How to Read a Credit Report?
Your credit report reveals information about your financial situation. You acquire a better knowledge of your entire finances when you know how to read a credit report. Reading a credit report may appear difficult, but splitting down the details in your credit report is fairly simple.
Regularly monitoring your credit reports allows you to look for inaccuracies that could be hitting your credit scores. Your credit report is a complete record of your credit history that is assessed by lenders and other financial institutions to understand your creditworthiness. It can be said that your credit report is your Financial CV and learning how to read your credit report is important as it helps you understand your financial behavior.
Your credit report might provide you with information on your borrowing and repayment history. You'll be able to see the data that banks and other lenders use to decide whether or not to lend to you. It helps you to improve your credit score before applying for any type of credit, thereby increasing your chances of approval.
Let us start by understanding the basics to learn how to read a credit report.
What does your Credit Report Include?
Some of the information in your credit report will come from banks, credit card companies, and other financial institutions from which you have borrowed money in the past or to which you still owe money. Other information on your credit report could come from publicly accessible sources as well.
To read your credit report, you can access it from any of the four credit bureaus - CIBIL, Equifax, Experian, and CRIF Highmark. Each of these credit reporting companies creates a credit report by combining information from numerous reporting sources, such as lenders, banks, and credit card companies.
A credit report is divided into various sections that contain different types of information indicating your creditworthiness. Each credit bureau has a different format that they follow. However, to help you read your credit report easily, we have listed out five (5) sections that are generally available:
1. Personal Information
A component of your credit report contains your personal information. You should carefully review the facts and report any anomalies to the credit agency. Without consulting the financial institutions, the bureau cannot update any information in your report on its own. So, what does the personal information section contain?
- Your name
- Address
- Date of birth
- Current and previous accounts
If you spot a wrong address or any such information that is not correct, report it immediately to the credit bureau to get it rectified. Wrong or inaccurate information may be a possible sign of a financial fraud. Reading your credit report regularly will help you stay away from scams and fraud.
2. Account Information
This section of your credit report provides details about the your current and previous credit accounts. Read this section of your credit report thoroughly and double-check the details as it is important for your credit score. The account information section of your credit report may contain details of:
- Account numbers
- Ownership details
- Type of loans you have taken
- Outstanding loan amount
- Credit limit
- Account status
- Payment history
- Account type
Check all the available details and match them with the information that is available to you for each of the categories.
3. Days Past Dues Information
Days Past Dues or "DPD" in short, is a record of your credit account payment schedules. Even if there is a one-day delay in payment, it gets recorded in this section. To read your credit report in detail, understand that generally, DPD can be represented in one of two ways:
- Remark
- Numeric
Let us understand this with an example to help you read your credit report easily:
Suppose you have a loan account and you made your EMI payment 6 days past the due date, it will be quantitatively displayed. The letter 'XXX' in this section denotes that the bank or NBFC has not submitted any information to the credit bureau yet. It's critical to understand that any DPD other than "000" or "XXX" on your credit report means you haven't been able to pay your loan or credit card bill on time and in full.
4. Enquiry Information
When you or any lender or financial institution requests access to your credit report, it is referred to as a credit inquiry. You will be able to see both hard and soft inquiries made on your credit report. However, only the hard searches are visible to the lenders.
A soft inquiry is one that has no effect on your credit score. A hard inquiry, on the other hand, can have a significant impact on your credit score. A single inquiry will have a minor impact on your credit scores, but a large number of credit requests might have a significant impact on your credit health.
5. Credit Score Information
A credit score is a 3-digit representation of your credit history that ranges from 300 to 900. It is calculated using all the available information on your credit report. Your credit score is used to evaluate your loan eligibility and, hence, it is taken into account during the approval process. If your credit score fulfils the lender's qualifying requirements, you will be given credit.
Let us understand how to read the range on your credit report:
1. Credit Score below 500
A credit score of less than 500 is considered as a bad credit score. Lenders and financial institutions will consider you a risky borrower who has a high probability of defaulting on the repayments, if a loan is approved.
2. Credit Score Ranging from 550 to 649
A score hovering around 550-649 isn’t considered credible by potential lenders. However, there may be lenders or financial institutions who may approve the loan request with this credit score.
3. Credit Score Ranging from 650 to 699
It is an average credit score, and hence, with this score you may not get a personal loan at the best rate or you may not get assigned a higher credit limit on your credit card. But there are chances that your loan application will not be rejected with this credit score.
4. Credit Score Ranging from 700 to 749
This range shows that the person has a good credit score, thereby making them eligible for an unsecured form of credit such as a personal loan or a credit card. Also, with this score, you can expect to get offered an average rate of interest on loans.
5. Credit Score Equal to or Above 750
This is a stellar credit score, which shows you are a rockstar when it comes to managing your personal finances. If you have a credit score of 750 or above, you are most likely to get loans at the best interest rates.
Knowing how to read the information available on your credit report will help you improve your credit score. It is quintessential to keep an eye on your credit report on a regular basis to ensure that all of the information on it is correct.