A Helpful Guide to Understanding Your Credit Report

Your credit report or CIBIL report reflects your monetary health, providing a deeper insight into your overall finances. It forms an integral part of your credit score and helps lending institutions make financial decisions regarding extending loans and their terms. Once you understand what constitutes a credit report, reading its contents becomes much simpler.

What is a Credit Report?

A credit report is a detailed record of your credit history about loans and credit cards that you own and how responsibly you pay the respective EMIs and bills. Individuals can access their credit reports from any of the four credit bureaus in India: TransUnion CIBIL, CRIF High Mark, Equifax, and Experian. Each credit agency compiles credit information from various lending institutions in the form of a credit report. Thereafter, they assign a three-digit numeral, commonly known as a credit score. A credit score assigned by TransUnion CIBIL is known as a CIBIL score.

Why is Credit Report Important?

The credit report is the only source of information that can be used to calculate your CIBIL or credit score – a three-digit numerical representation of your creditworthiness. Thus, it is one of the factors accessed before sanctioning loans or approving credit cards.

Also Read: What is a CIBIL Score?

A high credit score typically indicates a history of timely payments and responsible credit management, whereas a low credit score suggests past issues with credit, such as missed payments or high credit utilisation. The higher the credit score, the greater your chances of being approved for a loan.

Credit Score Range

Here is a quick look at the different ranges of credit scores and what each of them implies while availing credit:

Also Read: 7 Tips to Help You Improve Your CIBIL Score

How to Check a Credit Report?

A credit report comprises various sections with different categories of information. Each credit bureau has its own format, but the general compilation of the sections is as follows:

1. Credit Score

A credit score is a numerical representation of your credit history ranging between 300 and 900. Lenders evaluate it before approving any credit to determine your eligibility and the appropriate terms.

2. Personal and Account Information

This section contains your personal and account information. It mentions details like types of loans, account numbers, ownership details, important dates, loan amounts, and month-by-month data of your loan accounts for the last three years. It also references your credit balance, available limit, account type, account status, and payment history.

3. DPD Information

DPD in a CIBIL report, or 'Days Past Due', is a record of your credit payment timelines. Even a delay of one day is reflected here either as a remark or a number. For example, if there is a delay of four days, it will be marked numerically. If you default by 0 days, it may be indicated with a numeral or a comment. ‘XXX’ means unreported information. A DPD other than ‘000’ or ‘XXX’ implies that one has not paid their dues regularly.

4. Enquiry Information

Enquiry information encompasses both hard and soft enquiries. A soft enquiry is the one made by you, businesses offering you goods or services and your existing creditor. It does not affect your credit score, unlike a hard enquiry, which is usually initiated by prospective lenders after they receive credit applications. A single hard enquiry may be harmless, but too many credit requests can reduce your score.

5. Credit Report Remarks

The remarks section shows the current state of your accounts. Given below are some lender’s comments that one may commonly find in a credit report:

• Settled

  Partly paying the dues to settle a loan or credit card may attract a ‘settled’ remark. This has negative connotations for your credit score and future credit aspirations.

• Written Off

  The inability to pay off the outstanding loan/credit card amount for more than 180 days is reported as a ‘written off’ note and may hurt your credit score.

• Post Write-Off Settled

  A ‘Post Write-Off Settled’ comment denotes a debt settlement after your credit has been written off. This can damage your credit health, denying you any credit in the future.

• Wilful Default

  A wilful default happens when borrowers do not repay the loan despite having the means to do so. Those who utilise loan funds for unfair purposes other than the reason for which they were originally availed are also brought under the purview of wilful default. Such borrowers are seriously dealt with, sometimes necessitating legal action.

• Closed

  When you pay off your loan in full, lenders report the account as ‘Closed’. They also issue a ‘No Dues Certificate’ or closure letter stating the loan cleared.

How to Build a Good Credit Report?

Building a good credit report involves several key practices, such as consistently paying all bills on time, keeping credit utilisation below 30%, and maintaining older credit accounts to show a long history of credit use. It is also important to avoid frequent credit applications, as too many inquiries can signal financial instability. Regularly monitoring your credit report helps fix errors early. Having a diverse mix of credit types, such as credit cards, instalment loans, and mortgages, can positively impact your score. Additionally, managing debts responsibly contributes to a healthier credit profile.

Also Read: How to Check CIBIL Score?

Conclusion

It is imperative to read your credit report for easier monitoring of the records and to maintain a healthy CIBIL score or even improve it if necessary. Tracking your report periodically enables you to check its accuracy. In case of any discrepancies or mistakes, report them to the credit bureau immediately. They will consult the financial institution in question before effecting the necessary changes. Your credit records let you make more informed decisions regarding your spending habits and credit behaviour as a diligent borrower.