A credit report is a document that is used by lenders and creditors to see if you are a creditworthy individual. Credit reports are prepared by Credit Information Bureaus (CIBs).
There are four CIBs in India – Transunion Cibil Ltd, Equifax Credit Information Services Pvt. Ltd, Experian Credit Information Co. of India Pvt. Ltd and CRIF High Mark Credit Information Services Pvt. Ltd.
A credit report contains your financial history related to all forms of credit availed by you such as home loan, personal loan, car loan and credit cards.
From January 1, 2017, the RBI has mandated that the CIBs should provide one free report per year to consumers. As there are four CIBs in India, this means that you can access four free reports per year.
How is it prepared?
Different bureaus may give different scores as their rating parameters and algorithms vary, but all credit bureaus in India assign a score in the range of 300 to 900. Differences in score are not a cause for concern. However, you should monitor the data related to your credit history in the report and contact the redressal desks in case of any mistakes.
Why it matters
Whenever you apply for a loan, the lender asks a credit bureau to check if you have paid earlier dues on time. A range of 750-900 is considered a ‘good’ credit score. A score lesser than 750 makes you a ‘risky’ customer for a loan or credit card. While a high score does not guarantee that the loan/credit card will be granted, a low score will affect your application negatively. If you have a high credit score, banks will be more forthcoming in offering benefits such as higher loan amounts at lower interest rates, faster processing of loans and longer repayment period.
How to improve it
A credit score takes time to build. Consistency is key here. Ensure that you always repay your loans and pay your bills on time for a high credit score. Sudden repayment of loans does not increase credit score.
To improve your credit score you can take the following steps:
- Make payments for your loan dues on time
- Reduce the number of loans you take in a year.
- Ensure that your debt-to-income ratio is low.
What can affect it negatively
- If you miss the date for repayment of your loans, bills and so on, your score is affected. Part payments also affect the score negatively.
- Having too many loans or credit cards can bring down your score as it signals credit-hungry behaviour.
- If you are acting as a guarantor to someone, make sure they are creditworthy as your credit score can be impacted if he/she defaults.
In today’s fast evolving economy, credit is fast replacing cash as the means of payment. In such a scenario it is very important that we become aware of and work towards increasing our credit score.