A good credit score is a valuable asset today. As it reflects good credit behaviour in the past and lower probability of defaults in the future, it prompts the lenders to favorably treat borrowers with good credit score. Borrowers with good credit score receive faster approval of their loan and credit card applications at mostly lower rate of interest. Like their western counterparts, many Indian corporate like SBI have started to factor in the credit score of job applicants. However, most people realise the importance of credit score and credit report only when their loan or credit card application get rejected.
Here are the six reasons why you should periodically check your credit report.
Informs you of your creditworthiness: Lenders and credit card issuers periodically submit your loans and credit card details to the credit bureaus on the basis of which they calculate your credit score. Periodic checking of your credit report lets you know your present credit score and take corrective steps to improve it, if required. This will ensure that your loan or credit card application does not get rejected because of a poor credit score.
Helps detecting credit errors in your report: Credit report contains all your outstanding loans, EMIs and credit card balances on a given date. This information may be used by lenders to judge your credit card or loan application. For example, lenders may use your existing EMI and outstanding card balance amount to find out your ability to service future debt obligations. In such a situation, a clerical error by the lender or the credit bureau may negatively affect your credit approval. At present, periodic checking of your credit report is the only way of detecting such wrong information in your credit report. Immediately contact your lender or credit bureau on finding any wrong or outdated entries in your credit report.
Helps detect errors regarding personal information: A lender may reject your credit application due to the mismatch between the information on your credit report and credit application. Periodic checking of your credit report will allow you to confirm the accuracy of your personal information.
Helps in detecting identity theft: Identity theft happens when a fraudster steals or misuses your financial information to make financial transactions in your name. According to a report by Experian India on financial frauds, identity theft formed 77% of the total fraud cases during the first quarter of FY2016. The incidence of identity theft is further expected to increase with increased digital payment services. As a credit report lists all your past debt repayments and your current outstanding debt, periodic checking your credit report will detect unauthorised lending or credit card transactions in your name.
Helps avoid unnecessary hard enquiry on your credit report: A credit report enquiry raised by a lender is known as hard enquiry. Lenders ask for your credit report from bureaus whenever you apply for a loan or a credit card. These enquiries are then included in your credit report. Multiple hard enquires within a short period of time indicates credit hungriness, which negatively impacts your credit score. However, a self-initiated request for a credit report does not affect credit score. Thus, checking your credit report before making a credit application will let you know whether you have sufficient credit score for your credit approval. This will save you from unnecessary hard enquiries on your credit report.
Get customized credit offers with faster processing time: Generally, people first apply for a loan or a credit card, then the lender or credit card issuer checks your credit report and then, the lender finally approves or rejects your application based on their internal criteria. However, this process flow has been reversed with the advent of online loan and credit card aggregators. Now, whenever you apply for a credit report with online lending platforms, they analyse your credit report in detail and forward you the credit card or loan offers available on your credit score. This increases the chances of your loan approval at better terms and conditions. These customized loan or credit offers have a much lower processing time than conventional loans.
Currently, India has four credit bureaus— CIBIL Transunion, Equifax, Experian and CRIF High Mark. Each of these bureaus has their own scoring parameters. Ensure to get your credit report from each of these bureaus, at least once a year. Alternatively, you can also log in to various online loan aggregators’ websites to get your free credit report. Always ensure to apply for a credit report before making any loan or credit card application. This will save you from unnecessary hard enquiries on your credit report and let you know of the interest rates, offers, etc available for your credit score.
By Radhika Binani, Chief Products Officer, Paisabazaar.com
(Published in moneycontrol.com on January 19, 2017)