How to read and interpret your Credit Information Report?

How to read and interpret your Credit Information Report (CIR)

We are all familiar with the fear and anxiety that we feel when applying for a loan. After all, it's the lender who decides whether we can own our dream home, our first car, or whether our children can pursue higher education. In a nutshell, a better life depends on the lender's decision.

We are unsure of the lender's criteria to evaluate our application. Is it the size of our income, the number of assets (fixed deposits and investments), or is it our past performance regarding payments with lenders we have a credit facility with? While other factors do play a part in the lender's decision, our CIBIL Score plays a pivotal role. CIBIL Score is a 3 digit summary of your CIR. Currently, almost all lenders access your CIBIL Score prior to approving loan applications. Naturally, it's critical that you get a copy of your CIBIL Score and Report and understand it well before applying for a loan.

So, what exactly does your CIR contain?

Personal Information

This section provides the lender your name, date of birth, gender, an identifier (such as PAN, Voter ID or Passport Number, etc.). Go through this information to ensure that key identifiers such as PAN or Passport Number is mentioned correctly.

Contact Information

Your addresses and telephone numbers are provided in this section. Up to 4 addresses are provided on the CIBIL Report. Both the Personal and Contact information sections provide details that indicate who the information on that CIR pertains to.

Employment Information

The employment section provides the lender with your monthly or annual income details as reported by our Members. The reported income is generally one of the first figures reported by a credit institution and not necessarily the updated one.

Account Information

This section contains the details of your credit facilities like name of the lender/s, the type of credit facilities (home loan, auto loan, credit card etc.), the account number/s, whether single or jointly held, when each account was opened, date of the last payment, loan amount, current balance and most importantly, a month on month record of up to 3 years of your payments. We will cover this more in detail below.

• Check your account details-This contains details such as the lenders name, account number, account type (is it a credit card, personal loan etc), ownership (single/joint/guarantor), date the account was opened/closed and the last date when these details were reported to CIBIL. What to look out for is, if there are any details reflecting in the account that is not factually correct or have never been applied for.
• Check status of the account- The status of the account is mentioned in the Account Information section. Written off/settled/suit filed cases are not looked upon favorably by the lender. It is always advisable to have a clean account status.
  It is very important to understand the "Settled" and "Written off" terminology. Settled means where there is partial payment (in consent with the lender) made against the total outstanding. Once this is done that means there is no outstanding against your name by that lender. You will notice your amount over due and current balance would have changed to zero.
  When one is not able to make payments against the outstanding loan/credit card amount for more than 180 days, the lender is required to "write-off" the amount in question. The lender then proceeds to report this on your CIR.
• Check dates-
  It is better to have a healthy mix of secured (such as home loan, auto loan) and unsecured loans (such as personal loan, credit cards). Too many unsecured loans may be viewed negatively.
• Check your payment history (Days Past Due-DPD) for every loan or credit card availed-The DPD indicates how many days a payment on that account is late that month. Anything other than "000" or "STD" is considered negative by the lender. Below are the types of asset classification that can appear in the DPD section:
  

  DPD	Denotes	Explanation
  STD	Standard	Payments are being made within 90 days
  SMA	Special Mention Account	Special account created for reporting standard account, moving towards Sub-Standard
  SUB	Sub-Standard	Payments are being made after 90 days
  DBT	Doubtful	The account has remained a Sub-Standard account for a period of 12 months
  LSS	Loss	An account where loss has been identified and remains uncollectible

  On occasion you may also notice "XXX" reported for your DPD on a certain account which implies that information for these months has not been reported to CIBIL by the Banks.
  If there is a number in the DPD column, then it means that the payment is late by that many days. So for example if it is 050, then it means the payment is late by 50 days. If it is 000 then it means the payment is as per the due date, so there is no deviation or late payment.

Enquiry Information

This section provides details regarding loan applications you have made. An enquiry means that a credit institution has requested your credit details from CIBIL. Lenders may tread with caution considering your multiple enquiries in a short span of time, which shows a behaviour of seeking excessive credit. The enquiries made are captured for a period of 7 years.

Things to do while preparing for a Loan Application

Things to do while preparing for a Loan Application: Eligibility Check

Applying for a loan can be a very unnerving and anxious process. You fill in lengthy forms, collect and submit various documents to multiple banks and then find yourself waiting with bated breath for loan approval while your plans for that dream home, your first car or your child's education are kept waiting.

1. Your CIBIL Score

The first thing you should do is get your CIBIL Score and Report from a Credit Bureau. Usually, a CIBIL Score of 750 or more puts you in contention for a loan approval but does not guarantee it. Of course, if your score is below 750, all is not lost. There are financial institutions who will lend to individuals with a low score.

DETERMINING YOUR CREDIT ELIGIBILITY

2. Your Credit Eligibility

Your credit eligibility is the second criteria reviewed by a lender. Your credit eligibility is determined using your CIBIL Score and Report and your bank statements as follows:

• Review for payment irregularities:As a first step, lenders will review your CIBIL Report for abnormalities in your payment patterns. Missed payments, overdue amounts and settled accounts in the recent past indicate financial duress and are likely to result in a loan rejection. If you see any of these conditions on your CIBIL Report, it would be better to pay all your dues consistently for 12 months before applying for a loan.
• Calculation of Debt Burden Ratio: The next criterion that the lender considers is whether you will be able to meet any additional payments given your current financial condition. In the diagram above, the individual has an in-hand net income of INR 1,00,000, while his EMIs total INR 25,000. This places his Debt Burden at 0.25. Typically, a lender will reject your application if your Debt Burden Ratio exceeds 0.50. The assumption is that you will need at least half your salary to sustain normal expenses (utilities, entertainment, etc.). The difference between these two figures, i.e., 0.25, is his Borrowing Capacity, which amounts to INR 25,000. Assuming he takes a loan for 15 years at interest rate of 10%, this indicates a Credit Eligibility of INR 25,00,000.
• Outstanding Credit Card Payments: If you have 3-4 Credit Cards and have utilized a very high percentage of your credit limit, this may negatively affect your loan application. Interestingly, unused Credit Cards may be viewed positively.

As you can see, you have all the tools required to figure out your credit eligibility. So, before you apply for a loan, ensure that you make these simple calculations to not only save yourself the embarrassment of being rejected but also to put yourself in a better position to bargain for a better deal.

Myths and Facts

1. MYTH- CIBIL maintains list of defaulters only and having your name in CIBIL is bad.

FACT- If you have ever taken a loan or credit card from any bank or financial institution then your information is most likely with CIBIL. So your name will be with CIBIL even if you are paying all your obligations on time. RBI has mandated banks and financial institutions to submit monthly repayment data pertaining to those customers who have taken a loan or credit card with them to a Credit Bureau. CIBIL collects and maintains these records of such individual's payment across institutions. This data is then used by financial institutions to sanction loans and credit cards. How your CIBIL Score and Report is interpreted by respective bank or financial institution depends on their credit policy. CIBIL does not classify an individual as a defaulter.

2. MYTH- If you check your CIBIL Score and Report, your credit score will go down.

FACT- Whenever your CIBIL Report is accessed by banks, it reflects as an "enquiry" on your credit report. An enquiry indicates that you are seeking new credit. However, when you check your own credit score and report directly for CIBIL this "enquiry" will not reflect in the CIBIL Report and has absolutely no impact on your credit score. It is a good practice to review your credit report periodically. Click here to get started.

3. MYTH- It is better to use cash than credit cards or loans.

FACT- It is always better to use credit (loan or a credit card) than cash when you have never availed any credit till date and want to build a credit history. Having a credit history enables a lender to assess your credit-repayment capabilities by determining whether you have managed your credit responsibly. Your credit history helps the bank to assess your ability to service any additional debt that you may require. If you don't have any loan or credit card and solely rely on cash or a debit card then the bank does not have any reference to check your payment track record and will solely rely on other factors such as income and demographics to evaluate your loan application. Having a good credit history will ensure faster loan approval and disbursals, maybe even better terms.

However, it is advisable to use cash if you have a tendency to overspend on your credit card. Credit Cards charge very high interest rates. If you don't pay your entire credit card spend each month you will be charged 24% to 36% p.a. on the unpaid balance. This causes the amount due to grow in to a large amount very quickly and any default on repayments may lead to an inability to secure loans for other purposes (car and home purchases) in the future. Alternatively, if you have good financial discipline, credit cards help you build credit history and allow you to take advantage of reward programs such as fuel cash back, air miles and a host of other giveaways.

4. MYTH- CIBIL is an organization meant ONLY to help banks and financial institutions.

FACT- The objective of CIBIL is to not only help banks and financial institutions make financially sound lending decision but also empower consumers by enabling them to become more credit disciplined which can help them with faster loan approvals and sometimes better terms on their loans. In a nutshell, we help you understand how a lender evaluates your loan application so that you can apply only when your chances of an approval are high and hence, avoid the unnecessary embarrassment of a loan rejection.

5. MYTH- CIBIL has the authority to make corrections in my credit report directly.

FACT- CIBIL is not authorized to make any changes in your report directly. Any change that needs to be carried out has to be initiated/approved by the respective bank or financial institution. Only then CIBIL can make any changes to your CIBIL Report. However, CIBIL can help facilitate this process.

6. MYTH- A low CIBIL Score means I will never get a loan or credit card.

FACT- There is a lender for every borrower. Having a low credit score may close doors to some banks but there are lenders who are willing to extend credit to such individuals. However, the interest rates and charges may be higher as the perceived risk associated with a low credit score is higher.

7. MYTH- My assets, income, investments; all have an impact on my CIBIL Score.

FACT- Your CIBIL Report contains details pertaining only to loans and credit cards. It does not take in to account the balance in your savings or current account, investments or assets such as mutual funds, shares etc. Hence, these numbers don't impact your CIBIL Score.

8. MYTH- A bounced cheque will lead to a lower credit score of the cheque issuer.

FACT- Since your savings or current account details are not a part of the CIBIL Report, a bounced cheque does not impact your credit score. However, if you have missed an EMI or credit card payment it will have an impact on your CIBIL Score.

How to correct mistakes on your Credit Information Report

Dispute Resolution Process: How to correct mistakes on your CIBIL Report

Your CIBIL Score and Report are important factors in the loan application process. Hence, inaccuracies on your credit report can result in reduced chances of a loan approval. It is very important for every credit-active individual to understand the types of inaccuracies that can occur and what it means for their CIBIL Report. CIBIL cannot alter any credit information in your report unless authorized by the Credit Institution (CI).

Types of Inaccuracies

1. Inaccurate Current Balance or Amount Overdue
   On purchasing your CIBIL Score and Report, you may notice that your 'Current Balance' or 'Amount Overdue' may not be updated for your most recent payment. This is usually the case if you have purchased your CIBIL Score and Report within 45 days of making a payment. Credit institutions generally submit the data concerning last payment of dues/EMI within 45 days, so the latest payment may not reflect on your credit report until the data is submitted by that lender. However, if the 'Date Reported' (the date the data was reported to us) associated with that account was over 2 months ago, you can write to us to update this information.
   An inaccurate 'Current Balance' (especially on the high side) implies that you have more debt than you do. 'Amount Overdue' indicates that you are unable to service your existing loan obligations. Both are viewed negatively by lenders and may affect the chances of your loan approval.
2. Incorrect Personal Details
   Credit information is submitted to us by various Banks and Financial Institutions. Each lender submits your credit account along with your personal information such as name, address, date of birth, PAN, etc. We then use the personal information to collate these details into a single CIBIL Report which provides your complete credit profile.
   Ensure that you have provided accurate and updated details to your lender at the time of your loan application. In addition, every time your personal details change or are updated you should inform your bank or financial institution so that they are able to make the necessary changes to their database.
3. Ownership
   If any personal detail or one or more of the accounts on your CIBIL Report do not belong to you, you should initiate the Dispute Resolution Process as detailed below.

What to look out for to avoid Credit Card Debt Trap?

The easiest way to make your loan search (and application) simpler and faster is to maintain a high CIBIL Score. Learn about the most common debt traps, and how to steer clear of it so that it does not affect your credit health negatively.

What are the signs that indicate that you are or may be getting in to a debt trap?

• When you are spending beyond your means
• When you are paying your bills late and constantly missing payment deadlines
• When you have exhausted existing loan options available
• When you can't do without a credit card
• When you have not made any investments in a while

How can you avoid getting into a debt trap?

Today most of the urban population uses a Credit Card. It is a brilliant way to manage your money provided you pay your credit card bill on time. Since you are buying more credit period, this means your savings continue to earn at least minimal interest rate (if it is lying with the bank) while you continue to spend. But do take a note of the points below:

• Read the fine print-Before availing any new credit, read the terms and conditions. Taking Credit Card as an example, let's discuss a few eye-openers:
• Interest free credit period- You may be under impression that you have 30-35 days of interest free credit, but don't forget that this period starts from the first day of the billing cycle and not from the date of purchase (unless otherwise specified by your lender). You can best utilize this by making most of your purchases at the start of your billing cycle and thereby effectively using the "interest-free period" to stay out of the debt trap.
• o Interest Cycle- In most cases, interest rate is charged from the date of purchase and not from the payment due date in the event of any default or payment of minimum amount due. Let's look at an example:
• Amit buys a LED TV for Rs 50,000 on 1st January, and a washing machine on 15th January for 12,000. The due date is 15th February. He misses this deadline. So now the interest calculation which can be as much as 36-45% p.a will be levied along with late payment charges.
• So how is the interest rate calculated? It is generally calculated from the date of purchase and not from the due date or bill date. This changes everything! Amit now would be paying interest for 45 days on the TV and 30 days for the washing machine purchase. So even though you may think that you missed your payment by a day or a week, your interest liability is much more!
• Cumulative Interest- When you are revolving your money i.e., just paying the minimum due, you continue to accumulate interest charges from the first date of purchase. Whenever a payment is being made it is being offset against the first purchase. Once that is adjusted then it moves to the next purchase. In short, it follows the FIFO method. For example, If your current credit card bill is Rs 10,000 and assuming you are not spending further on the card and paying Rs 500 monthly, then it will take you as much as 3 years to pay off the entire amount. For every 100 you have spent, you will pay back Rs 175!
• Spend only on what you need :You may have read this before but it does not get simpler than this. Follow a simple exercise for a month- track ALL your expenses. Note it down on your phone or at home. When you do this, you will realize where your money is going. Then curtail on the things that you don't need.

Also all this effects your CIBIL Score. Not only does your payment history gets affected in case of default but also your current balance increases, indicating higher debt.

How CIBIL makes your loan search easier

Typically when we need a loan or a credit card, we approach at least 2-3 banks or financial institutions to find out interest rates and the other charges (such as processing charges). We then get all our documents in place and submit them to these lenders along with the loan application. Lenders now begin the 'Loan evaluation' process by first referring your CIBIL Score and Report while assessing your application. Based on their lending criteria, which varies from lender to lender, your loan may or not be approved.

But this is a time consuming process and depending on the loan type it can take months! In order to address this, we have launched 'Personalized Loan Offers' which aims at making your loan and credit card search easy by extending deals offered by lenders based on your credit eligibility. Here, in a single view you can compare interest rates and other features being offered by a host of lenders at once. So how does it work?

• Get your CIBIL Score and Report and automatically get access to Personalized Loan Offers for 3 months at no additional cost!
• Choose from the multiple offers (on Loans and Credit Cards) which are customized keeping your credit profile in mind.
• On selecting an offer from a lender, they will contact you to complete the formalities.

So in essence, you can not only view at one place what participating bank/financial institution have to offer but also see offers that are tailored based on your CIBIL Score and Report. Your CIBIL Score plays a critical role in the loan approval process. Lenders check your CIBIL Score before approving your loan application. Higher your CIBIL Score, higher are the chances of your loan application getting approved.

See your Personalized Loan Offers