Credit Report – Why it is important and what you need to know?

You must have probably read about a credit report in the personal finance blog or your financial institution must have asked for the same. Well, it is important for every individual to know what a credit report is and why it is important.



What is a Credit Report?

A credit report is a concise informational report about your debts, bills paid, your residential status, your employment or business status, any judgments entered, and any home or vehicle owned by you. It compiles all the details about your financial status so that one gets a glimpse of how you handle debit and credit accounts.


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Importance of a Credit Report

  • If you are on the verge of applying for a loan or a credit card, then the bank or the financial institution will first check your credit report. Your credit report will act as a barometer of your financial condition and will determine whether you can repay the loan amount or make the credit card payments or not.

  • A credit report is also necessary while applying for an automobile loan or a home loan. So, even buying a dream house requires a good credit report score.

  • In some cases, even landlords ask for a credit report to determine whether the tenant can pay the rent on timely basis or not.

  • Some employers also check credit reports of prospective employees during the application process.


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Things to know about a Credit Report

  • High credit scores portray positive information about your credit standing while a low credit score depicts a negative one.

  • Before applying for a loan or a credit card, it is better to understand your credit score. One can acquire a credit report for free or for a nominal charge on websites such as cibil.com and paisabazaar.com.

  • Always pay bills on time and maintain unused credit in standard amounts.

  • Use your unused credit only when a need arises. This will help you in maintaining a good credit score.

  • Apply for a credit report on an annual basis, and before applying for a new liability.


CIBIL report*


CIBIL report is the report made by CIBIL that contains your credit history with all the different lenders. It is a report that provides the details of an individual’s borrowing history and repayment record that then shows the prospective lenders what the odds are that you will pay your money back.. The CIBIL report includes the following information:


CIBIL Credit score Demographic details of an applicant (name, age, gender and address) Employment and earning detailsDetails of hard enquiries made by potential lenders when they receive your loan/credit card applicationRecords of all previous and current loans along with your track record on paymentDetails on any unpaid defaulted loans and loans settled with the bankTotal credit limit on your credit cards and the amount spent monthly


The CIBIL report hence provides the future lenders with Data points on the applicant’s creditworthiness on the basis of previous and current credit behavior. That is why the the lenders take the lending decision based on the CIBIL report.


Seeking a credit report is a necessity in this modern age. It is the sole source of information about your financial standing. If your credit report shows a low score, then you can obviously work on it. It is better to keep a tab of your credit score to avoid any chaos in the future, especially before applying for a new loan or a credit card.


Reference:

https://www.mymoneykarma.com

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