All You Need to Know About EXPERIAN Credit Score
An Experian credit score is a three-digit number that indicates the creditworthiness of a person. When individuals apply for a loan or a credit card, this score determines if they are eligible to avail the same and how likely they are to repay their debts. When a lender such as a bank or other financial institutions receives an application, they will first evaluate the applicant’s credit score prior to approving their request. Additionally, the applicant’s credit score will also determine the interest rate imposed on the loan as well as the amount of loan that is sanctioned.
What is an EXPERIAN Score?
There are multiple companies that calculate an individual’s credit score based on pre-set algorithms. A popular and trustworthy company is Experian. This company was founded in 1996 and is an American based multinational consumer credit reporting company that aggregates information on more than 1 billion people and businesses across the world. In India, Experian started its operations in the year 2010 and is licensed by the Credit Information Companies (Regulation) Act 2005 (CICRA 2005).
Experian credit scores usually range between 300 and 850 with 850 considered to be an excellent score. While 750 and above are excellent and a cut-off value for most lenders, 650 to 750 are also considered to be good scores. Anything below this however is a negative reflection of the applicant’s creditworthiness.
Why Do Lenders Check EXPERIAN Scores?
Credit scores are a reflection of an individual’s credit behavior and their repayment history is used to assess the risk associated with a borrower. Low scores mean higher the risk and therefore, lower are the chances of the lender approving a loan. Even if the loan is approved, it is usually at a high rate of interest as these applicants are considered to be risky borrowers and have a greater chance of defaulting on their loans. Individuals’ credit scores become even more important for availing of unsecured loans i.e. loans that do not require collateral. As is the case with individuals, businesses are also assigned credit scores. Similar to the risk assessment of an individual, a business with a higher credit score can attract financial support or investments a lot more easily.
Therefore, lenders such as banks or other NBFCs check the applicant’s credit score, for individuals and businesses, prior to approving any form of credit.
What is an Ideal Experian Score?
As mentioned previously, a credit score is a three-digit number that is the numerical summary of one’s creditworthiness, individual, or business. The magic number that is considered to be a good Experian score is between 650 and 850. The closer to 850, the better is the Experian Score. Most lenders make it mandatory for an individual to have a minimum score of 700 although some accept an Experian score of 650 as well. However, having a score above 700 is optimum.
What is the Difference Between an Experian Credit Score and Experian Credit Information Report?
An Experian Credit Information Report is a detailed summary of all of your credit information. This report has information regarding your credit history, credit payments, accounts, recent inquiries, personal information, etc. It is essentially a detailed report. An Experian credit score on the other hand is a numerical summary of the information in your credit report generated by certain algorithms.
Factors that Affect Experian Score
Your credit score is calculated based on certain important factors. These include:
- Credit Repayment History
One of the biggest factors that affect the credit score is the credit repayment history. In order to maintain a good credit score, repaying the loan or credit card bills on time is crucial. Paying only the minimum balance due, repaying after the due date, or even missing payments can have a detrimental impact on the credit score.
- Multiple Loan Applications
There are different types of loans available for different requirements such as home loans, auto loans, education loans, etc. however, applying for multiple loans within a short span of time is not a good idea as each time an individual applies for a loan, the lenders run an inquiry to check for their credit score and history. Multiple queries, unfortunately, will negatively impact your score as the individual will seem to be ‘credit hungry’. In addition to this, too many loan applications will also present the impression that the amount to be repaid is quite high and hence there is a greater chance of default.
- Percentage of Unsecured Loans
While most loans require collateral, there are certain loans that are available without the need for one. These are known as unsecured loans and most personal loans come under this category. However, as unsecured loans pose more of a risk, the rate of interest on these types of loans is quite high as compared to other loans. If someone has procured multiple unsecured loans then there is a chance for the situation to be interpreted as financial mismanagement and therefore can negatively impact the credit score. Ensuring a healthy balance of secured and unsecured loans is important.
- Overlooking Mistakes in Credit Report
Although mistakes in credit reports are rare, it is possible and if these mistakes are not rectified immediately, the results can be dire. Individuals are advised to check credit reports every six months and rectify any errors. Delayed or faulty reports from financial institutions can reduce your credit score. It is also to be noted that Experian does not correct reports but will have to be rectified by the lenders directly.
- Increase in Credit Limit
It is possible to request the lending company for an increase in the credit limit but if these requests are frequent then your credit score will be negatively impacted. Each time a request for an increase in credit limit is raised, banks will check for Experian credit reports, and these hard inquiries, as mentioned previously, will reduce the credit score.
- Credit Utilization Limit
Keeping an eye on the set credit limit is extremely important. According to expert opinions, more than 30% of the credit limit must not be utilized. Additionally, if more than 50% of the credit limit is used, this is an indication to the bank that the individual may likely default on payments.
- Closing Credit Card Accounts
A great way to build credit is through credit cards. While there may be circumstances wherein a credit card is no longer used, it is advisable not to close it as the long history associated with it will also cease. Even if one wishes to close a credit card, it is better to do so when the card is relatively new.
- Loan Servicing Term/Length of Credit History
The length of credit history is nothing but the amount of time that has passed since a credit account was first opened. Lengthy credit history or a long loan servicing term is an indication that the individual has healthy financial habits. Building good credit takes time and focusing on this in the initial years will always pay off financially in the future.
- Acting As Guarantor for a Defaulter’s Loan
Acting as a guarantor will not directly impact one’s credit score. However, if the said applicant defaults on the payments then it can significantly deter the guarantor’s financial goals. Therefore, unless the applicant is someone that can be counted on to pay off his/her debts on time, one should never act as a guarantor.
How is Experian Score Calculated?
All credit scores are calculated based on complex algorithms. The calculations that are used in credit scoring systems as VantageScore and FICO Score analyze the information given in the credit report. If either of these models is used, then a complex statistical analysis method is used to track behaviors that are linked to defaulting on loan payments. Due to the varying amount of information that is constantly getting updated in the credit report, credit scores can and will vary over time based on the applicant’s behavior. Experian counts multiple financial institutions as its neighbors and these institutions submit the data of their current borrowers.
Individuals are advised to check their Experian credit score regularly to ensure that the score is on the higher side as well as to monitor errors on the report.
Details Available in an Experian Credit Information Report (CIR)
The Experian Credit Information Report is a detailed document that displays an individual’s entire credit record and history. This report is usually availed by lenders such as banks and Non-Banking Financial Companies (NBFCs), landlords, and creditors. The details contained in an Experian CIR are as follows:
- Account History
This section has details related to all the credit accounts such as type of credit that was borrowed, name of the lender, account number, date the account was opened on, most recent payment, amount of loan borrowed, current balance, and a monthly record of up to 3 years of repayment.
- Personal Information
Information of the individual such as their name, address, other identifying information including PAN number, date of birth, and so on is available in this section.
- Credit Summary and History
This section contains details of all credit accounts the individual may have had in the past or even currently along with information about the balance. This includes information such as type of loans availed, prior defaults if any, payment history with dates, and current balance.
- Credit Enquiries
This section has information regarding the inquiries that have been made by third parties (other lenders) based on the number of credit applications made by the said individual. Information such as type of credit facility i.e., whether they are loans or credit cards, amount of loan, credit limit, etc. is available.
How to Check Experian Credit Score
One can check their Experian credit score easily either online or offline. As mandated by the Reserve Bank of India (RBI), customers can avail of one free credit report from Experian every 12 months. For additional reports, a small fee must be paid.
Steps to Check Experian CIR and Credit Score Online
In order to avail the Experian CIR and credit score online, the steps given below can be followed:
- Individuals will have to first visit the Experian login portal and provide necessary details such as full name (according to the information in the applicant’s PAN card), email address, and mobile number post which an OTP will be sent to the said mobile number.
- Enter the OTP and once verified, individuals will be navigated to another page wherein date of birth, gender, PAN card number, address, and pin code will have to be provided. The declaration box must be checked followed by the ‘Get Report’ button.
- Applicants will be navigated to a payments page wherein a fee of Rs.399 will have to be paid post which the Experian Credit Information Report, as well as the credit score, can be accessed directly from the website.
Steps to Check Experian CIR and Credit Score Offline
In order to avail the Experian CIR and credit score online, the steps given below can be followed:
- Individuals will have to download and print the Credit Report request form from the official Experian website.
- In addition to the above, applicants will have to self-attest a photocopy of an ID proof such as a PAN card, Aadhaar card, birth certificate, etc., along with an address proof such as an electricity bill, bank account statement, Aadhaar card.
- Fee for the Experian CIR will have to be paid via a demand draft in favor of the credit bureau that will have to be enclosed.
- All these documents will then have to be sent to the Experian office in Mumbai, India.
Customers need to note that checking your own credit score will not lower the score. Note: In light of the on-going pandemic, Experian is providing credit reports for free for 2020. However, applicants are advised to verify this prior to applying for the same.
Tips to Maintain Good EXPERIAN Score
Every individual must strive to have a high credit score as this can have a positive impact on their finances. However, this is easier said than done. This is why MoneyView has compiled some of the best tips as curated by experts in order to help one maintain a high Experian credit score.
- Ensure that more than 30% of the credit limit is not used. If over 50% of the credit limit is used, it is a sign to lenders that the cardholder is ‘credit hungry’ can affect the credit score negatively
- In case new credit cards have been procured that are dormant, they can be canceled. However, if the credit card has been used for a significant amount of time and has a long credit history, it is better to continue utilizing the same
- All loan payments will have to be made on time. Additionally, making pre-payments are also advised. In the case of credit card bills, paying only the minimum amount due or paying past the due date is never a good idea
- In case credit cards or loan applications do not get approved, reapplication for the same must be done after a period of time. In the meantime, trying to increase the credit score is a good idea as well
- All EMIs must be paid on time
- Consulting financial experts is also advised in case the credit score is low.
In case an applicant does not have any credit history, he/she can procure a personal loan and repay the same to build credit. Additionally, he/she can acquire a credit card and make timely payments as well, to build credit.
How to Avail Loan with Bad Experian Score
Having a good Experian score (above 650-700) is important, however, financial woes can strike at the unlikeliest of times and a loan may be necessary to help tide over the situation but having a low Experian credit score does not help. The good news is that one can avail a loan despite having a low credit score. Any of the following options can be chosen:
- One can choose informal methods of borrowing such as online fundraisers or requesting the help of family or friends
- Individuals can also apply for a loan from Non-Banking Financial Companies (NBFCs). While a good credit score is still required, the number is not as high as those required by banks
- Applicants can opt for a secured loan if they are able to provide a collateral
- Additionally, if possible, individuals can apply with a guarantor or a co-signer as this will help distribute the burden of the loan. However, this option must be chosen only if the applicant is sure that the loan can be repaid
- Lastly, as much as possible, the focus must be on rebuilding the credit score
Having a high credit score is imperative in today’s times. While a good score takes time, there are multiple ways in which one can ensure that their financial habits can ensure a good Experian score of over 650.