Both credit score and credit remarks analyse your creditworthiness. The credit score is numerical with a number assigned by the TransUnion Credit Information Bureau of Information Limited (CIBIL). Credit remarks can be assigned by a bank, financial institution, or a non-banking financial institution from whom you have taken a loan.
The entire record of your financial history is kept with CIBIL. This includes the details of all the loans you have taken, all the credit cards from different agencies, your repayment history, and your defaults. Banks, NBFCs and financial institutions are clients of CIBIL, and they provide all the details of their database of clients to CIBIL.
CIBIL uses this information to generate a detailed report, including your credit history, credit score and payments history. Experian, CRIF High Mark and Equifax are the other credit rating agencies which provide these reports.
All potential lenders consider the details of your credit score and credit remarks while deciding to grant a loan or issue a credit. Credit rating agencies perform the important function of vetting the credit worthiness of potential clients, which is a very useful input to banks and NBFCs.
A Credit Rating is expressed as a letter or a rating which denotes the credit worthiness of a business, organisation or individual. Letter grades of alphabets like AAA, AA, A, BBB, BB, B, B-, CCC, CC, C etc., denote a credit rating.
Credit ratings are normally used for businesses and organisations.
Normally, AAA and AA, etc., denote a higher rating level. Ratings are also accompanied by an outlook which denotes whether the outlook is stable, improving or deteriorating.
These are normally provided by agencies which include S&P 500, Fitch, ICRA and Moody’s etc.
A numerical credit score for individuals and small businesses. A numerical credit score may range from 300 – to 900. Different rating systems have different numerical credit score ranges.
The higher the numerical score normally, the better the credit worthiness. A low credit score implies a high potential for the risk of default. A credit score is a numerical representation of the borrower’s creditworthiness and loan repayment.
It considers the following factors in the following proportions:
- Credit History – 35%
- Credit utilisation – 30%
- Credit history length – 15%
- Credit Mix – 10%
- New Credit -10%
Credit scores are available online. A benchmark credit score of 750 is considered excellent by lending agencies and credit card companies. Credit scores are considered exceptional, very good, good, fair, and fair.
The better your credit scores, the greater the chances of getting competitive interest rates, bigger loans, favourable loan terms, faster loan processing and speedy loan disbursal.
This refers to the remarks made on your loan or credit card statement by the bank or the credit card company. Remarks like settled or written off denote poor creditworthiness, as you have settled the loan, or the loan has been written off. This indicates a default, or you have paid a lower amount than the outstanding amount on the loan.
These derogatory remarks are negative for you as a credit prospect. Even if you have a good salary with a good credit rating, you will not get a loan or a credit card because of your previous history.
You can easily access your credit history or a full credit report under the” Account Information” section. All account details and the status of the account are captured here.
- The name of the account,
- lender’s name,
- type of credit facility,
- whether single or joint or with a guarantor,
- the date on which the account was opened, loan amount,
- current balance,
- overdue amount,
- a record of payments,
- timely repayment of EMIs on loans and credit card dues,
- the number of hard credit enquiries etc.
What determines credit availability – a good credit score or good credit remarks?
Both taken in combination determine credit access, and credit availability determines your credit record. A high credit score with poor credit remarks may result in you not getting the loan.
What can you do to rectify the situation when you have poor credit remarks?
Derogatory credit remarks may curtail your accessibility to a loan. Check your credit report thoroughly. If there is incorrect information in the credit remarks, file a dispute with the credit rating agency. Include supporting documentation to make your case. The error could be identity-related mistakes or account-related information, including wrong dates for the loan or repayment or wrong loan repayment amounts or dates.
How to improve credit scores and increase your borrowing capacity?
Credit scores can be improved with credit discipline and loan repayment behaviour. You can follow the steps given below to raise your credit scores: –
- Pay your equated monthly instalments and credit card dues on time.
- Suppose you are in the market to borrow. In that case, you should check the CIBIL scores and credit report along with the credit remarks to understand if any conditions potentially impair your borrowing ability.
- Your borrowings may consist of both unsecured and secured loans. Unsecured loans reduce your credit score and your capacity to borrow.
- Only borrow to the extent of 30%-35% of your credit utilisation limit to maintain a high CIBIL score. Not borrowing also adversely impacts the credit score.
- If you are a regular borrower, make it a point to check your credit history and score online. If you are simultaneously repaying multiple loans simultaneously or using multiple credit cards, credit scores may reduce, not allowing you to borrow more.
Today’s millennials are aspirational for higher living standards. As successful professionals, you would like to indulge your whims, whether it is costly gadgets, the latest automobiles, or costly holidays.
At some point, you are in the market for loans or use your credit cards to indulge your wants. Knowing about credit scores and credit remarks is necessary if you want to be a responsible borrower with high credit scores.