headercom

Did You Know?

We serve loans, the best way you can borrow

How to Read and Understand Your Credit Report?

How to Read and Understand Your Credit Report?

Your credit score speaks a lot about your creditworthiness as a candidate for a loan or new credit card application. So, reading and understanding your CIBIL report is quite significant. However, a beginner who has the slightest knowledge about assessing this financial report would not understand the procedure at the beginning.

That's why this post brings some easy steps that you can perform to gather the details mentioned in your credit report. Now, what exactly is a credit report, and how does understanding it matter to you? Let's begin from scratch.

Why Does Understanding Your Credit Report Matters?

Your credit score matters because it impacts your financial future. It's a three-digit number that directly impacts any loan application. Whenever you apply for a loan, your lender decides on the approval based on this score.

Suppose you apply for a new credit card. Your CIBIL report impacts the amount you can get based on your requirements. With a higher score, you can get a lower interest rate from the lender. Overall, it is used to determine the credit limit. If the score shows evidence of financial issues, the lender might consider lowering the loan limit.

How Much Score Is a Good Credit Score?

Before you understand a credit report, learn how good a credit score matters. Most lenders consider 750 or above as a good credit score. The following points demonstrate the score bands based on their categories and meaning:

  • Less than 300

It signifies no history. That means the person has never taken a credit card or loan. So, they don't have a credit history. It is advisable to build the score to improve the financial future ahead.

  • Between 300 and 550

This score demonstrates that the credit history has been damaged. Nonetheless, you can build a better score with good financial habits.

  • Between 551 and 620

It's a low credit history where the individual has shown good credit habits after being damaged. It is advisable to take steps to improve it for a better future.

  • Between 621 and 700

It's a fair credit score that demonstrates one's eligibility for improving the score.

  • Between 701 and 749

It's a good credit score that indicates one's good credit behaviour. NBFCs and banks would happily accept loan applications with a score between 701 and 749.

  • Above 750+

It's an excellent credit score. Having a score above 750 indicates your eligibility for the best offers.

What Information Does the Credit Report Comprise?

Understand credit report because it contains the below-offered details:

Your Personal Details

Your name and any other name you might have used in the past in connection with the credit account. It may also include nicknames in addition to the following details:

  • Former and current addresses
  • Social Security number
  • Birth date
  • Phone numbers

Details on Your Credit Accounts

The following are the key details:

  • Previous and current credit accounts
  • The credit amount or limit
  • Account payment history
  • Account balance
  • The account closing and opening dates
  • Creditor's name
  • Missed payments and more

Inquiries

The following are the inquiry reports:

  • Hard Inquiries
  • Soft Inquiries

Steps to Read and Understand Your Credit Report Information

Your credit report consists of details about the current and previous loans that you have opted for. It may be a personal loan, home loan, car loan, or other types of loans. In short, the CIR offers details related to overdraft facilities and credit cards. If you want to read and understand your credit report, you can follow these steps:

Understand What the CIBIL Score is

Your CIBIL score is your current credit score. It is determined based on the credit behaviour as seen in enquiries and account sections of the report. In general, the credit score ranges from 300 to 900. As you already know, a score above 750 is excellent.

Learn Details About Your Personal Details

The next section is the personal details, where you can check certain information like:

  • Your full name
  • Gender
  • Date of birth
  • Identification numbers such as PAN number or voter ID

Understanding the Contact Details

While understanding your credit report, you should check out the contact details. Now, this particular section includes your phone number as well as your address. You may add up to four different addresses in the section.

Get Details on Your Account Information

Your account detail is a crucial section that includes necessary information on the credit type. So, you can get information on ownership details, loan amount, your last payment's date, current balance, account numbers, month-by-month record, and more. You get the payments for the last three years alongside the lender's name.

Enquiry Details

Enquiry detail is a crucial consideration. Each time you enquire about the credit card or loan, the financial institute bank will access your CIR. You can get the information in the CIR under the head of 'Enquiries.'

Employment Details

Lastly, you can get employment information based on your employment monthly or annually. This information gets reported by the associated members—financial agencies or banks.

Top Aspects to Consider While Evaluating Your Credit Report

While reading and understanding your credit report, you should keep a few things in mind. Your CIBIL score is dependent on the following parameters:

The History of Your Loan Repayment

Remember that timely payments may improve your credit score. The score is significantly impacted when there are defaults on EMIs or late payments. The repayment history plays a big part in calculating the CIBIL score.

Hard Inquiries

Next are the hard inquiries. Each time you apply for a loan or credit card, your lender is going to evaluate your CIB report. They assess your score via hard inquiries. Multiple hard inquiries might create a negative impact on your credit score. But when you download and check the report, it is called a soft inquiry. This report does not have a drastic impact on the credit score.

The Duration of the Credit History

The age or duration of the credit history may impact the score. It might be considered bad credit behaviour when you have already used loans for a long time. This has an impact on your CIBIL score.

Credit Mix

Suppose you have previously applied for various types of loans, like car, personal, home loans, and more. You have paid the debts responsibly and on time. This act shows your ability to handle various credits. So, if a candidate applies for a loan after building a decent credit mix over time, lenders take an interest in such credit profiles.

However, if you have taken various unsecured loans before, it shows you are dependent on credit. But if you can pay your debt by the due date, it won't damage your reputation.

Nonetheless, credit mix has a lower impact on your report, and it won't likely make a lender reject the application.

What to Do When Mistakes in the Credit Report is Not Your Fault?

There are mainly five types of mistakes that you may see in the report, even when you are not at fault:

  • Mistakes in the account details.
  • Incorrect outstanding loan or balance.
  • Details on DPD or days past due.
  • Errors in your credit accounts.
  • Shows overdue even after payment is complete.

In the above-mentioned cases where you are not at fault, you can file a dispute with CIBIL. This may take 30 days, based on the time taken to respond.

Wrapping up

Your credit report is a critical financial document that can greatly determine whether you will get credit, secure housing, or find employment. By comprehending how to read and interpret your credit report, you can ensure that its data is correct. You should frequently check your credit report and resolve any misleading or inaccurate information to achieve your financial goals.

Note that creditworthiness is an ongoing journey that requires consistent effort and practice of good credit management. When you take a proactive approach and understand your credit report, it becomes easier for you to move toward financial independence.

Recent Blogs