again, while this score isn’t terrible, focus on building it up to 700. It’s considered the “new normal.”
681-690 Credit Score : A score of 700 is within sight. Focus on getting there to get better interest rates, as that’s what is becoming considered the “new normal.”
691-700 Credit Score : Not a terrible credit score, but worth your time to get it up to 700 or 720 to get the best interest rates on loans.
701-710 Credit Score : A score of 700 is the unofficial number in which you can qualify to get the best interest rates on a loan. You’re considered to have a good credit standing once you hit 700, which helps establish you as a qualified buyer.
711-720 Credit Score : To qualify for the best interest rates on a loan or credit card, you want to have a score north of 700, according to the New York Times. A score in this range helps solidify it.
721-730 Credit Score : CBS News says a score of 720 or above is the best number to have and unnecessary to try to raise any higher. At this number, you’re viewed as a minimal risk and can snag loans at low rates.
731-740 Credit Score : You’re beyond the 720 mark, and while it won’t hurt to raise your score higher, it’s not necessary under most circumstances.
741-750 Credit Score : While it won’t hurt to raise your score higher, it’s not necessary under most circumstances.
751-760 Credit Score : Again, you’re beyond the 720 mark, meaning that you’re already eligible for good interest rates on any credit you’re taking out.
761-770 Credit Score : If you’re credit is entering the high 700s. It shows you’re a very trustworthy client.
781-790 Credit Score : You’ve eclipsed the 720 mark and while getting a higher score won’t hurt you, it likely won’t help you much either.
791-800 Credit Score : If you’re bordering on 800, you’re in terrific credit shape. This score is proof that you’ve always been on time with any payments (bills, loans, etc) and don’t have a lot of credit taken out.
801-810 Credit Score : Anything 800 or over is exceptional credit, yet people with this good of credit typically won’t qualify for any lesser interest rates than those with 720.
821-830 Credit Score : You’re 100 points above the 720 cutoff mark, and while it doesn’t hurt to go higher, it’s not necessary. You currently have “excellent credit.”
831-840 Credit Score : Again, a great credit score, but unnecessary seeing as how this is often grouped into the 720 and above category.
841-850 Credit Score : An excellent credit score, but most lenders will still be pegging you in the “720 category” as a preferred customer.
How Credit Scores Affect Your Interest Rates
Not only does the credit score help a lender decide whether or not to approve your application for credit, but it also plays an important role in how much interest you pay on the money you borrow. The following is an example of how your FICO score might affect mortgage interest rates, but keep in mind each lender has it’s own credit tiers and interest rates:
Credit Score Scale for Sample Credit Interest Rate
If a lender is offering their best rates to borrowers with a score of 760 or better, and your credit score is 758 – those two points can cost you thousands of dollars in interest over the life of the loan.
You Can Raise Your Score in as Little as 4 to 6 Months By Following These Two principles:
- You Can Quickly Raise Your Score By Paying Down Balances (some experts believe to keep your balance about fifty-percent of max limit)
- Another Way to Boost Your Score is to Pay On Time (which will have the biggest impact)
Other Tips on Raising a Credit Score:
- Some experts think paying more than the minimum credit card payment can actually help by causing your month-to-month debt not grow.
Once you know what your credit score is, you may decide you need to increase it. There are a number of steps you can take to improve your credit score, but many will require patience as the score doesn’t increase over night when you implement these steps:
Pay Your Bills On Time – the most effective way to increase your credit score over time is to consistently pay your bills before they’re due.
Pay Down Debt – if you currently have debt, focus on paying it down or paying it off completely. As you reduce the amount of debt you owe, you will increase your available credit in relation to what you owe – which is a factor in calculating your credit score. The lower your debt in relation to the amount of credit available to you, the higher your credit score will become.
Correct Mistakes – it’s a good idea to review your credit reports from each of the three major credit reporting agencies (TransUnion, Equifax and Experian) annually to make sure there are no errors. You can get a free report once each year from each of the agencies. If you find any errors, make sure to follow the instructions of the credit reporting agency to have them corrected.
Don’t Apply for Additional Credit – while you are working on increasing your credit score, avoid applying for new sources of credit. Each time you apply for credit, it counts as an “inquiry” and will decrease your score.
Good credit scores for credit cards start at 620 for approval, but better interest rates and credit cards are offered to people who have credit scores above 720 (Credit Score Needed for Credit Cards). If you are unable to qualify for a credit card, you can consider a secured credit card for people with low credit scores. Secured credit cards require that you put a deposit down as collateral, but the credit card company will report your on-time payments to the credit bureaus which makes it possible to use the secured card to start increasing your credit score.
Each lender has their own set of criteria for what is considered a good credit score. The range of credit scores that are considered good enough for various types of credit will change based on the condition of the economy, too, so the score that was considered “good” two years ago may not still be considered “good”, today. View our other articles on credit scores: Good Credit Score to Buy a House, Credit Score Needed for a FHA Loan and Good Credit Score for a Car Loan.
With all types of lending, the lower your credit score, the higher your interest rate will be. It’s always in your best interest to improve your credit score as much as possible to get the best rates and qualify for credit.
A good credit score for buying a car is generally in the 700 range, although you can probably qualify for higher interest car loans with scores above 620.
You will probably need a 730 or higher credit score needed to buy a house and qualify for a traditional mortgage program, but there are often specialty mortgage programs for individuals with credit scores as low as 650.