What is a credit report?
A credit report is a history of your credit behaviour and contains detailed information on all your loan and credit related transactions with banks, credit card companies and other lenders. It can contain details of your credit activity from 7-10 years earlier. It is issued by one of the three credit bureaus, or credit rating agencies, in operation in India – CIBIL™, Equifax, Experian and CRIF High Mark.
Lenders use the data in the reports to evaluate your ability to make loan repayments and to decide whether to lend to you. If they approve your loan, the information in your report also helps them determine how much to lend, at what rates, and for what period.
What kind of information does my credit report contain?
Your report will include the following details, among many others, that lenders pay attention to when deciding whether to approve your loan:
1. Percentage of on-time payments: Every time you make or miss a payment, your lender reports it to the credit bureau, which in turn makes a note of it on your report. If your credit report shows a consistent pattern of making all your payments on time and in full, then potential lenders feel confident that you will not default on your loan payments and will be inclined to approve your loan application. However, if you have a large number of missed, delayed or partial payments, there is a good chance that your loan application will be rejected. The greater the number of incomplete payments, the lower your chances of being approved.
2. Number of credit accounts and total credit limit: If you have too many outstanding loans or credit card accounts, lenders might get the impression that you are short of funds and need to apply for credit from multiple sources. However, it is also important to note that having too few credit accounts mean lenders will not have enough information about your repayment behaviour to make a lending decision. Similarly, if you have a high credit limit, it signals that lenders view you as a safe customer.
3. Age of the credit accounts: The longer you have a credit history, the more information there is for lenders to judge your repayment pattern. If you have very young (new) accounts with few repayments to show, lenders are unwilling to make a lending decision since they have insufficient data to determine your track record in making payments.
4. Credit score: Credit bureaus use a complex mathematical formula based on the above data plus many other factors to calculate your credit score. In India, the score ranges from 300-900. If you have a high score (above 750) you stand a good chance of being automatically approved for a loan and will be eligible for more attractive terms.
CreditMantri can help you obtain a free credit report, analyse the information in your report and highlight the areas you need to work on. This will enable you to focus on what needs to be done to improve your credit health.