Khalq and Khulq are two different terms. Khalq refers to external form while Khulq means internal form. Man, while consisting of body and physical parts, also consists of spiritual parts, viz., Rooh and Nafs. His physical body has been given the faculty of Basaarat (sight) which is exercised by the eyes of the body. Similarly, has he been given the faculty of Baseerat (insight or seeing with the "eyes" of the heart). The external eyes lack the ability to perceive the internal dimension.
Allah Ta'ala has created men with these two component parts (physical body and spiritual form) in different moulds. He has bestowed to them different physical forms along with various internal forms. Some have a beautiful form and character and some have ugly form and character. The physical form is known as Soorat while the spiritual or internal form is known as Seerat. The rank of Seerat is higher than that of Soorat because Allah Ta'aalaa has related the former to Himself. In this regard He said:
"I blew in him (Aadam) My Rooh."
In this Aayat, Allah Ta'aalaa relates "Rooh" to Himself. In another Aayat, He says:
"Say, the Rooh is of My Command."
This indicates that the Rooh is not lowly nor of dust. However, Allah Ta'aalaa has related the physical body to soil. He says:
"Verily, I shall be creating man from soil."
The meaning of Rooh in this context is the substance which was generated by the direct Ilhaam (inspiration) of Allah Ta'ala. Each such substance (Rooh) acquire cognition of things in proportion to its inherent ability.
It has thus been established that the object of greater honour and importance is the Command of Allah, viz. the Seerat of man. As long as beauty is not inculcated into the Baatini (internal) dimension of man, he will not be described as having a beautiful Seerat. Allah Ta'ala has granted the physical body limbs, e.g. hands, feet, etc. Similarly, has He bestowed "limbs" to the internal form. The "limbs" of the internal form are the faculties of knowledge, anger, desire and justice. A Seerat will not be called beautiful until these four faculties have been adorned. Imperfection in the Seerat is comparable to deformity in the physical body (Soorat). Like a deformed physical body cannot be called beautiful, so too will a defective internal form not be described as beautiful. For example: if one's faculty of anger (Quwwat-Ghadhabiyyah) is below the level of equilibrium and one's faculty of desire (Quwwat-Shahwaaniyah) is excessive above the degree of equilibrium then one's character (Seerat) will not be described as beautiful.