Credit Score vs. Credit Rating: What's the Difference? 

Introduction 

Whether you're applying for a loan, seeking business financing, getting a credit card, or simply trying to understand your financial standing, you are likely to come across terms like credit score and credit rating. Before you start trying to make sense of your credit score or dive into your credit rating, it helps to understand what each one represents, what they involve, and why they matter. 

This article will explore both these terms in detail and highlight the differences between the two so you get a clearer picture of your overall financial health. 

What is a credit score? 

A credit score is a numerical figure made up of three digits that reflects your financial creditworthiness. It typically falls within a range of 300 to 900. The closer your score is to 900, the more financially reliable you are considered by loan providers as well as other entities, including landlords, insurance companies, etc.

Your credit score plays a particularly crucial role when it comes to borrowing money. A higher credit score suggests you are a low-risk borrower, which can help you access loans on better terms, such as lower interest rates and higher loan amounts. Many factors can influence your credit score, including your repayment history, the total amount of debt you owe, the types of credit you use, etc.

The credit score is calculated by the following agencies in India:

• Credit Information Bureau (India) Limited (CIBIL)
• CRIF High Mark 
• Experian 
• Equifax 

Here’s a breakdown of what your credit score typically signifies:

• 300 - 549: Poor 
• 550 - 649: Fair
• 650 - 749: Good 
• 750 - 799: Very good 
• 800 - 900: Excellent 

What is a credit rating? 

Unlike personal credit scores, credit ratings are specific to entities and not individuals. A credit rating can evaluate the financial creditworthiness of governments, financial institutions, large business entities such as partnership firms and limited companies, and in some cases, Non-Governmental Organisations (NGOs). It helps determine how likely these organisations are to repay their debts on time. 

In India, credit rating agencies are regulated by the Securities and Exchange Board of India (SEBI). Some notable credit rating agencies include:

• Credit Rating Information Services of India Limited (CRISIL)
• Credit Analysis and Research Limited (CARE)
• Investment Information and Credit Rating Agency (ICRA)
• India Ratings and Research

These agencies assign ratings that generally range from AAA to D, based on various factors like an organisation’s financial strength, repayment history, etc.

Here’s a breakdown of what each credit rating typically signifies:

• AAA: An excellent rating, indicating the lowest credit risk
• AA: A very good rating, suggesting a very low credit risk
• A: Considered good, with a low credit risk
• BBB: Represents average credit quality, with moderate risk
• B: Indicates a lower credit quality and higher risk
• C: Signifies a poor rating and reflects very high credit risk 
• D: Assigned when the entity has already defaulted on its obligations 

Credit rating vs credit score - Key differences 

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

Importance for financial stability 

Financial stability is essential for both individuals and entities to ensure their financial goals are met. Credit ratings and credit scores play a key role in maintaining this stability.

• For organisations, maintaining a favourable credit rating ensures quicker access to funding. It also builds a solid reputation for the entity and helps it secure better terms from lenders and investors.  
• Similarly, a high credit score allows individuals to access loans on better terms, enjoy lower premium rates on insurance plans, and even improve chances during job applications by highlighting a person’s reliability and financial responsibility. 

Maintaining a good credit rating and score can support both your professional and personal financial goals, and contribute significantly to your long-term financial stability. 

Conclusion

Although often used interchangeably, credit ratings and credit scores have different uses and apply to different entities. A credit score reflects an individual's financial reliability, while a credit rating assesses the creditworthiness of businesses and organisations. They are also presented differently — one in numbers, the other in letters. Understanding the distinction between the two is important, as it helps you focus on the one most relevant to your financial situation. If you run a business, it is wise to monitor both your credit rating and personal credit score. If not, tracking your credit score alone is enough to stay informed and financially prepared.