Credit report plays an important role during the approval of loan and credit card applications. Lenders evaluate your creditworthiness on the basis of information compiled in your credit report. Credit scores calculated on the basis of this information are also being increasingly considered while setting interest rates for new borrowers and evaluating job applicants. These make it very important for every individual to fetch their credit reports at regular intervals.

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Here are some major pointers that you should closely review while reading your credit report:

Credit report enquiries

Credit report enquiries include both, hard and soft enquiries. Each time you apply for a credit card or loan, the lender will fetch your credit report from credit bureaus to check your creditworthiness. Such requests are considered as hard enquiries and each of them reduces your credit score by a few points. Soft enquiries, on the other hand, refer to self-initiated credit report requests and those initiated by lenders while providing pre-approved credit card or loan offers. These enquiries do not reduce your credit score.

If you spot an unknown hard enquiry in your credit report, report it to the concerned credit bureau for rectification. Remember that an unknown hard enquiry can also be a sign of identity theft or fraud.

Credit account details

Your credit report includes all your active credit cards and loan accounts, as well as those closed recently. Credit bureaus factor in your age, repayment punctuality and utilisation ratio of various credit facilities along with the recent credit applications and credit mix while calculating your credit score. Thus, any wrong or missing information regarding any of your active or past credit facility can adversely impact your credit score and your future loan and credit card eligibility.

For example, borrowers with a higher share of secured loans are scored higher by credit bureaus and hence, a missing secured loan in your credit report would adversely impact your credit mix i.e. the ratio of secured and unsecured loans. Thus, always ensure to check whether the information related to your loan and credit card accounts have been accurately listed.

Credit repayment details

Credit report lists repayment history of a borrower highlighting whether loan repayments were made on time. Lenders closely study this to analyse past repayment history and predict future repayment behaviour. Thus, ensure to check whether information captured in the repayment section are the same as your loan account or credit card statements as any missed or wrong information may send a wrong signal to lenders and thereby, reduce your loan eligibility. If not, contact your lender and the bureau to make the required changes.

Personal details

Your credit report includes your personal information, such as your name, PAN, mobile number and mailing address. However, your credit report may continue to list older details in case lenders fail to update bureaus regarding any changes in personal details requested by you. As lenders fetch your credit report while evaluating your loan and credit application, any mismatch in personal details mentioned in your credit report and credit application may lead them to reject your application.

Credit utilisation ratio

This is the proportion of the total credit limit utilised by you. For instance, if you have two credit cards with credit limits of Rs 1 lakh and Rs 1.5 lakh, with outstanding balances of Rs 15,000 and Rs 10,000 respectively, your credit utilisation ratio for that month is 20 percent. Usually, lenders prefer to lend to those with a credit utilisation ratio of 30 percent or less as borrowers with higher credit utilisation ratios are considered as credit-hungry and hence, more likely to default in future. If you too are frequently breaching 30 percent of your total credit limit, then request your lenders to increase your credit limit or apply for an additional credit card or credit line facility.

Checking your credit report thoroughly would not only help you spot errors and frauds, but it would also help you strategise on how to increase your credit score. Ensure to fetch your free credit report from each of the bureaus at least once a year. Alternatively, you can fetch your free credit report and their monthly updates from the online lending marketplaces.

Radhika Binani is the Chief Product Officer at Paisabazaar.com.

First Published:Apr 25, 2019 6:00 AM IST