Difference Between Credit Rating and Credit Score

Credit score or credit rating - which one to look for while availing of a loan? It goes without saying that terms like credit rating and credit score are overwhelming. Especially when these terms are often used interchangeably. The fact is, credit rating and credit score hold distinct meanings in the financial landscape. This blog provides a detailed overview of credit rating vs credit score to help you get better clarity. Read on!

What is Credit Rating?

Credit rating determines the credit risk of business entities such as proprietorships, partnership firms, non-profit organisations (NGOs), or limited companies. This rating usually ranges from AAA to D. Professional credit rating agencies analyse the financial records, sales data, historical and current debts, and income prospects to gauge the lending risk. A good rating signifies the company's financial stability and robust repayment capacity.

List of Agencies That Assign Credit Rating to Businesses

Credit ratings for businesses are determined by SEBI-regulated agencies in India. Notable agencies include:

• CRISIL

Founded in 1987, CRISIL operates globally and assesses companies based on market share, management expertise, and overall strength.

• CARE

Established in 1993, CARE provides comprehensive services, including long-term and short-term debt ratings.

• ICRA

Operational since 1991, ICRA with its headquarters in Gurgaon, specialises in rating various financial products.

• India Ratings & Research

Formerly Fitch Ratings India Pvt. Ltd. (1995), this agency evaluates financial institutions, local bodies, corporate bonds, and managed funds and assess business creditworthiness.

What Does a Good Credit Rating Mean?

Credit ratings are denoted by a letter or symbol, signifying the risk level linked to an entity. For instance, an "AAA" rating, the highest, signifies minimal credit risk, whereas a "D" rating, the lowest, indicates either default or a substantial probability of default. Take a look at the table below to know what each rating denotes:

Rating	Scale of Rating	Risk
AAA	Excellent	Lowest
AA	Very good	Very low
A	Good	Low credit
BBB	Average	Moderate credit
B	Low	High credit
C	Poor	Very high
D	Defaulted	Default

What is Credit Score?

A credit score is a numerical assessment reflecting an individual’s creditworthiness. The number ranges between 300 and 850. A higher credit score indicates that an applicant is a low-risk borrower. Maintaining a good credit score to avail of loans in favourable terms is best.

List of Agencies That Assign Credit Scores to Individuals

In India, four major credit bureaus determine the credit score:

• CIBIL

TransUnion CIBIL, established in 2000, is a leading credit bureau in India with over 1 billion records. It provides credit information to 5,000+ members and focuses on managing lending risk effectively.

• Equifax

Equifax India, which has been operating since 2010, caters to 1,000+ members and excels in microfinance, fintech lending, and MSME financing. Leveraging advanced analytics and industry knowledge, it is famous for its trusted data.

• Experian

Experian, with a global history of 125+ years, entered India as a credit bureau in 2010. It collaborates with financial companies, insurers, e-commerce firms, and Telco’s, offering diverse information services.

• CRIF High Mark

Founded in 2008, CRIF High Mark influences millions of lending decisions monthly and holds data from 4,000+ financial institutions. It pioneered comprehensive borrower information in India.

Also Read - How to Improve CIBIL Score to Get a Loan at Lower Interest Rates?

What Does Different Credit Scores Mean?

Credit scores, often presented as numerical values, provide a three-digit numeric portrayal of an individual's creditworthiness. Ranging between 300 and 900, a higher score indicates excellent creditworthiness, with 900 being the highest level.

Score	Scale of Score	Meaning
NA	Not applicable	You haven't applied for your first loan yet.
300-549	Poor	Your track record includes missed EMIs and defaults, making loan approval unlikely with this score.
550-649	Fair	This indicates a history of irregular EMI payments and numerous hard inquiries on your profile. Having a credit score within this range could result in the rejection of a loan application.
650-749	Good	While you have exhibited positive credit behaviour in the past, there are still some imperfections that might hinder your eligibility for obtaining loans with low-interest rates.
750-799	Very good	Your timely EMI payments and great credit history label you as a low-risk borrower, potentially leading to favourable loan rates from your lender.
800-900	Excellent	Your exceptional financial management, demonstrated by a perfect repayment record, qualifies you for a larger loan with lower interest rates and favourable terms.

 

Credit Score vs Credit Rating:  Key Differences

Here are the key differences between credit score and credit rating:

Parameters	Credit Score	Credit Rating
Assigned By	Agencies like CIBIL, Equifax, Experian, CRIF High Mark	Agencies like CRISIL, CARE, ICRA, India Ratings & Research
Assigned to	Individual borrowers	Sole proprietorships, partnership firms, and limited companies
Representation	By number	By alphabets
Ranges Between	300 and 900	D and AAA

To Conclude

Understanding the difference between credit score and credit rating is essential to navigate through your loan journey seamlessly. A good credit score/CIBIL Score or credit rating always helps individuals and businesses get better deals and loan offers. To experience a hassle-free loan journey, get a loan from a trusted financial services institution like Poonawalla Fincorp. Enable your dreams in just a few clicks!

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