Safeguarding a customer regarding money transactions, the money lending process, and improving the cash flow is usually complicated in a developing or developed nation.
Helping customers with a proper set of guidelines and rules becomes a difficult task for an institution or organization.
Having taken the learnings and the positive outcomes from the scenario mentioned above, there comes a concept of credit. Two parties are involved in proceeding with the credit, and the assigning authority will usually be a bank.
Suppose a customer approaches these institutions, organizations, or banks that were assigned to generate the credit and delegate the same to the following authority. In that case, certain process checks and detailed para-metrical report cards will be available.
This report card gives complete information about the customer’s history of credit and the time for which the credit was assigned, and the clearance date.
If the report is optimistic about the customer’s credit history, he will be getting the credit else. It will be rejected.
There will be scores even on the report card that determines the credibility and transaction status on which the lending authority can rely to generate the credit.
Key Takeaways
- Credit reports provide detailed information on an individual’s credit history; FICO scores are numerical creditworthiness ratings.
- Credit reports are generated by credit bureaus like Experian, Equifax, and TransUnion; FICO scores are calculated by the Fair Isaac Corporation using data from credit reports.
- Credit reports can help identify errors or potential identity theft; lenders use FICO scores to evaluate loan applications and credit risk.
Credit Report vs FICO
The difference between a Credit report and a FICO score is the credit pattern analysis and assigning a score depending on the pattern. A credit report has a detailed analysis of a customer’s credit pattern, starting with the date of avail of the credit and the final repayment. At the same time, FICO offers a score based on the creditworthiness of any individual.
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Comparison Table
| Parameter of Comparison | Credit Report | FICO Score |
|---|---|---|
| Reporting authorities | It is always the governing council that is a bank | The FICO company governs it |
| Analysis pattern | It is a detailed document having the ins and outs of the credit history | It is a three-digit score |
| Method | It is a process-oriented report on the full transaction details of a customer from the past 36 months. | It is a method of measuring an individual’s Credit worth |
| Scores | It doesn’t have a scoring pattern | It has scores ranging from 300 -850. |
| Reporting | It has complete details of the location, bankruptcy, etc | It has only a score assigned based on the analysis |
What is Credit Report?
A credit report is documented proof of a person’s credit history duly prepared by the credit bureau.
The credit bureau prepares the credit report. They take into account various pieces of information to ascertain creditworthiness.
This ‘creditworthiness’ is documented as a credit report.
Financial institutions or lenders use this report to check with the applicants whether to offer a loan.
The reporting companies systematically make the report.
They collect all the necessary information about the financial transactions of the person.
It includes bill-paying habits too. With the help of all the information, the credit report is prepared.
There are 4 primary divisions in a credit report.
- Personal Information: Name of the customer, addresses, employers.
- Accounts: This includes any loan accounts until the credit card accounts.
- Inquiries: This is a crucial division; it clearly states which companies have looked into particular candidates’ data for offering loans.
- Public Records: Any bankruptcy information shall be present in this division.
If a customer’s credit report has an extended history of credit repayments, this will affect the scores for which a negative score might be assigned.
If the reports are positive, customers get credit cards and loans when they request a favourable note.
What is FICO?
A FICO Score may be a three-digit variety supporting your credit report data.
It helps lenders confirm how possible you’re to repay a loan. This ascertains the borrowing status and also the repayment status.
FICO scores give a quick and reliable method to decide whether to offer a loan. In most cases, they’re going to check out your FICO Scores.
FICO score is the snapshot of what a credit report is. It is a concrete measure of a person’s creditworthiness in the loan market.
Not solely will a FICO Score facilitate lenders to build smarter, faster choices concerning World Health Organization they loan cash to, but it additionally helps individuals such as you get direct and quick access to credit once you want it.
FICO came into existence 30 years before. That helps the lenders and the borrowers.
There were many other scores which were available before FICO came into existence.
FICO score helps individuals to avail of loans on a faster basis. This may be for education, personal emergency or much more.
The fact is, a decent FICO Score will save a lot of money and energy. As such, it is an excellent way to ascertain a person’s credit rating faster too!
Main Differences Between Credit Reports and FICO
- The main difference between Credit Reports and FICO Scores is an individual’s scoring pattern based on the customer’s previous credit history. Credit reports focus only on report generation, whereas FICO scores focus on the scoring pattern for each category.
- FICO scores are rated based on the category, and a unique percentage is given to every class, but the Credit report gives an overview.
- FICO scores are authorised to extend or decline credit, but the Credit report doesn’t specify anything.
- Credit bureaus determine the factors of credit reports, and FICO company determines the factors of FICO scores.
- Getting a free credit report is available with agencies that issue the report. However, this will not apply to FICO scores, as the scores are generated only based on the transactions made.
- https://mpra.ub.uni-muenchen.de/47783/1/MPRA_paper_47783.pdf
- https://www.federalreserve.gov/pubs/Bulletin/2004/summer04_credit.pdf
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.
