Credit information companies (CICs) like CIBIL use various abbreviations/terms to reflect these payment statuses in the credit report. Understanding these terms can help an individual manage their credit profile well. In the article, we will examine some of these terms, their meaning, and their significance.
What is STD and its importance?
The abbreviation STD stands for ‘Standard’, which means the individual has made payments within 90 days of the due date. An individual should make the outstanding payment before or by the due date. Timely payments reflect good credit behaviour and ensure the credit account is in good standing with the bank or NBFC.
Timely payments contribute positively towards improving your credit score. Consistently making timely payments signals to the lenders that you are reliable and creditworthy. When you pay on time, lenders will consider your credit applications positively. They will consider you a low-risk borrower and approve your credit application, if other eligibility criteria are fulfilled.
You must continue making all your loan EMIs and credit card bill payments on time. You may pay five days before the due date to allow the payment to reach the bank if multiple intermediaries are involved. It will also create a buffer for any rare payment failures due to any technical glitches. You may use the auto-debit facility that pays automatically after the credit card monthly bill is generated.
As per RBI’s asset classification norms, lenders treat a credit account as standard if the payment is made within 90 days from the due date. Any credit account overdue by more than 90 days is classified as a non-performing asset (NPA). Banks view any overdue loan account, even though standard (overdue for less than 90 days), as negative. However, the impact of an overdue account, which is standard, may be less severe. Beyond the standard status, the impact may be more severe.
What is DPD and its implications?
The abbreviation DPD stands for ‘Days Past Due’, which indicates the number of days for which a payment has been delayed from the due date. For example, suppose the due date for the credit card bill is 1st April, and as of 30th April, the bill has still not been paid. In this case, the DPD will be 30 days and reflected as DPD 30 in the credit report.
The credit report will show the payment status as ‘000’, which means the payment has been made before or on time. In some cases, it will show ‘XXX’, which means the bank has not reported the status for that period. If the DPD is greater than 0, it means the payment has been delayed beyond the due date. It is a negative remark on the borrower’s or credit card user’s credit behaviour.
The DPD has a negative impact on an individual’s credit score and report. Banks report any delays in the EMI payment or credit card outstanding to the credit information companies (CICs) like CIBIL. When the CICs factor the delay in their algorithm, it leads to a drop in the credit score. The higher the delay, the higher the negative impact on the credit score.
The DPD impacts an individual’s ability to get new loans and credit cards. While processing a credit application, the banks will check the credit report for any DPD. If the bank comes across a DPD, they will hesitate to extend credit to the applicant. The bank may ask the applicant to get a co-applicant or a guarantor. In some cases, the bank may give a loan at a higher interest rate. As a risk mitigation measure, in some cases, the bank may ask the applicant to go for a secured loan or secured credit card.
Banks report customer data to the CICs every 15 days. If an individual doesn’t pay their debt obligation(s), after every subsequent reporting cycle, the DPD will go on increasing. If the DPD is higher, it can have a more detrimental impact on your credit score. Once the individual makes the payment, the bank will report it to the CIC in the subsequent reporting cycle. Post that, the DPD will get updated to 000.
Based on the DPD, the asset account classification may change as follows:
- STD (Standard): Payment is being made within 90 days. If the DPD is more than 90 days, the account will be classified as a non-performing asset (NPA)
- SUB (Sub-standard): An account that has remained an NPA for up to 12 months
- 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
A credit report reflects the DPD status for the last up to 36 months for every credit account. So, if you have delayed the payment for any credit account in the last 36 months, it will show up in your credit report, making it difficult for you to get new credit.
What is LSS and its implications?
In the earlier section, we saw how the asset account classification can change based on the DPD, one of them being LSS. The abbreviation LSS stands for ‘Lender Settled Status’, which means the borrower has settled the loan or credit card outstanding. A settlement happens when the borrower is not able to pay the entire outstanding amount. As a result, the bank agrees to settle for a lower amount than the outstanding amount.
It is important to note that a settlement doesn’t mean the credit account is closed. The bank will report the credit account as settled to the CIC. The CIC will update the status as LSS (settled) instead of closed. While underwriting new credit applications, the banks consider settled status negatively and view the borrower as a high-risk customer. A loan or credit card applicant will find it challenging to get approval with a settled status of any earlier loan(s) in their credit profile.
The credit report reflects the settled status for seven years unless the borrower approaches the bank to pay the remaining loan amount. Once the borrower clears the entire loan amount, the bank will report it to the CIC in the subsequent cycle. The CIC will update the loan status from settled to closed.
How can an individual maintain a good credit score and report?
Now you understand the various terms used in a credit report. You can request the latest copy of your credit report from CIBIL and check the payment status for every credit account. If the DPD is 000 or XXX, you are up to date with all your credit accounts. However, if the DPD status is anything other than 000 or XXX, you need to assess further. You must get in touch with the bank or CIC to take steps to update the status to 000. Once you do that, your credit account(s) will be in good status. The same will be reflected in your good credit score and report.
Gopal Gidwani is a freelance personal finance content writer with 15+ years of experience. He can be reached at LinkedIn.
