What is a Credit Report and Why is it Important

Before getting started with understanding the credit report in detail, first, let’s first have a look at a few important thighs that you should know about a credit report-

  • A credit report is basically a detailed summary of the user’s credit repayment history

  • The credit report is taken into account by banks, financial institutions, lenders, etc. to decide whether to provide credit to the applicant and at what terms

  • An error-free credit report helps in scoring a better credit score

  • User should keep a track of the credit report to ensure if all the information is accurate, complete and error-free

What is a Credit Report?

A credit report is a summarized version of the borrower’s credit history showing how he/she has managed credit accounts, payment history, outstanding balances, previous debts, etc. It is a combination of the borrower’s personal and professional information like address, Date of Birth, PAN details, employment history, types of banks or credit card accounts, outstanding balances, delayed payments, etc. Overall, a credit report sums up the borrower’s credit history and related data.

It is considered important because-

  • It helps creditors, lenders and other financial institutions to confirm whether to provide credit or loan to the applicant and at what terms

  • The credit report is accessed by employees to decide whether to hire an applicant or not

  • It is used by insurance companies to determine whether to provide an applicant with insurance and at what rates

  • Landlords use the credit report to determine whether to provide an apartment for rent or not

  • The credit report might be taken into consideration by telephone and utility companies to decide whether to provide services to an applicant or not

What is in the Credit Report?

A credit report is generated by analyzing the following information-

Personal Details

  • Applicant’s full name along with an alternate name, if any, used in the past for credit applications

  • Date of Birth

  • Address of the applicant associated with the credit accounts

  • Contact details associated with the applicant’s credit account

  • Current and past employer

Account Details

  • Credit accounts details

  • Creditor/lender name

  • Account opening and closing date

  • Credit payment status

  • Credit limit for both- loan and credit cards

  • Total balance in the account

  • Payment history

  • Utility accounts or rental leases

Inquiries

  • Total number of hard inquiries and soft inquiries

How is the Credit Report Created?

Credit bureaus of India build, manage, maintain and update the credit database of the borrowers. All the credit-based information is collected from lenders, credit issuer, financial institutions and is stored in credit bureaus databases. By using the gathered information, the bureaus then create a detailed credit report of the borrower.

It must be noted that the credit report is not a concrete one-time report. In fact, it showcases the ongoing records of the borrowers’ latest information and credit activities.

Since the credit report has the borrower’s sensitive data, it cannot be accessed by anyone asking for it. Credit bureaus provide credit report to the following-

  • Lenders who have granted credit to the borrower

  • Borrower’s employer or prospective employer (only if the borrower agrees)

  • Lenders from whom the borrower is seeking a loan

  • Insurances companies that might have issued or will issue an insurance policy to the borrower

  • Utility or telephone companies to decide whether to provide services to the borrower

  • Government agencies who would like to review borrower’s financial status

A credit report can also be shared with third parties upon the borrower’s written request. Additionally, credit bureaus can furnish a borrower’s credit report, if required by court orders.

What are the Factors that Affect the Credit Report?

Other than personal information, there are multiple factors that affect the credit report. Listed below are some of those-

  • Irregular payment history

  • Delayed payments

  • Outstanding balances

  • Half-settled payments

  • Errors in the report

  • Hard inquiries

  • Over-utilization of credit utilization ratio

FAQs
What is the role of credit bureaus in deciding the credit application status?
Credit bureaus only create credit reports and provide them to lenders, banks and financial institutions.
For how long does the negative information like late payments, delayed payments, etc. remain in a credit report?
Negative information remains in the borrower’s credit report for almost 7 years.
How can I correct my information in the credit report?
To correct any false information in your credit report, you need to raise a dispute and request the concerned authorities to correct the information.
Can a lender also see my credit report?
Yes, if required, a lender can ask for access to your credit report to determine whether to provide you a loan or not.

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