As per an RBI notification in September 2016, all credit information companies/agencies will have to provide one full credit report free of cost, on request, once a calendar year, to individuals whose credit data they hold w.e.f January 01, 2017.
But wait, how many of you have still never requested their credit report previously, or are even aware of what a credit report is? 🙄
Understanding Your Credit Report and Credit Score
So what is a credit report?
Put simply, this Credit Information Report (CIR) is a report that details your credit history. This has been reported to the credit information company by banks and other lending institutions who have at some point, extended credit to you. Broadly, it would contain the type of credit (loans, credit cards, overdraft), duration, your payment history and defaults, if any. It is a report that can be requested by a prospective lender to gauge your credit worthiness, and contains:
a) Your credit score
The first item in your credit report is your credit score, a 3 digit number that is an indicator of your credit history. It ranges from 300 to 900 – the higher the better. Lenders typically look at scores from 700-750 onwards. A score below that would be a cause for concern if you’re thinking of applying for a loan/credit card. If you’ve never availed of a loan or credit or are new to the system, the score may show NA/NH meaning there is no credit history at that time.
This could also apply in case of no credit transaction in the preceding 2-3 years. In CIBIL, there is also a new version known as CIBIL Score 2.0 which has a risk index score for those with a credit history of less than 6 months. This score ranges from 1-5, where 1 means high risk and 5 indicates low risk.
b) Your personal information
This section contains your name, date of birth, gender and details of documents that serve as ID proof and for KYC, such as PAN, Passport Number, Voter Id number, Driving Licence Number and so on.
c) Your contact information
Shows current and previous address as available – both residence and office, along with your email ids, depending on which you’ve submitted.
d) Your employment information
Displays the last known employment information which you have provided when applying for a loan/credit card. While this doesn’t impact your score, you could get better terms or lower interest rates if your employer is among a list of preferred companies.
e) Account information
The most important section of the credit report. It contains details of all your loans and credit cards – closed and those currently active. Details include type (loan/credit card/overdraft), opening date, date of last payment, current balance and a monthly record of payments for the past 3 years. A red band to the left of any section indicates that it is under dispute, which can be sorted out with the lender.
f) Enquiry information
The last section – it displays details of enquiries made by lenders to assess your credit eligibility, as well as requests from you for a copy of your report.
What can adversely impact your credit score?
a) Late payments or defaults
Shows you’re financially unstable and unable to service your obligations on time, which is a red flag
b) High utilisation of credit limits
If you like living life on the edge, are always close to hitting your credit limit and make only minimum payments every month, this means trouble
c) Excessive credit-seeker
If you have multiple credit cards or ongoing loans and are still applying for more cards/loans, prospective lenders may be wary of extending any further credit thinking you could be headed for a debt trap
d) Too many ‘hard’ enquiries from lenders
When you request your credit report, or if a potential lender wishes to only assess your credit worthiness to send you a pre-approved credit card or loan offer (without your knowledge or your having applied for it) , this is a ‘soft’ enquiry and doesn’t impact your credit score. On the other hand, a ‘hard’ enquiry is one where lenders make the query when you apply for a loan, a new credit card or an increase in your existing credit limit. This can lower your credit score to some extent.
However, if you’re “shopping” for a loan from multiple lenders – like for a home loan – to get the lowest rate and best terms, then such multiple queries will be counted as one hard enquiry if within a 30-45 day period (varies across bureaus).