How to read your credit report accurately? 5 experts explain

The devil as the saying goes, lies in the details. And with your credit scores this very much holds true. Three numbers, i.e. your credit score will reflect on how they view your approach towards money and how far your discipline towards money goes.

And these three numerals make a world of difference whether you have a smooth approach when you approach a financial institution for some loan requirements; or whether you have to sweat it out.

“Your CIBIL score, a three-digit number ranging from 300 to 900, reflects your credit behavior and is crucial for assessing your creditworthiness,” says Bhushan Padkil, SVP & Head - Direct to consumer business at TransUnion CIBIL Limited.

Your CIBIL score is derived from your credit information report (CIBIL Report), which is a comprehensive summary of your credit history as provided to evaluators by your Lenders.

Credit bureaus or those who evaluate your creditworthiness include CIBIL, Experian, and Equifax in India.

“In today's lending landscape, financial institutions heavily consider credit scores and overall credit health when selecting customers,” explains Vaibhav Shah, Joint Head, Credit, Capri Global about the relevance of these scores.

It's crucial for customers to be mindful of their repayment habits and spending patterns. A healthy credit score can help secure larger loans and better interest rates. “So, it's essential for both lenders and borrowers to prioritize creditworthiness,” says Shah.

Let's understand the dynamics of your credit score.

Credit scores to surmise it reflect the risk associated with a borrower. “The higher the score, the lower the risk,” Sanjeet Dawar, Managing Director, CRIF High Mark. Lenders offer better-borrowing terms like better pricing, faster turnaround for borrowers with higher credit scores, and increased chances of securing credit, so that is why having a high (read good) score is important.

“Credit score ranges between 300 to 900, and a higher score, typically above 750, indicates lower credit risk of an individual, thereby increasing the chances of loan approval at favorable terms,” explains Amit Bansal, Founder of BharatLoan.

A lower score suggests higher risk, leading to potential rejections or higher interest rates.

The banks and NBFCs that you will approach for your loan application rely on scores from credit bureaus like CIBIL, Experian, and Equifax to make their lending decisions.

Key components of a credit report

Sanjeet Dawar outlines the workings of the credit evaluation process, emphasizing the importance of comprehending crucial sections when reviewing your credit report:

The first is your personal information that gets your name, identity, address, and contact information.

Next is the monthly repayment track record of your loans and credit cards along with the disbursement amount, current outstanding, nature of the loan, and captures default if any.

Finally, the enquiry section allows you to learn about the inquiries that are done by the credit institutions in response to your application. If you find an inquiry that has not been consented to by you, this can be taken up with the respective lending institution and or the credit information companies.

“Credit scores are numerical representations of your creditworthiness,” says Shah. Each credit bureau has its different thresholds and ways for scoring a customer.

However, this generally ranges from 300 to 900 points. Higher the score better is customer repayment behavior. “Generally, scores between 300 to 600 points are considered as weak, 600 to 700 points as moderate and scores above 700 points are deemed healthy,” says Shah.

In today's digital lending landscape, credit score plays a crucial role in determining loan eligibility and terms, say experts.

Lenders use credit scores to assess an individual's creditworthiness and their likelihood of repaying a loan on time. Higher credit scores generally indicate a lower risk for

lenders, making it more likely for individuals to qualify for loans and receive better terms, such as lower interest rates.

On the other hand, lower credit scores may result in higher interest rates or even denial of loan applications. With many financial institutions incorporating credit scores into their automated systems to evaluate loan applications credit scores are integral for various decision-making rules and criteria used by lenders. “Consequently, it holds a significant importance in the lending industry,” says Shah.

“Credit is a powerful financial tool that can either propel us towards our goals or lead us into a cycle of debt, depending on how we use it,” says Ashish Tiwari, Chief Marketing Officer, Home Credit India.

Credit offers opportunities to achieve our dreams, whether it's buying a home, starting a business, or pursuing higher education.

However, it's essential to approach credit with mindfulness and responsibility. Awareness of our financial habits and disciplined usage of credit can make all the difference in our financial journey. “Let's view credit as a tool for progress and ensure that we wield it wisely to secure our financial well-being and turn our aspirations into reality,” says Tiwari.

How to read your credit scores

To interpret your credit score effectively, start by understanding the range it falls into, which typically spans from 300 to 900. In the case of CIBIL (Credit Information Bureau India Limited), the scores are categorized as follows: scores ranging from 300 to 579 are considered poor, 580 to 669 are considered fair, 670 to 739 are categorized as good, 740 to 799 are very good, and scores from 800 to 900 are deemed excellent. (Source: Home Credit India).

Manik Kumar Malakar is a personal finance writer.