While taking a loan, these days everyone I.e. all the lenders check your credit score and credit report. Why is it become so necessary to check the credit score or report before approving any lending of credit? Credit implies credit card and any kind of loan. Credit report and credit score is the reflection of how responsible you have been in past in repaying the credits you have. It also gives an idea to the lender that you would be a risk to them or not. This then becomes the major factor for them to take forward your application of credit or not.
Supposing you are planning to take a home loan and you check the Home Loan Eligibility depending on your age, income, area, current salary etc., the basic factor would be the credit report which would be looked upon. It also is important to know the difference between the score and report. These two are different entities. Even though connected, please note that credit score is a part of your report and not vice versa. A score is a three-digit number ranging from 300-900, 900 being highest.
1. Payment History
2. Amount Owed
3. Length of Credit History
4. Credit Mix
5. New Credit
While the report will consist of your score, your
1. Personal Information: your Name, Address, Pan Number.
2. Trade Lines: the credits you had taken, and their repayment details.
3. Credit enquiries: enquiries you must have made for taking new credits.
4. Collection report: your late payments, missed payments, bankruptcy and suits filed.
5. Credit score: Of course, the main part of it.
So, this will clear the basic misconception one might have of being credit score and credit report. Now, let's get to the topic, that which are the most important eight things one would know about the report.
1. Credit Report and Credit Score are 2 different things
As explained earlier, it's clear that credit report has all the information of an individual whereas the credit score is just a number.
2. One can get the score or the report for free
RBI has passed a rule, according to wish all the credit bureaus have to give 1 free credit report/score each year. As the knowledge one already has, there are 4 bureaus: CIBIL, Experian, Equifax, CRIF Highmark. So, if suppose you want to check your CIBIL Rating Online, all you need to do is go to their website and fill a form. And you would be provided with the free score/report each year. Similar will go with other 3 bureaus.
3. Reports are generated by bureaus
Your report is generated by the credit bureau. The criteria of each bureau are different of how they calculate the score. The 5 factors remain the same, but, the % may vary. Hence, there may be a difference of 50 points in all the bureau reports.
4. Check the Report, it's healthy.
It is advisable to check the credit score and view the report twice every year. This will assure that you are on the right track and nothing is going wrong.
5. Raise dispute
Suppose, while checking the report you feel that the information contained in the report are with errors or they are not true at all, you can raise the dispute and get it resolved.
6. Things won't stay on report forever
It's true that the things which are reported on credit report stay for long, but not forever. The longest thing to be seen is the bankruptcy. Which is 10 years. Post that it is removed from the report. But that does not mean that one would start taking it lightly and do not repay the credits responsibly.
7. Joint accounts and their report
When you have joint accounts, the effect on the report if either of the parties or both of them do not repay the credit, but it is reported individually in respective reports and would change the score according to that.
8. A credit report is not the only thing that lender would check to give you credit
A report is definitely the major thing which lender's see while approving the credit to you, but they also check the intents on why the credit is required or if the need is genuine or not etc.
By now, you would have got the idea on the major things you should know about the credit report. Make sure all the decision you take would help you in staying credit healthy!