Credit report, as we all know, is a compilation of data concerning your credit history. It is one of the important factors on the basis of which lenders decide whether the applicant is creditworthy or not. Hence, people must always keep their credit history report sans negative remarks such as enquiries, missed payments and defaults. People must also review their credit reports from various bureaus periodically to see if there is any discrepancy between the information given in the report and the information you know. If you are not sure what to look for in your credit report, here are some of the important things that you must look closely:
- Credit report enquiries
Whenever you apply for a credit, lenders request your credit report from different credit bureaus to assess your creditworthiness. Such a request is known as 'hard enquiry'. An enquiry from your lender may seem harmless to you, however, it can be a major cause behind the drop in your credit score. Loan seekers must not submit multiple credit applications in a short period because multiple hard enquiries from lenders in short duration can hurt your credit score. Therefore, it is advisable to borrowers to always first compare different credit options that they are eligible for. Instead of going to various lenders’ websites, you can compare different options at online financial marketplaces and choose one that suits your needs.
When reading your credit report, if you ever come across an unknown hard enquiry, report to the bureau or bank immediately. Such errors could be because of bureau, lender or even due to identity theft or some fraudulent activity. Therefore, without any delay contact the concerned institutions and raise a dispute.
In the enquiries section of your credit report, details such as lender’s name, date of application, type of loan, etc. are also given. At times, the date of loan enquiry may differ from the date of credit application. In such cases, don’t fret as your lender may not necessarily enquire on the same day of your credit application.
- Credit account information
Your credit report showcases all credit-related information including the active and recently closed credit accounts. If you identify an unrecognized credit account, contact the lender or bureau and raise a dispute. The discrepancy between your information and the information given in the credit report could be due to an error, identity theft or fraud. Therefore, always check whether your credit report includes all active credit accounts or not.
Another important point to keep in mind is that your credit mix (the ratio of secured and unsecured debt in your portfolio) too plays a role in determining your credit score. Lenders usually prefer giving credit to those who have higher segment of secured loans such as home loans in their credit mix.
- Credit repayment history
Credit repayment is one of the important sections in a credit report as it includes credit repayment history in detail such as timely, late or part payments made by borrowers to their lenders. Your credit repayment history shows how well you handle the credit available to you and therefore, lenders look at this section carefully. While examining your credit application, they closely analyse your repayment behaviour and on the basis of the conclusions drawn they predict your future repayment behaviour.
Missing or delaying your loan EMIs and credit card bills can considerably decrease your credit score for a significant period. Moreover, it can also hinder your chances of availing a credit. To avoid such circumstances, make sure your repayment history matches the information given in the credit report. If not, get in touch with your lender or bureau to rectify the error as soon as possible. If there is anything under dispute, it is generally shown separately. Also upon closure, the disputed information might be changed as per the lender's validation.
- Personal information
Your credit report includes your personal information such as your name, PAN and communication details that as mentioned in the credit facilities availed by you. When you submit a credit application to a lender, they fetch your credit report to assess your financial health and creditworthiness. While going through your credit report if they happen to find discrepancy between the information given in your credit report and credit application, your application might get rejected.
If the mismatch is due to a clerical error made by a bureau, contact them as soon as possible and get the dispute resolved. If the mismatch is due to a lender, contact them and get the error corrected. Once the error is rectified by the lender, contact bureau and get the dispute resolved.
- Credit utilization ratio
For those who are not aware, credit utilization ratio is the ratio of the credit limit utilized against the total credit limit available on your credit card(s). It is one of the major factors that bureaus consider when calculating your credit score. It is not very difficult to know your credit utilisation ratio as anyone can calculate it themselves.
For instance, you have three credit cards with credit limits of Rs. 40,000, Rs. 70,000 and Rs. 90,000. If the outstanding balances on the cards are Rs. 20,000, Rs. 10, 000 and Rs. 20, 000, then your credit utilization ratio for that month will be 25%.
Lenders usually prefer to give loan to borrowers with credit utilization ratio of less than 40%. A borrower with a credit utilization ratio of more than 40% might be considered credit-hungry and thus, more likely to default in future. If you cross the 40% mark frequently, then you can request either for an increase in credit limit or apply for a new credit card.
It is important to check your credit reports from all four bureaus at least once in every three months. Doing so will not only help you understand how you can increase your credit score but will also help in identifying any discrepancies and resolve them quickly before they harm your chances of getting credit in future.