A healthy credit report and score increases your probabilities of securing a loan/credit card at the best possible interest rates. According to credit data analysis of top credit bureaus, 70% of loans and credit cards were approved for people who had a credit score of 750 and higher. Having a high credit score is beneficial for your overall financial health. 

Understanding the Key Aspects of your Credit Report

The first step towards developing a healthy credit report is to fully understand its contents. One amongst the foremost necessary components of the credit report is the "Accounts" section. This section contains the main points of all the loans and credit cards you've taken. 

It lists various details of your credit like name of lenders, form of credit facilities (home, auto, personal, term loan, overdraft, etc.), account numbers, possession details, date opened, date of last payment, loan quantity, current balance and a month on month record (of up to three years) of your payments. This section additionally provides "Status" on the account that defines the "health" of the account. 

Explained here are some common terms that occur under the account section of a credit report along with what they mean. 

What does ‘Closed’ mean?

If you discover a date adjacent to the 'Closed' field in your account section, this implies that that loan account has been closed by the creditor. In other words, it means that you have paid off your loan fully and therefore the bank has marked this account as "Closed" in your credit report.

After closing a loan it's necessary to get a No Dues Certificate (NDC) from the creditor. Banks issue a No Due Certificate (NDC) or Closure Letter. The NOC states that the loan stands closed and the borrower has repaid the loan dues completely. So it is reported as "closed" on your credit report.

What does ‘Settled’ mean?

If you've partially paid the dues and settled a credit card or a loan then the corresponding loan account is marked as "Settled" on the credit report. Once you settle an account, it means the credit establishment is agreeing to simply accept a payoff quantity than the sum originally owed. As a result of the financial organization taking a loss, a standing of "settled" is perceived as negative and damaging to the borrower. 

It is necessary to grasp that although there will be no impact of the "settlement" flag on your credit Score, your credit history can show a "Settled" standing in your credit report and there'll be Days-Past-Due reflective on the report since the payment on the loan has not been timely. 

Every bank has its own policy of viewing a "Settled" standing. This can impact your future loan applications consequently. If you are thinking of settling an account that is in good standing, get in touch with your lender first to see if there are other options that will allow you to continue repaying the debt without damaging your credit history.

Generally, a settled account will remain on a credit report for seven years from the date of settlement with the lender. Even if you have resolved the debt years ago, it will remain on your credit report until the seven-year period is covered.

What does ‘Written-down’ mean?

If you are not able to repay your outstanding loan amount or your credit card dues for more than 180 days then the creditor is required to ‘write-off’ the balance amount. The creditor then takes to report this on your credit report as "Written off". This often has huge negative implications on future loan or credit card applications. 

Think of the written off status as a black mark on your credit card. Generally, creditors are reluctant to extend loans or credit cards to somebody who has defaulted on their older loans and has the written off status marked on their credit report. 

Conclusion:

The credit report holds great value in decision making of financial institutions whether to avail you facilities such as loans or credit cards. Hence, it is very important that one should focus on portraying a positive financial image through the credit report. Though there are multiple ways one could build a healthy credit report, it is often seen that people make mistakes that make their credit scores sink. 

When you are dealing with credit, it is essential to know certain basic terminologies. Terms such as ‘closed’, ‘settled’ and ‘written off’ are common words used on a credit report. If the credit report shows a "settled" or "written off" standing, then it's going to get tough for the individual to get a loan. Understanding the key details on your credit report and history, can help you better figure out how to best improve it. 

Credit healthy toh credit wealthy!