How to read a credit report?

Knowing the information in your credit report and understanding how it is used is an important step towards building your financial future. A credit report is a record of your credit history and activity. It contains the information about loans and credit cards you have and how timely you pay them. Anyone can access his/her credit report from any of the 4 credit bureaus i.e. CIBIL, Equifax, Experian and CRIF Highmark). Each of these credit reporting agencies compiles your credit information from various reporting sources, such as lenders, into a credit report. Checking and reading your credit report is important because the information mentioned there is used by the lenders and credit card issuers to decide your eligibility criteria before lending. Here we have listed below a section-wise breakdown of how a person should read his/her credit report:

So, what’s exactly on your Credit Report?

A credit report consists of several sections with various categories of information. Each credit bureau has its format. However, here is a general compilation of the sections:

A credit report is divided into several parts:

1. Credit Score

   A credit score is a three-digit numeric summary of your credit history, which ranges between 300 and 900. It is calculated using details from the account and the enquiry section of your Credit Report. Your credit score is considered during credit approval because it is calculated according to algorithms that combine your credit behaviour and your account information to determine your eligibility. If your score meets the lender’s eligibility criteria, then they will offer you credit at favourable terms. Here you can have a look at the different credit score range and its meaning.

Credit score range and what does it mean-

• 750 and above (Excellent):

  It means you have a great financial record and have been managing your finances well. Applicants with this score will get the low-interest rates on loans and easy approval on credit cards and other forms of credit.

• 700 – 749 (Good):

  A good credit score can give you access to personal loans and other forms of credit. Applicants with this score will get better than average rates from the lenders.

• 650 – 699 (Average):

  This is an average score. Applicants with this score may not get access to financial products at favourable terms and conditions as compared to those who have a good credit score.

• 550 – 649 (Poor):

  This credit score is not considered credible. Applicants with this score may not be eligible for unsecured credit and only a few financial institutions may sanction a loan if the collateral is provided.

• Below 550 (Bad):

  This credit score will not get your personal loan approvals or for any other forms of credit. It is seen as too risky for any financial institution to lend you money.

2. Personal & Account Information

   A credit report also has a separate section that contains your personal details. You must go through these details very seriously and report the credit bureau in case of any discrepancies. The bureau cannot independently change any information in your report without consulting the financial institutions. A section with your account information will typically contain details like- type of loans, account numbers, ownership details, important dates, loan amount and a month to month data of your loan accounts of up to 3 years. Your credit report contains detailed information about your various credits. Your balance, credit limit, account type, account status, and payment history are all included in your credit report. Your account information should contain a good mix of credit, i.e. both secured and unsecured loans.

3. DPD Information

   “DPD” or “Days Past Dues” is a record of your payment timelines of various credit accounts. Even a delay of one day in your payment is reflected in the DPD section. DPD is represented in either of the two ways – Remark or Numeric. For example: If your loan EMI payment was delayed by 4 days then it will be represented numerically. If your account is defaulted by 0 days, then it can be represented either numerically or by a remark. ‘XXX’ indicates that the bank/NBFC has not reported information to the credit bureau. It is essential to understand that having DPD other than “000” or “XXX” on your credit report would imply that you have not been able to pay your loan or credit card dues regularly.

4. Enquiry Information

   Credit enquiries are made when you or another party seeks access to your credit report. Both hard & soft enquiries are made visible to you. But the lenders can only see some of these enquiries. A soft enquiry is the one where your credit score doesn’t get affected. It mainly includes the enquiries made by you, a business that wants to offer you some goods or services, and your existing creditor. On the other hand, a hard enquiry is the one which can critically affect your credit score. It is usually made by a prospective creditor, with whom you have applied for credit. A single enquiry won’t impact your scores by far but too many credit requests can seriously affect your credit health.

5. Remarks in a credit report- Remarks identify the current state of accounts in your credit reports. Here, we have discussed several remarks in a credit report which you may find while reading your credit report.
   • Settled:

     If you have partly paid the dues and settled a loan or credit card then the status will be reflected as "Settled" in your credit report. This remark can negatively impact your credit score and future credit applications. Only a full closure will help you clear this remark.

   • Written Off:

     When you are not able to make payments against the outstanding loan/credit card amount for more than 180 days, the lender is required to "write-off" the amount. The lender then proceeds to report this on your credit report as "Written off" which is a detrimental status for the approval of your loan or credit card applications.

   • Post Write off Settled:

     Post Write Off settled is making a debt settlement after your credit is written off. A write-off happens after 180 days of non-payment. Even if you make a partial payment after 180 days of non-payment, your credit report will indicate the same. A Post Write Off settlement will seriously damage your credit health and prevent you from getting any loans or credit cards in the future.

   • Wilful Default:

     Typically, a default means non-payment of a loan availed by the borrower. A wilful defaulter is a person who has not paid the loan back despite the ability to repay it. It is different from a write-off and hence it is mentioned separately in your credit report. A person can also be a wilful defaulter when they don’t utilize the finance from the lender, for the specific purposes for which it was availed to them. Instead, they used those funds for other unfair means. Given the fact that a wilful defaulter does not have a sincere intention to pay off their debt, having this remark on the report is not a good thing and is dealt with in the same accordance (sometimes legally as well).

   • Closed:

     This status on your credit report means you have paid off your loan in full and the bank has reported this account as "Closed”. After closing a loan it is important to obtain a No Dues Certificate (NDC) from the lender, banks issue a No Due Certificate (NDC) or Closure Letter while closing loans stating that the loan stands closed and then report it as "closed" on your CIBIL Report.

Bottom Line

Knowing how to read and understand the information in your credit report can help you learn how you can improve your credit score. It is imperative to monitor your credit report regularly to check whether all the information listed in your credit report is accurate or not. Hope our easy guide will help you to read your credit report easily.