Credit rating is an important factor whether you are an individual, a business or government of a country. Credit rating agencies decide your credit worthiness using some standard parameters. The standards are generic in nature to ensure maximum number of ratings. This also enhances trustworthiness of these credit rating agencies. On the other hand there are credit bureaus also monitoring the credit score. Based on the credit score, banks decide whether a loan should be approved or rejected. In this article we will read about the difference between credit rating agency and Credit Bureau and its working.
Difference between credit rating agency and credit bureau
The basic difference between these two is the evaluation prospect. Generally, credit bureaus keeps track of credit history of individuals. They keep track of the credit score and most banks check credit score before giving any loan or credit. They use this score to check if the person has paid his or her loans in the past or if the person is capable of loan repayment. Credit rating agencies on the other hand work with a broader umbrella. They rate organizations, governments and debt instruments. Many people depend on their ratings as the primary criteria of believing if a bond is with buying, a company is worth investing or how debt laden a country is.
Credit rating agencies also tell us about the risks of investing in any government bonds or large private businesses houses. Credit rating agencies evaluate the creditworthiness of businesses, governments, and debt instruments, providing ratings to investors to assess the risk of lending.
Credit bureaus, on the other hand, focus on individuals and small businesses, generating credit scores and reports to help lenders evaluate the creditworthiness of borrowers.
Credit Rating Agencies
Moody’s, Standard & Poor’s, and Fitch are some of the top credit rating agencies accepted globally. Countries also have their own rating system and rating agencies or departments to track individuals and businesses.
Top Credit Bureau in the World
Equifax, Experian, TransUnion (in the US), CIBIL (in India). Experian, TransUnion, and Equifax work in the USA. Other countries also have their internal system of tracking individual credit scores. For example: India depends on CIBIL score as the primary parameters of giving loans.
Rating Agencies vs Bureau – How they rate?
Credit bureaus rate people in numerical terms. For example: 300-900. When you apply for a loan, banks or other financial institutions check this core to decide about your interest rate and payback capacity. If your credit score is low, there is a chance of rejection of a secured loan. If the credit score is good, you can get an unsecured loan with low interest.
Rating agencies do not rate in terms of absolute numbers. For example: they give AAA, AA, A, BBB ratings.