Beginner’s Guide to Credit Report and Credit Scoring

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Credit Report

With easy online application and instant approval, personal finance products such as credit cards and personal loans are much easier to get now. But do you know that all of your credit information will be put in your credit report whenever you apply for a credit product? In fact, your credit report and credit score reflect your overall credit history and plays an important role in the approval process of your application for a credit. If you don’t have a clue about credit reports or credit scores, here are some of the basic facts you need to grasp before you apply for a new credit.

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What is a credit report?

A credit report is a record of a consumer’s credit history. In Hong Kong, credit reports are compiled by a privately owned credit reference agency called TransUnion, which maintain credit data provided by its members such as banks and other financial institutions.

 

What types of information are included in credit report?

Apart from your general personal data such as name, telephone number and address, the following information are also included in your credit report:

  • Your Credit Account Information, which includes your credit history and the current balance of your open, closed and past due credit accounts.
  • Your Public Records, such as action relating to recovery of debt, judgment entered for money owed, bankruptcy and discharge of bankruptcy.
  • Credit Enquiries made by Transunion’s member. In the report, you can find the number of enquires made by TransUnion’s members into your credit file regarding your credit application within the past 2 years.
  • Your Credit Score, which is a numerical snapshot of your credit report at a particular time.

See a sample TransUnion Credit Report.

 

What’s the use of a credit report?

Credit information held by TransUnion is highly confidential. In general, only you and credit providers whom you submit an application to may review your credit records. When you apply for a credit product, credit providers may approve or reject your application based on their own credit policies and your credit history for reference purpose. With a credit report, you may have a better understanding of your credit record and use it as a proof to show that you are financially stable in order to increase the likelihood for the approval for a credit and a more favorable interest rate.

 

What is a credit score?

A credit score is a numerical expression generated by a mathematical formula using data from your TransUnion credit history. A consumer’s credit history will be rated on a grading scale ranging from A to J, with letter grade A being the highest score.

Here are the main elements used in the basic scoring formula:

    • Credit Account Information: The types (such as credit cards and mortgage) and number of credit accounts you have will affect your credit score.
    • Payment History: If you always repay your debts on time, it shows that you are a reliable borrower and will boost your credit score.
    • Account Delinquency Data: Late payments or large amount of debts may lower your credit score.
    • Credit Enquiry: If you apply for credits from different providers within a short period of time, they may request your credit report for reference. Your credit score will be slightly reduced as it implies that you may be taking on additional debt.
    • Public Record Data:  Legal actions relating to the recovery of debt, bankruptcy or any winding up petitions may affect your credit score negatively. All public records are kept on your report for 7 years while filed bankruptcy petitions remains on the record for 8 years.

A higher credit score improves your chance of getting approval for a credit and a better interest rate. On the other hand, credit providers might charge higher interest rates or even reject your application if your credit score is too low. Therefore, it is essential that you keep a good credit score in the long run.

 

How can I improve my credit score?

Since the credit score only reflects your credit records at a specific period of time, the number will vary as your credit file is updated. To build your credit score, here are some tips that you can follow:

  1. Repay your debts on time: Pay all your bills on time every month. If you have financial difficulty and may not be able to repay debts punctually, you should contact the lenders to rearrange your repayment plan.
  2. Borrow within your means: Determine your borrowing capacity before you apply for a new loan. Avoid borrowing too much credit than what you can afford.
  3. Avoid applying for too much credit: If you apply for credit products from different providers within a short time, the banks may consider you as having high credit risk and might charge you higher interest rate in return.
  4. Check your credit reports and credit scores regularly: Keep track of your financial health by monitoring your credit reports from time to time. If you detect any errors or suspicious activity, report them without delay. To understand your credit records better, you can order your credit report online, or you can also call TransUnion and make an appointment to meet with their Consumer Relations Officer.

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