Know Your Credit Report

In the formal lending space, assessing creditworthiness is the first step for a lender when making a lending decision. Credit reports and credit scores play a crucial role in these credit evaluations. Despite being essential documents, many borrowers seeking credit do not fully understand their credit reports or scores.

This guide will help you understand your credit report and its significance.

What is a Credit Report?

A credit report is a detailed record of a borrower’s credit history. It includes information about loans applied for, loans issued, payment behavior across these loans, and their current status. A borrower can be an individual or a business entity who is seeking credit. The credit reports for individuals and businesses differ in terms of format while include similar credit related information.

A Personal Credit Report (PCR) contains an individual’s financial activities across all credit facilities, including credit cards, loans, and mortgages. It records payment history, negative records such as late payments, and even details of loans applied for. The PCR also provides a consolidated score, known as the CRIF Credit Score, which lenders use to assess an individual’s creditworthiness.

A Company Credit Report offers a comprehensive credit profile of a business entity. It includes incorporation details, promoter or director information, financial activities across all credit facilities, and a record of payments, including any late payments. The entity’s overall creditworthiness is represented as a two-digit number called the CRIF Rank.

Both these reports provide crucial insights for lenders to assess the creditworthiness of borrowers - for individuals or businesses to maintain good credit health.

Why Should You Regularly Check Your Credit Report?

A credit report acts as a guiding document for lending institutions. It helps them determine not just a borrower’s creditworthiness but also decide on the loan terms, interest rates, and conditions. An accurate credit report is essential for securing credit on favorable terms. Any errors or discrepancies in the report can impact loan approvals and interest rates.

A typical credit bureau report includes several key sections. The identification information section contains details such as name, address, contact details, and personally identifiable information. The credit account information section provides a snapshot of all credit accounts, including details like account type, date of opening, loan amount, balance, and repayment history. The credit inquiries section lists any inquiries made by lending institutions. The bankruptcies and public records section includes details of any bankruptcies or other relevant financial records.

For businesses, credit reports contain all these sections except personal identification information. Instead, they include details such as the nature of the business, business address, and related parties.

Regularly checking your credit report helps identify errors, prevent fraud, and maintain healthy personal and business finances.

How to Check Your Credit Report?

A personal or business credit report can be accessed online at any time. Individuals can obtain their credit reports from credit bureaus by providing basic identity verification details, such as name, address, date of birth, PAN, and contact number. A free credit report is issued once per year for individuals, while additional reports can be requested for a nominal fee.

For businesses, obtaining a Company Credit Report (BCR) requires providing company details such as the company’s PAN, paying a processing fee, and uploading necessary supporting documents. Once the verification process is complete, the report is typically issued within seven business days.

How Should Errors in a Credit Report Be Addressed?

Regularly reviewing your credit report allows you to detect, report, and rectify errors that could negatively impact your credit score. Some of the most common errors include identity errors, such as incorrect personal details or loan accounts mapped to the wrong identity. Account errors may involve incorrect loan statuses, inaccurate delayed payment records, or incorrect account opening and closing dates. Balance errors occur when outstanding balances or credit limits are reported incorrectly. Duplication errors, where the same loan appears multiple times, can also affect your credit score. Additionally, fraudulent transactions or unknown accounts appearing in your report can be a sign of identity theft.

If any inaccuracies are found in a credit report, they should be reported to both the lending institution and the credit bureau through the dispute resolution module on the bureau’s website. It is important to note that credit bureaus function solely as custodians of data and do not have the authority to modify information unless the lending institution provides the corrected details. Therefore, submitting a dispute does not automatically ensure a correction in the credit report or an improvement in the credit score.

Conclusion

Your credit report is a key factor in any loan application. Understanding it helps you secure credit with the best possible terms. With detailed information on identification, credit accounts, inquiries, and financial records, your credit report serves as a reflection of your financial history and creditworthiness.

By checking your credit report regularly, you can stay informed about your financial standing, correct any errors, and protect yourself from fraudulent activities. Staying vigilant about your credit report is essential for maintaining good financial health and improving your credit score over time