There Is a Big Difference Between Credit Report and Credit Score

This title may seem a bit absurd to you but it is not. Both seem to be similar terms, both are recorded by CIBIL and both are used by lenders to assess your credit worthiness. Yet, there is actually a difference in your credit score and your credit report. It will be easy for you to understand the difference after you have read this article.

Imagine this. You have appeared for an exam regarding your debts taken and how you have used your credit card etc. Your score is the number of marks you have obtained in the exam. Your report gives an account of your performance in words throughout the year, your answers to questions in the exam and also your teacher’s comments. When you apply for a new loan, it is like you have applied for admission to a new institution and the principal of that institution would like to read your previous report card first. She then looks at your score, which are your marks and your answers and teacher’s comments. Based on this she decides whether to give you an admission or not. There could be no simpler explanation than this.

It is true that you may have a score of 700 but your loan application may be rejected due to reasons in your Credit Information Report. While it is important to increase credit score, it is equally important to make sure you have a good credit report backing it.

One of the main difference is that your report contains data for atleast 36 months where as your score is calculated according to past 24 months’ data.

Your Credit Score

Your CIBIL TransUnion Score or, as commonly referred to, your credit score, is a three digit number which is calculated according to a proprietary formula using information given in your credit report under the “accounts” and “enquiries” section. Your credit report is a worded document that holds factual information. CIBIL uses this information to calculate your score. Your score may be anything between 300 & 900. The higher the score, the better it is while the lower the score the poorer it is considered.

Primarily these are the factors that affect your score. They are:

  1. On time Payments: Incase you have a record of always paying your loan instalments or credit card dues on time, then you will be rewarded for your diligent behaviour with a higher score. Details of such payments are recorded in the CIR in a schedule, showing month wise payments you went past due. This schedule is maintained for 36 months.
  1. Unsecure versus Secured Loans: Your score is higher if the fraction of secured loans like home loan or car loan or loan against property, is higher than unsecured loans like personal loan, credit cards or education loans, in your total debt portfolio.
  1. Number of “Hard Enquiries”: Once you apply to use a credit facility, you authorise the lender to withdraw your CIBIL report. Whenever a lender draws your credit report it is termed as a “hard enquiry”. The more the number of such enquiries, the poorer will be your score because it shows that you are constantly in need of more credit and are not able to handle the funds wisely.

A glance at your score is enough for a future lender to make judgements about your credit past. A lower score will make the lender assume that you have not been responsible with your payments, you have more unsecured loans or that you are always seeking fresh credit. How many of such assumptions are true, the lender will find out by reading your report in detail.

A score of “NA” or “NH” means, either your credit history is not six months old or that you have had no credit relationship for atleast the last 24 months.

Your Credit Information Report

This report is the power house of information on your credit history. The CIR records previous information and is periodically updated by CIBIL as per the information received from its members.

  1. Using more credit limit: There is no direct bearing on your score if you use the entire credit limit. But it does impress upon lenders that you may come under huge debt burden by using more credit.
  1. Income to EMI ratio: The thumb rule is that the total EMIs paid by you should not exceed 50% of your Income. Incase you are at a limit of 50% already then lenders will not sanction further loans to you. So even if you apply for a small personal loan and you may have a good score, based on this eligibility criterion, your application may be rejected.
  1. Disputes: Incase you find any discrepancy in your report you can raise a CIBIL dispute. But if you are not happy with your score, you cannot raise a ticket on CIBIL.
  1. Consumer Dispute Remarks: This field has been recently added to the credit report. Here the customer can choose remarks for accounts where a flag has been raised. Such remarks will be available on the report for atleast a year.
  1. Details recorded:
    1. Under the “Accounts” section of your report, the date of last payment, payment frequency (for eg: monthly) and Actual amount paid are recorded for every credit account.
    2. Information about all the loan accounts is maintained under “Accounts” section of your report. Details of total credit limit, sanctioned limit, rate of interest and outstanding balance are all recorded and updated periodically in your credit report. Details of collateral are also recorded in the report.
    3. Information regarding all “hard enquiries” is recorded under the “Enquiries” Section of your report.
    4. Loans on which you are a guarantor, an add-on card holder, status of accounts (closed, settled etc) are all recorded in the credit report.

Summary

The long and short of it is that even if you have a favourable score, you may face a rejected loan or credit card application due to unfavourable factors in your credit report. It is only vital and advisable that you plan your finances in such a way that both the elements are taken care of.

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Is your wallet stolen? Learn what to do!

Losing your wallet can be both intimidating and a potential threat to your CIBIL Score.

Imagine you are on vacation and enjoying a spot of holiday shopping when you reach into your pocket for your wallet and find… nothing. You now have a nightmare unfolding – that of contacting each bank and credit card issuer to have your debit and credit cards blocked or hot listed and reissued. Identification documents such as a driving license, PAN card or aadhar cards also need attention – after all, these are critical documents that can have far-reaching consequences if they fall into the wrong hands.

While all this may seem akin to the end of the world, it is not so. Before you start to panic, let’s see what all are the things you can do to mitigate the damage. The money in your wallet is gone of course, and that is possibly something you can’t replace, but for almost everything else, help is close at hand. Let’s take a look at all the available options – after you have calmed down somewhat, of course!

Is your wallet really lost, stolen or just misplaced? The first step would be to think back to when you last had your wallet. If you were at a mall or store for example, retrace your steps. Did you whip out your wallet to pay for your purchases and leave it at the counter? Would you have dropped it en route? If you’ve been home for a large part of the time, check thoroughly just in case it’s fallen or been dropped in some corner of the house.

However once you have established that it is indeed missing, read on to know what you should do.

Block all cards – Whether debit, credit or charge cards, call up each bank or card issuer and have all your cards blocked. If you do not have their helpline numbers at hand, log on to the website and get them. Once done, sit down calmly and make those all-important calls.

When you call the banks and/ or card issuers, be sure to mention that your wallet has been lost or stolen, as the case may be. If you can provide an approximate time in addition to the date that the incident occurred, it would help the financial institution to let you know whether any transactions have been carried out since. Finally, once you have the cards blocked, be sure to request for replacement cards.

Stop-payment – Whether a cheque or chequebook, do mark a stop payment against these instruments to prevent misuse. Be especially alert in case you had a bearer’s cheque in your wallet – these are not crossed favouring a particular payee’s account and hence can be misused by anyone to withdraw cash, especially if the payee details were blank.

File a police report – Now that you have ascertained that your wallet has indeed been lost or stolen, you would need to go to the police station (in the jurisdiction of where the loss/ theft occurred) and file a First Investigation Report (FIR).

List the contents – In addition to money, your wallet is likely to contain debit and credit cards, identity documentation, a cheque book or maybe even a cheque that you have been meaning to deposit or encash. Make a list of the contents as best you can remember so that it is just that much easier when you have to go about methodically getting things back on track.

Check your credit report – Do pull up a copy of your credit report from all the credit bureaus (namely, CIBIL, Equifax, Experian and CRIF High Mark) operational today, as this will help you check whether any credit – be it a loan or credit card – has been fraudulently obtained in your name. If you do see an unfamiliar account on your report, notify the concerned bureau immediately to track it down. You need to do this to ensure that you are not a victim of identity theft, and to keep your credit report clean.

Wallet Protection Plans

As the old adage goes, prevention is better than cure and while ensuring the safety of your wallet is not something that you can predict, you can however take adequate measures to minimise the damage and stress. Banks and other institutions offer a wallet protection plan that safeguards the contents of your wallet. On payment of a reasonable annual fee, some of the things your wallet is protected for include:

  • Replacing lost PAN card and driving license
  • Comprehensive fraud protection coverage – both online and offline
  • Blocking a SIM card
  • Emergency travel assistance (hotel and ticket booking)
  • Emergency cash limit
  • Emergency roadside assistance
  • Online locker

Of course, before signing up for any services be sure to first check with the organisation offering the plans, and then carefully read the fine print to know exactly what you are signing up for.

CIBIL score repair made easy!

Karan was looking to upgrade from his existing two-wheeler to a car and approached his bank for an auto loan. He was shocked to learn that his loan application was rejected on the grounds that his CIBIL score was low. Neither did Karan know much about his score, and nor was he aware as to why it was so low. Taking this as an opportunity, Karan analysed his spending behaviour pattern and religiously monitored his CIBIL score.

Does Karan’s situation sound unfortunately too close to home? Are you also looking at ways and means to better your own credit score? If yes, you’re in the right place – read on to know more!

In today’s financial environment, your credit score is akin to your passport to good credit when you require it. As in Karan’s case above, he was unable to obtain credit when he most required it, and hence when he eventually did get the loan it was at a higher cost and seeing that the price on the car also went up in the same period, he wound up spending more money than he would have otherwise.

What is a credit score?

A credit score is a three-digit representation of your creditworthiness, i.e. the likelihood of a borrower going to default on a loan. It is derived from your credit report which is a detailed analysis of your credit behaviour, both past and present.

When you approach a bank or other financial institution for a loan, the first check thye conduct prior to taking a decision as to whether to lend is to call for a copy of your credit report and go through your credit score. Typically ranging between 300 and 900 a higher score equals better chances of loan approval at the most competitive interest rates and other terms.

What then is the CIBIL score?

There are four credit information companies or credit bureaus licensed to operate in the country by India’s apex bank, the Reserve Bank of India (RBI), namely CIBIL, Equifax, Experian and CRIF High Mark. Of these CIBIL is the oldest bureau and hence very often, the term ‘CIBIL score’ is used interchangeably with ‘credit score’.

However, bureau reports and scores are both available across all four bureaus and if you wish, you can obtain a copy of your report from any or all of these bureaus. While the score itself may differ from one bureau to another, the analytics on which it is based is similar as all bureaus take into consideration the same factors when calculating the credit score.

What are the factors that impact the credit score?

A credit score is determined on the below mentioned parameters which are determined from your credit history:

  • Repayment track record or payment history
  • The amount you owe lender(s), or the outstanding due on your loans/ credit cards
  • Credit history
  • Credit mix, i.e. type of loans including secured loans (such as housing or auto loans) and unsecured loans (for example, personal loans or credit cards)
  • New credit, i.e. the number of times you apply for fresh loans or credit cards, which indicates your financial solvency and dependency on debt

What causes damage to the credit score?

Below are some of the factors that impact your credit score:

  • High credit utilisation ratio
  • Delay in bill or EMI payment, or skipping a payment altogether
  • Applying for multiple lines of credit, for example: several credit cards to enjoy the initial benefits on joining
  • Having no line of credit can also go against you, hence for instance, getting a credit card to establish good credit history is a prudent alternative

How does one repair the credit score?

The first thing to do would be to call for a copy of your credit report from any of the credit bureaus. With the process being online, it is simple and hassle free and your report (together with the score) will be made available you upon payment of a nominal fee. Once you have received the report, do go through it at length and check for any incorrect or inaccurate information therein. Every error in the report can cost you – you score can take an instant nosedive – and hence it is of utmost importance to ensure accuracy of information.

If you do have information that requires modification/ updating, do contact the concerned bureau at the earliest and request for it to be rectified. This will ensure that your score goes up, as your data is now maintained correctly.

Of course, the above does not apply in case you have unpaid loan EMIs or credit card payments against your credit report. In such instances, the only thing to do would be to make payments towards any outstanding debt and once cleared, request for the data to be updated with the newest information.

In addition to this, plan and budget your spends, and do not tack everything on to your credit card when out shopping. Further, do not utilise your credit card limit to the max, an ideal credit utilisation ratio across all your cards does not exceed 30 percent of the total card limit.

This will help you going forward as well, in making sure your card complements your lifestyle and does not entirely sustain it.

A credit health management company can also help, by assigning you a trained credit counsellor who will work with you to improve credit score over a period of time. While the task may seem challenging and uphill, it is not entirely impossible and with time, patience and financial discipline it is indeed something that is achievable. Credit Sudhaar, India’s premier credit health management company is one such organisation that you could approach.

The bottom line

A large part of your financial future depends upon your credit health so it is never too late to know more about your credit score and if it warrants attention, to do so before it is too late.