All you need to know about credit report
The scorecard that lenders use to check your credit worthiness is your credit report. Here’s what information it has and what it means
Your credit report is the first thing that lenders will check before they approve a loan or credit card that you applied for. So, what is this? A credit report is a summary of your credit history. It will have all the information on your financial transactions such as your credit accounts, loan payment details, personal and employment details and so on.
Any inconsistency or error in your credit report can actually hurt your credit score. The lower your credit score, the lower your chances of getting a loan or credit card. So, you need to check your credit report regularly to find out potential fraud or errors, if any.
Each credit bureau will have a different way of organising the credit report. So, the sections may be in a different order in reports given by each of the bureaus. Credit bureaus in India include TransUnion CIBIL, Equifax, CRIF High Mark and Experian. However, all your credit reports will have the same basic parts. Here are the important sections of your credit report that you need to look at.
The first section of your credit report will show your credit score. Credit score is a three-digit number that can range between 300 and 900 points and indicates your credit worthiness. However, with bureaus such as Experian your credit score can go up to 999. Usually, a score of over 750 is considered to be good by financial institutions. So, the higher your score the higher will be your eligibility for better loans and credit card offers.
This section will have all your personal details. This information is provided by the lenders from whom you borrowed to the credit information bureaus. Details include your name, gender, date of birth, residential address, voter ID, passport, Aadhaar ID etc. This is the section you need to take note of to avoid possible identity frauds.
This is the section that will list all the employment details you had provided at the time of applying for a loan or credit card. Lenders check your employment details before they approve any loan or credit card.
This is one of the most important sections in your credit report. It contains all information on your credit accounts such as the number of loans and credit cards that you presently have. It will show the name of the lender, account number, account type, date you opened the account, date of last payment made to the account etc. If you had given any collateral for any of your loans, the details such as the value and type of collateral will be displayed on your credit report. Remember, having a healthy mix of unsecured credit such as credit cards, personal loans and secured credit such as home loans, car loans will help you maintain a decent score.
You need to cross-check each of the details carefully and look out for any unrecognised accounts or errors in your payment history. If you find any errors, try and resolve the dispute at the earliest.
Want to see if all your credit card payments and loan EMIs have been made on time? You can verify your recent payments in your credit report and see if there have been any cases of late or missed payments. Note that all late payments could affect your credit score negatively. So, ensure that all your payments are made before the due date.
Credit card utilisation ratio
This is a very important section of your credit report because it shows you the percentage of the total available credit limit that you’ve used up so far. The lower your credit utilisation ratio, the higher will be your credit score. So, make sure your total outstanding credit balances do not take up a major proportion of your total credit limit. Maxing out your credit card limits can increase your debt over time. So, use credit responsibly. Experts suggest that a credit utilisation ratio of less than 30% is ideal for maintaining a high credit score.
Age of credit
This section indicates the average age of all your presently open loan and credit card accounts. Note that the longer your credit history, the better your score. It’s good to have a long credit history because this shows that you have been a responsible borrower and will make future credit applications smooth.
This section relates specifically to the total number of hard enquiries made by lenders. Hard enquiries are enquiries on your credit score made by credit institutions for granting loans or credit cards. These enquiries can stay on your report for about 12 months. While hard enquiries impact your credit score, soft enquiries which are credit score checks made by you do not affect your credit score. You can check your credit score as many times as you want without any of it affecting your credit score.
Enquiries made by banks or any of the financial institutions on your credit score is listed under this section. This will show information such as the type of loan, loan size, the name of the bank or financial institution etc.
Keep in mind that multiple hard enquiries made in a short span of time can hurt your credit score as you might appear credit-hungry to lenders. One way to decrease the impact of hard enquiries is to ensure that you don’t apply for multiple loans or credit cards at one time.
Negative status accounts
This is the count of all your accounts that the lender has marked as written off, suit-filed, settled or account sold. Not having any accounts in this section is good for your credit history.
Before you apply for loan or credit cards, it is best to check your credit score to ensure that your application doesn’t get rejected because of a low score.