Credit Rating is an assessment of the creditworthiness of a corporation or a government, while Credit Scoring is an assessment of the creditworthiness of an individual.
Credit Rating
A Credit Rating is a formal opinion given by a specialised agency on a borrower’s ability to repay its debt. This is primarily used for entities that issue bonds and other debt instruments.
- Who is rated? Companies and governments (both central and state).
- Purpose: To help investors in the bond market understand the risk of default associated with a particular company’s or government’s bonds. A higher rating means lower risk.
- Rating Scale: The ratings are typically expressed as alphabetical symbols.
- Agencies: In India, the major credit rating agencies are CRISIL, ICRA, and CARE.
Credit Scoring
A Credit Score is a three-digit number that represents an individual’s creditworthiness. It is used by lenders like banks and NBFCs to decide whether to grant a loan to a person.
- Who is scored? Individuals.
- Purpose: To help lenders evaluate the risk of lending to an individual for products like home loans, car loans, or credit cards. A higher score means the individual is more likely to repay their loan on time.
- Scoring Scale: The score typically ranges from 300 to 900. A score above 750 is generally considered excellent.
- Agencies: In India, the major credit bureaus that calculate credit scores are CIBIL (TransUnion), Experian, Equifax, and CRIF High Mark.
Key Differences: Credit Rating vs. Credit Score
| Feature | Credit Rating | Credit Score |
| Subject | Companies & Governments | Individuals |
| Purpose | For investors in debt instruments | For lenders (banks/NBFCs) of retail loans |
| Scale | Alphanumeric (e.g., AAA, AA+, B-) | Numeric (e.g., 300-900) |
| Providers | Credit Rating Agencies (CRISIL, ICRA) | Credit Bureaus (CIBIL, Experian) |
| Use Case | Evaluating corporate bonds | Evaluating home/car/personal loan applications |