Anyone looking to obtain any kind of credit just cannot avoid knowing about credit score or credit report. There is a lot of awareness built around the subject and individuals are increasingly keeping themselves updated of their credit scores.
A recent survey conducted by CreditMantri revealed that 64% of the survey respondents checked their credit scores at least once in 6 months
While you understand the importance of credit score, it is very important that you know what contributes to your credit score. These are the factors that contribute towards a good or bad credit score.
Your borrowings - Loans and Credit Cards
Your Repayment History
Credit Mix - Proportion of Secured borrowings to Unsecured borrowings
Credit Utilisation - Proportion of your credit limit that is used
Number of Hard Inquiries
When you apply for a credit, your lender will inquire with the credit bureau with your PAN and gets your credit report. A credit report is nothing but a detailed report that demonstrates how you have performed on each of the above-mentioned factors. Credit scores and credit reports are dynamic in nature. They can change with each of your action, like a payment made or default in payment, a fresh loan or hard inquiry, etc.
You may be taking good care of your credit and taking positive steps towards building a good credit score, but did you know that your credit report may have certain errors and these errors may be silently pulling your credit scores down?
We would like to categorize these errors under 3 broad categories:
Errors due to wrong PAN
Correct identity is the base of any information. It may be possible that there is a mix-up in PAN numbers. When there is a mix-up in PAN numbers, loan and credit card information pertaining to some other person may be shown against your name.
Errors due to mismatch between PAN and your name
It may also be possible that there is a mismatch between your PAN number and your name. This could be particularly possible if you have undergone name change in your PAN account or use different forms of name like only with initials for certain accounts and expanded forms in other accounts. It could also be a mechanical error caused during reporting by your lender.
Errors due to Identity Theft
The above-mentioned errors are mostly oversight or mechanical errors. However, error due to identity theft is graver in nature.
When you come across these kinds of errors, it means that someone else has fraudulently used your identity to obtain some form of credit. You might have been a victim of cybercrime too. When you come across situations of identity theft, it is important for you to analyse how and where your identity might have been stolen. It is necessary that you change your passwords immediately and also report the same to the Cyber Cell of the Police Department.
One of the main components of your credit report is your credit accounts, which contains all the loan and credit card accounts owned by you. The credit report also shows those accounts that are closed. Following are the account errors that may be there in your credit report.
Inaccurate Accounts Under Your Name
It is possible that accounts that you do not remember opening are shown as open under your credit report. This may be rare for loan accounts but is quite common for credit cards. Before the introduction of KYC norms, there have been instances of credit cards being issued to individuals without proper documents or solicitation.
If you notice such accounts under your name, it is good to get them closed after reporting the error.
Closed Accounts Being Shown as Open
Your credit report also shows accounts that are closed. A closed account conveys that you have satisfactorily paid back all the loan or credit card dues. While open accounts mean that there is some outstanding in the account and you need to pay that off. An open loan account which is way past its due date is a big red flag that can signal your future lenders that you are unfit for further credit.
If closed accounts are being shown as open, it is time you reported this error with documentary proof so that you can get it cleared at the earliest.
Accounts wrongly being shown as Delinquent
Delinquent accounts are those accounts which are way past their dates of payment. Typically, delinquency is reported at 30, 60, 90 and 120 days past the payment due date. For credit card accounts, delinquency is reported when even the minimum amount due is not paid.
Generally, lenders give you a leeway of a month or two and try to remind you with an email/phone call. Only past this period, an account is reported as delinquent.
When an account is being shown as delinquent inadvertently, it is a grave error. Because a delinquent account could lead to a 100 points drop in credit score. Also, no lender would like to lend to an individual with a delinquent account.
Same debt being reported more than once
The number of debts in your account matter a lot to your credit score. The more the number of debts without corresponding income will result in difficulty in getting further credit.
Similarly, if a debt is reported twice, it will give you fewer opportunities to avail credit. It might also be possible that while 2 debts are shown under your account, only one is being shown as serviced (the one you are actually repaying) and the other may be shown as delinquent.
Though this error may be a result of wrong reporting, it can have serious consequence. Errors of this sort might be easy to clear off but make sure you do it at the earliest.
Accounts with incorrect credit limit
Credit limit associated with credit card is an important determinant of your credit utilization ratio.
|Credit Utilisation Ratio = Amount Spent on Credit Card / Credit Limit on your Credit Card|
When your credit report shows a lower credit limit than actual, you are at a risk of your credit utilisation ratio being reported as high, which is a point of concern. If your credit limit is being wrongly reported, make sure you bring it to the report it to the credit bureau and get it rectified.
Accounts with Incorrect Balances
Incorrect balances on your loan account may land you in trouble. If a higher balance than actual is shown, you may lose out an opportunity to avail credit in future. It may also end up showing your account as overdue. Make sure correct loan account balances are reported in your credit report.