Credit Reports : Benefits of a good credit score and how to access it for free

What is a Credit Report?

A credit report is a detailed breakdown of an individual’s credit history prepared by a credit bureau. Credit bureaus collect financial information about individuals and create credit reports based on that information, and lenders use the reports along with other details to determine loan applicants’ creditworthiness. A credit report is like a report card on how one manages their finances and gives a credit score based on their past credit history and behaviour. This report helps the lender to take a decision on granting of loan and also, on the rate of interest they should charge.

What is a Credit Score?

A credit score is a numerical expression based on a level analysis of a person’s credit files, to represent the creditworthiness of an individual. A credit score is primarily based on a credit report, information typically sourced from credit bureaus.

Who carries out credit scoring in India?

In India, there are four credit information companies licensed by Reserve Bank of India (RBI). The Credit Information Bureau (India) Limited (CIBIL), Experian, Equifax and CRIF High Mark were given licenses by RBI to operate as Credit Information Companies in India.

What does a credit score range in?

All credit bureaus in India offer a credit score between 300 and 900, 900 being the highest. A credit score of 700 and above is considered as ideal.

Why is it important to get a credit report?

1. Your credit report and credit score are objective measures of your financial reliability and therefore, a variety of businesses check your credit report to make decisions about you.
2. Banks check it before approving you for credit cards and loans, including mortgages and auto loans.
3. Landlords review your credit report to decide whether to rent to you.
4. Some employers even check credit reports as part of the application process.
5. Your credit report is the sole source of information used to calculate your credit score, that lenders often use to determine how likely you are to pay back a loan.

What does a credit report include?

Generally a credit report can be divided into the following parts:-

1. Personal information which includes any name entity/person has ever used in connection with an account, birth date, social security number and former addresses.
2. Credit account information includes current and past credit accounts (such as credit cards, loans, and mortgages), account balances, payment history, and how long each account has been open.
3. Debt collections may appear if a lender has ever transferred overdue account

   payments to an external collection agency.

4. Public records list applicable history of bankruptcies, foreclosures, liens, or civil suits.
5. Recent inquiries list any entities that have recently inquired about your credit, like credit card companies or lenders.

How will a High Credit Score benefit somebody?

1. Better chance of getting credit card or loan approval
2. Improve chances of landing an apartment
3. Receive better car insurance rates
4. Lower interest rates of credit cards and loans
5. Avoiding security deposits on utilities

Can a Credit Report be generated for free?

RBI has notified that each customer of a credit institution should be provided one base level consumer Credit Information Report free of cost every year by each Credit Information Company.

However, any extra report will be at a cost. Cost of the extra report shall be as below:-

However, Experian is now providing free credit reports throughout the year.

What documents are required to be submitted while applying for a Credit report?

No documents except the ones mentioned below are required to be submitted while applying for a credit report online. One may have to create a login account in the bureau’s website.

Can mistakes in Credit Reports be rectified?

1. In case any inaccuracies are noticed in the credit report w.r.t errors in the loan account, old personal information (name or address), opting in or out of loan moratorium, etc., one should immediately raise a dispute with your credit bureau with details or send an email.
2. Generally, the time required for resolving disputes is a maximum 30 days.
3. There are no charges for resolving disputes in the credit report.

What are the tips to improve credit score?

Credit Reports provide information about which factors are affecting the credit score the most. These risk factors will help one understand the changes once can make to start improving the credit score. Given below are some tips one may follow in order to improve their credit score:-

1. Set reminders of payment and pay your bills on time
2. Pay off debts and keep balances low of credit cards and other revolving credit
3. Apply for new credit accounts only when needed
4. Do not close any unused credit card accounts
5. Opt for a longer tenor when you take a loan
6. Do not apply for too much credit which will result in multiple inquiries
7. Review your credit report and report any inaccuracies therein

Considering how important credit scores are for overall financial well-being, it is wise to do everything to ensure your credit score is as good as possible. Regularly checking your credit report and credit scores are the critical first step.