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Credit Score Explained

Understanding credit score

Whenever you approach a bank or financial institution to apply for a credit card or a loan, the first thing they will do is ascertain if you are capable of repaying the loan/credit or not. The way they check your repayment capacity is by going through your credit card or loan repayment history.

It is the duty of RBI-licensed Credit Bureaus such as CIBIL, Equifax, Experian and CRIF High Mark to provide such credit information to the potential lenders. These Credit Bureaus also assign a score to every individual based on their repayment track record.

What all is reported in credit report?

The Credit Information Report (CIR) is a document that reports all the details related to your credit history. It contains different types of information reported by banks and other lending establishments to the credit bureau. These are the same banks and lending establishments who might have extended credit facility and/or loan to you at some point of time. Broadly speaking, this report contains different types of credits (overdrafts, credit cards and/or loans), duration of credits, payment history and details related to defaults (if there were any). 

This report can be accessed by both prospective lender/s as well as the borrowing individual to gauge his/her creditworthiness. Below-detailed are the items reported in the credit report:

  • Your credit score is the first item reported in the credit report. It’s a 3 digit number ranging from 300 to 900 which indicates your credit history and current financial health. The higher this figure is, the better will be your chances of successfully availing a new loan/credit. Lenders normally look for credit scores of 700 and upwards whenever they’re reviewing the loan/credit applications. In case you have never availed any credit card or loan and are completely new to the system, your credit score might show as NH/NA, implying that there’s no credit history associated with you yet. It could also mean that you didn’t indulge in any credit transaction in the last 2 to 3 years. Apart from your credit score, the following details are also reported in your credit report.
  • Your personal information, including details such as your name, gender, date of birth; details of ID proof and KYC documents like driving license number, voter card number, passport number, Aadhaar card number and PAN number
  • Your employment details such as the last known employment status and pertinent information given by you at the time of applying for a credit card and/or loan. Although this information doesn’t affect your credit score, you might get offered better loan terms if your employer features in the list of preferred companies.
  • Details of different accounts classified based on their current status: open, closed, derogatory or delinquent.
  • Current and collective outstanding balance in all the credit card and loan accounts
  • Different addresses provided at the times of availing different loan/credit facilities
  • Total monthly outgo towards outstanding loans/credits
  • All the contact information provided while taking loan/credit facilities
  • Detailed information related to loan accounts consisting of data such as account number, opening date, lender’s name, sanctioned loan amount, present account status, total amount overdue, current balance and the last reporting date by the lending establishment.
  • Individual account information consisting of data such as the name of lending establishment, loan type, opening date, closing date, account status, account number, present balance, highest credit, credit limit, last payment date, principal written off amount, EMI amount, settlement amount, total written off amount and payment history highlighted through different colour codes such as red for non-payments or delays and green for regular payments.
  • The last section of the credit report displays details of inquiries made by lending companies to assess your credit worthiness, and the requests made by you for a copy of your credit report.

Are credit score reports free?

As per an RBI notification dating back to September 2016, it is mandatory for all Credit Bureaus to provide one complete credit report to individuals whose credit data they’ve been holding since January 1, 2017, free of cost, upon request of that person, once every calendar year. Hence, in effect, you can access 4 free-of-cost credit reports each year, one from each credit bureau.

This credit report can be accessed in the electronic form and will contain all the details that are normally reported in a regular credit report.

How frequently does the credit score change?

Credit institutions normally submit data to different credit bureaus every 30 to 45 days. Hence, there is a possibility that any specific loan and/or credit-related activity done by you might not reflect in your credit report, and not impact your credit score, for 45 days following that activity.