Ultimate Guide to Understanding Credit Report
One of the first things creditors do when evaluating an applicant's creditworthiness is assess their credit report and credit score. However, despite its significance for a loan application, many find it hard to understand their credit report.
Here is the ultimate guide to help you understand your credit report:
What is a Credit Report?
In simple terms, a credit report is a detailed record of an individual's or a business's financial history. It includes information about credit accounts, payment history, outstanding debts, credit inquiries, and public records such as bankruptcies.
There are two types of credit reports:
Personal Credit Report (PCR)
As the name suggests, an individual or personal credit report contains information about the individual's financial activities, including credit cards, loans, mortgages, payment history, and any negative records such as late payments.
Business Credit Report (BCR)
The Business or Company Credit Report provides a comprehensive credit profile of your organisation. It includes important information such as organisation details, credit score or rank (if applicable), credit summary, account history, and inquiry history.
The BCR gives a detailed overview of your organisation's credit performance, including open and closed credit facilities, repayment history, and inquiries made. Keeping tabs on your business credit report is crucial to ensure you have good credit health and can avail of better business loans.
Why is it Important to Check your Credit Report?
A credit report provides a comprehensive overview of how individuals or businesses manage their finances, handle liabilities, and utilise and repay credit. It almost serves as a guiding document for lending institutions, for determining loan terms, interest rates, and other conditions. So, any inaccuracies in your credit report can hamper your efforts of securing a loan or getting favourable loan terms.
Checking your credit report regularly can help you identify, report, and rectify these inaccuracies, prevent any fraudulent activity on your account, and maintain healthy personal (and business) finances.
How to Check Credit Report?
You can quickly check your personal or business credit report online anytime. When individuals or companies check their own credit reports or when lenders and creditors conduct pre-approval or background checks, they are known as 'soft inquiries.' Soft inquiries do not impact your credit score and are typically performed for informational purposes or to assess creditworthiness preliminarily.
To check your individual or personal credit report, you can access it from credit bureaus by providing the information required, selecting the report type, and verifying your authentication request.
Checking your company credit report is a more comprehensive process. . For a company credit report, you first need to provide the details required on one of the credit bureau's websites, verify your contact details with OTP, fill out your business details, pay the credit report processing fees, and upload the necessary supporting documents. Once the shared documents have been successfully verified, you can expect to receive your report within 7 business days.
What is in a Credit Report?
A credit bureau report commonly contains information about:
This includes details such as name, address, contact details (email address and phone number), and other personally identifiable information (PAN or Aadhar number).
Credit Account Information
This is a snapshot of every credit account established by an individual or business, including the type of account, date of opening, loan amount, account balance, and repayment history.
This section outlines the hard inquiries made by lending institutions on the individual. Although consecutive hard inquiries may negatively affect the credit score, soft inquiries do not impact the credit score.
Bankruptcies and Public Records
This section reflects bankruptcies and other relevant public records relevant to loans.
A business credit report has all these sections except the identification information includes details about the business, such as the nature of the business, office address, and related parties.
How to Resolve Errors on Credit Reports?
Checking your credit report regularly can help you track, report, and rectify errors that can harm your credit score. Some of the most common errors in a credit report include:
- Identity errors
- Mistakes in the information provided.
- Mistaking your account for someone else’s or vice versa
- Account errors
- Closed accounts reported as open or vice versa.
- Inclusion of accounts where you are an authorised user, not an owner.
- Accounts reported as late despite timely payments.
- Incorrect opening, last payment, or delinquency dates
- Balance errors
- Incorrect account balance
- Incorrect credit limit
- Duplication errors
- The same debt listed multiple times.
- Fraudulent transactions or accounts
- Unknown accounts
- Unknown (or unauthorised) transactions
In case you notice any of these mistakes in your credit report, the first step to correct the error in your credit report is to verify the discrepancies and raise a dispute with relevant authorities (or credit bureau) to rectify them.
Also, it is important to note that disputing an error in your credit report does not guarantee an improvement in your credit score. Additionally, your credit score may not improve if lenders do not update the credit bureau even after you raise a dispute about an error.
Credit report is integral element of any loan application. And you must understand your credit report to access credit with the most favourable terms possible. With information like identification information, credit account information, credit inquiries, bankruptcies and public records, a credit report offers a summary of your credit history and insights into your creditworthiness.
Regularly checking your credit report can help you maintain your (or your business's) financial health and improve your credit score while identifying and reporting any inaccuracies or fraudulent activities on your accounts. Therefore, it is crucial to stay vigilant, understand your credit report and maintain your financial health with the help of a credit report.