What is a Credit Report and Why is it Important?

Before we dive into the details of the credit report, let’s take a look at a few things you should know about credit reports.

  • A credit report is essentially a detailed summary of the user’s credit repayment history
  • Banks, financial institutions, and lenders use credit reports to determine whether or not to provide credit to the applicant and on what terms
  • A credit report that is free of errors can help you get a better credit score
  • The user should monitor the credit report to ensure that all of the information is correct, complete, and error-free

What is a Credit Report?

A credit report is a summarized version of the borrower’s credit history that shows how he or she has managed credit accounts, payment history, outstanding balances, previous debts, and so on. It combines the borrower’s personal and professional information, such as an address, date of birth, PAN details, employment history, types of bank or credit card accounts, outstanding balances, late payments, and so on. A credit report summarises a borrower’s credit history and related data.

It is significant because-

  • It assists creditors, lenders, and other financial institutions in determining whether or not to provide credit or a loan to the applicant and on what terms.
  • The employer uses the credit report to determine whether or not to hire an applicant. It should be noted that the employer must obtain the applicant’s permission to access his or her credit report.
  • Insurance companies use credit reports to determine whether or not to provide insurance to an applicant and at what rates.
  • Telephone and utility companies may use a credit report to determine whether or not to provide services to an applicant.

What are the Information Required to Generate Credit Report?

The following information is used to generate a credit report:

Personal Details

  • Applicant’s full name, as well as any alternate names used in the past for credit applications
  • Date of Birth
  • Address of the Applicant Associated with the Credit Accounts
  • Contact information associated with the applicant’s credit account
  • Current and previous employers (s)

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

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How is the Credit Report Created?

Credit bureaus create, manage, maintain, and update the borrowers’ credit database in a credit report. Credit-related data is collected from lenders, credit issuers, and financial institutions and stored in credit bureau databases. The bureaus create a detailed credit report for the borrower based on the information gathered.

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

Because the credit report contains sensitive information about the borrower, it cannot be accessed by anyone. Credit bureaus specifically provide credit reports to the following individuals/parties:

  • Employer (current or prospective) of the borrower (only if the borrower agrees)
  • Lenders from whom the borrower is seeking a loan
  • Insurance companies that may have issued or will issue an insurance policy to the borrower
  • Utility or telephone companies to decide whether or not to provide services to the borrower.
  • Government agencies interested in reviewing a borrower’s financial status

A credit report can also be shared with third parties if the borrower makes a written request. Credit bureaus can also provide a borrower’s credit report if required by a court order.

What are the Factors that Affect the Credit Report?

Apart from personal information, the credit report is influenced by a variety of factors. Some of them are listed below –

  • Irregular payment history
  • Delayed payments
  • Outstanding balances
  • Half-settled payments
  • Errors in the report
  • Hard inquiries
  • Over-utilization of credit utilization ratio

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FAQs
What role do credit bureaus play in determining credit application status?
Credit bureaus only generate credit reports and distribute them to lenders, banks, and financial institutions.
How long does negative information such as late payments, delayed payments, and so on stay on a credit report?
Negative information on a borrower’s credit report can stay on their record for nearly 7 years.
How can I correct the information on my credit report?
To correct any incorrect information on your credit report, you must file a dispute and request that the information be corrected by the concerned authorities.
Can a lender see my credit report as well?
Yes, if necessary, a lender may request access to your credit report in order to determine whether or not to grant you a loan.
Can you check your credit for free?
You can check your credit score for free on the Paytm application.
What is the best way to check your credit report?
Users can opt for any of the following ways to check their credit report:
  • Login in to the Paytm application
  • Visit AnnualCreditReport.com.
  • Call (877) 322-8228
  • Mail: Download and complete the Annual Credit Report Request Form. Send the completed form to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281
Can I download a copy of my credit report?
Yes, users are entitled to a free credit report every 12 months. He or she can request this from any of the credit bureaus, including Equifax, Experian, and TransUnion. Users can also request a copy of their credit report from AnnualCreditReport.com.
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