How to Read Your Credit Score Report and Tips to Improve Your Score
Your credit score and report provide insights into your creditworthiness. There are four credit bureaus in India - Experian, TransUnion CIBIL, CRIF Highmark, and Equifax.
Your credit score and credit report provide insights into your creditworthiness. There are four credit bureaus in India – Experian, TransUnion CIBIL, CRIF Highmark and Equifax. These bureaus consider your current and previous credit behaviour to assign a score.
The factors that affect your credit score are mentioned in the report provided by the bureau. Moreover, bureaus offer a free credit score check and report to help you understand your finances and improve your creditworthiness.
But to take the right steps to improve your financial wellness, you should know how to view and assess your credit score report.
Read on to learn how to read your report, the common terms used, and more.
Sections of a Credit Report
Your credit report outlines your credit history and behaviour under separate headers. Here are the sections it contains:
- Credit Score
Your credit score ranges between 300 to 900. Generally, financial institutions consider a TransUnion CIBIL score above 750 to be excellent.
The other information in your credit score report forms the basis for calculating your score. By evaluating this information, you can understand what is lowering your score and then take effective measures to improve it.
- Personal Information
This credit score report section includes your name, birth date, address, and other personal information. By checking this section, you can verify that all the information is accurate.
- Employment Information
In this, you will find your monthly or annual income details reported by the financial institutions and bureau members. Financial institutions can also provide this information from your credit application.
- Account Information
This section contains all the details for your borrowings, repayments, credit cards, and other forms of credit. It will also have information about the outstanding balances and your credit limit.
You can also check the status of your account in this section. The status depends on whether you have paid the credit, are paying it, defaulted, written off or other possible actions.
- Enquiry Details
In this section, you will see the number of hard enquiries made on your profile. Whenever a financial institution reviews your credit score and reports, it registers a hard inquiry.
This can temporarily dip your score, and, as such, it is advised not to apply for credit frequently.
Common Remarks in a Credit Report
There are certain notes that lenders add to offer context to certain credit transactions. These remarks also appear in your credit report, and are as follows:
- Days Past Due (DPD)
This denotes the number of days by which the payment was late. If you have anything other than STD or 000 on your report, it has a negative impact.
While STD means standard or that you have paid on time, 000 refers to no days past due for a specific month. So, if you notice any remarks that do not showcase the allowed payment timeframe, take notice and strive to do better.
- Written Off
This account status appears when a lender writes off the balance of your account if they are unable to recover the amount.
This status implies that you and the lender, in agreement, have decided to close (settle) the account for an amount lower than the balance.
This status appears when you repay your credit in full, thereby closing your account. Remember to obtain an NDC from the financial institution as proof of paying the account in full.
- Post Write-Off Settled
This status implies that the account was settled after the financial institutions wrote it off.
- Wilful Default
A wilful default status appears when you default on your credit despite having the resources to pay it in full.
Importance of Checking Credit Report
Whenever you apply for credit of any type, the lender will check your credit score. Your score helps the lender understand whether you have a high or low risk of default. As a low risk applicant, you can get easy access to credit and vice-versa.
By checking your free credit score and report, you can understand where you stand and take the necessary steps to lower your risk. For example, if you see that your credit utilisation ratio is higher, you can pay off some debt to reduce it.
This boosts your creditworthiness, lowering your borrowing risk and making you eligible for better and more affordable credit solutions. Moreover, checking your free credit score report before applying helps ensure your eligibility.
This saves you from having an unfruitful hard inquiry registered on your profile. Multiple inquiries in a short span can hurt your creditworthiness as it can make you seem credit-hungry, which increases your risk.
Lastly, checking your credit score and report helps protect you from scams or frauds. Since the report will contain all the information, you can check for any unauthorised transaction or incorrect information that can be a sign of fraud.
Given this, regularly monitoring your score and report is crucial in improving your creditworthiness and financial wellness. You can either go for an annual free credit score, and report offered by the bureaus or opt for a subscription plan to get the details more frequently.
Tips to Boost Your Creditworthiness
It is crucial to remember that improving credit score requires patience and consistency. You can easily boost your creditworthiness by inculcating a few good financial habits. Here are some easy habits to start with:
- Repay your borrowings on time and in full
- Monitor your credit utilisation ratio, keep it under 30%
- Maintain a low debt-to-income ratio, under 40%
- Avoid frequent credit applications in a short-span
- Keep a healthy credit mix of secured and unsecured borrowings
- Check your free credit score and report regularly
Now that you know how to read your credit report, monitor it carefully and regularly. Go for the yearly free credit score check offered by bureaus. This will help ensure you are credit-ready.
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