If today, you are asked to lend money to some stranger, about whom you know nothing, would you put your hard earned money in their hands??
Especially if you find out that there¡¯s a history of either not repaying back the money or repeatedly delaying the repayment. Certainly, you would hesitate in lending to such a personality, right?
Similar is the case with financial institutions, like banks, NBFCs, fintechs etc. When you apply for a loan or credit card with these financial institutions, they would need to assess your financial history and repayment capacity to arrive at the decision to accept your application or not.
That's exactly where the concept of credit score and credit report steps in and gets applied. For the uninitiated, it¡¯s first prudent to understand the importance of credit score and the factors that impact your credit score.
Once you are well versed with the concept of credit score, the next step is to understand the credit report.?
Read on as we unfold the concept of credit report and why it's important for everyone to check their credit report monthly, especially for the younger generation like millennials and Gen Z, who tend to live the life with the YOLO (You only live once) motto, and often are in need of money-saving habits as they do not shy away from availing loans and credit cards to maintain this lifestyle.
Your credit report is a summary of your current as well as past loans and credit card balances, your month by month repayment history towards those accounts (usually up to the past 4 years-5 years), credit enquiries submitted to financial institutions, and other credit and personal information like number of credit accounts, address, PAN number,? contact number etc.
Based on all the credit information mentioned in your report, credit bureaus calculate your credit score.
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Whenever you submit any loan or credit card application, your credit report is fetched by the lender, from the credit bureaus, so that your credit repayment history can be assessed. Based on your past repayment behaviour, lenders decide whether you are creditworthy or not, which hence impacts your loan or credit card eligibility as well as approval chances.
All such lender initiated credit report requests to the bureaus are listed in your credit report as credit enquiries, each of which can reduce your credit score by a few points. That¡¯s why it's better to do your initial homework regarding various prospective lenders and then only submit the enquiry or application to the one coming closest to or matching your credit requirement as per the set eligibility criterion of that lender.?
Even if you require or aim to avail not one but multiple credits such as loans or credit cards, make sure to spread out your applications across different time periods, in order to avoid bombarding lenders with too many applications, which would harm your credit score as well.
Now, let us understand the precise benefits of monthly checking your credit report.
Credit bureaus compute credit score on the basis of information provided by lenders and card issuers,?regarding?your?loan and credit card repayments.?This makes?it imperative for you to periodically check your credit report, especially before submitting the application for any form of credit,?be it a loan or credit card. Checking your credit report beforehand would?give you a clearer picture of your credit?score,?and?you can?take corrective steps to improve it if required.
Since your credit score is calculated based on information fed in your credit report, presence of any error in the report, whether on the part of or credit bureau, is capable of harming your credit score.?The misinformation can at worse, signal a possible fraudulent activity as well.?
Also Read:?Why Your Credit Score Can Fall Despite Timely Payments!
The errors can usually take these forms:
As?your?active and recently closed credit accounts¡¯ information is listed in the credit report, any wrong reporting or error like missing or incorrect account details of a loan or credit card, unknown credit account mentioned in the report etc. can harm your credit score.?
Your credit repayment history, which shows whether you are disciplined and consistent in the timely repayment of credit card bills and loan EMIs, is a vital parameter in the calculation of your credit score.
So, any error on that part, in the form of incorrect reporting like missed or delayed payment which wasn't actually the case, can pull down your credit score.?
Any mismatch in your personal information fed in the credit report and the one mentioned in your next loan or credit card application can lead to the rejection of your application. This information?includes your name, contact number, PAN details, communication address etc.?
As mentioned earlier, the lender initiated credit enquiries are listed in your credit report and reduce your score by a few points. So, the presence of unknown credit enquiries in your report surrounding a loan or credit card for which you never applied with any lender can harm your credit score.
So, as it must have become clear by now how errors can pull down your credit score, it's best to monthly check your credit report so that such errors do not get bypassed and keep hurting your credit score and subsequently, harming your eligibility and approval chances too.
As soon as you spot any error or misinformation, quickly contact your credit bureau and concerned lender, and get it rectified as soon as possible. Your rectified credit report will then depict an improved credit score too!
Also Read:?Why Credit Score Is Important For Millennials To Be Future Ready
Your credit utilization ratio (CUR)?and credit mix are some of the crucial factors taken into consideration by the credit bureau during calculation.
So, being aware of these aspects every month through fetching of your credit report check will help you take any corrective steps or measures, like keeping your credit card spends under 30% of total limit, and maintaining a balanced credit mix. All these can significantly help you in not just creating but maintaining a good credit score.
Also Read:?5 Super Benefits Of Credit Cards That Will Make Millennials Say Yes To Them In 2022
At present, there are 4 credit bureaus in India- CIBIL, Equifax, Experian and Crif Highmark. Credit bureaus generally provide one free credit report every year to their customers. So, you can spread your free credit report requests amongst these four in such a way that you are able to fetch one free report every quarter of the year. Like, you can fetch that one free credit report from each of the four bureaus one by one in different quarters of the year.
Alternatively, you can visit various online financial portals which have been offering the facility of monthly free credit score and credit report to their visitors. Such a facility helps you remain credit aware and timely take the required corrective measures whenever need be.
Click here?to download CRED and unlock a plethora of exclusive?offers, rewards, cashbacks etc on making credit card payments, besides getting payment reminders, credit score check, detect hidden fees or charges, fun games that fetch you chances to win exciting gifts! And don't forget to refer CRED to your friends and family!
For more of such interesting financial content and latest news,?click here.