What is Credit Report & What is its Importance ?

A credit report is basically consolidation of how an individual has dealt with his/her credit accounts, repayment history. It shows open accounts, closed accounts where you are late on repayment and where you are not late, all these factors are used to generate credit score .Along with these it includes other information that banks, Microfinances report to respective credit bureaus(CIC). A credit report also includes information on credit cards, car loans ,mortgages etc. This report helps financial institutions to decide whether the customer is legitimate and will repay the money that is borrowed.

There are 4 Credit bureaus in India, they are Experian, CRIF, Equifax, CIBIL(TransUnion).

The credit reporting company’s role is to receive, compile and maintain the history that is provided by the financial institutions. Credit Reporting companies don’t make decisions whether a consumer qualifies for a loan or credit card. These decisions are made by “lenders” or “financial institutions”.

Some financial institutes may not report to all the credit bureaus, they may report to one or two bureaus.

Information of each of the credit reporting companies vary and they have their own factors/rules to come up with a credit score.

Everybody should get a copy of their credit report at least once a year, because of following reasons:

• There are very high chances that all credit reports have at least one serious error in them.
• Another important factor is that you will get to know if someone is taking your personal information for buying credit cards using your identity.

What does your credit report consist of ?

Every credit report consist of following information:

1. Personal Information: It includes information like name, date of birth, address etc.
2. Account History: This section consists of information that is provided by financial institutes and lenders. It includes information like payment history, different types of accounts, date on which these accounts were created, loan amount, balances etc.
3. Credit Inquiries: This section includes information of hard and soft credit inquiries and companies who have pulled individual credit reports.

4. Public Records: It includes information on bankruptcies, foreclosure and tax liens.

Hard Credit Inquiries(hard pull) Vs Soft Credit Inquiries(soft pull):

Hard inquiries are those which financial institutions, lenders or credit card issuers invoke in order to check your credit when making a lending decision. Usually they occur when an individual applies for a loan or credit card.

There are very high chances that a hard pull can lower your credit score by a few points. So one must think before applying for too many credit cards or loans in short intervals. Multiple hard inquiries in short periods of time could lead banks and lenders to consider you a high risk customer. These inquiries can harm an individual’s credit score for a few months and may last on the credit report for about two years.

Few Scenarios where Hard inquiries made are:

• Personal Loans
• Car loans
• Credit Cards
• Student loans

Soft inquiries happen when an individual is checking his own credit report. One can do a soft pull in order to understand how his/her credit score is reported with various credit bureaus.

These inquiries won’t impact your credit score. They also help in understanding the errors in credit reports and you will get to know if someone is taking your personal information for buying credit cards using your identity.

Few Scenarios where Soft inquiries made are:

• Checking your own credit score
• Pre Qualified credit card offers

Submission of Borrowers Data to Credit Bureau:

What are the challenges while submitting borrowers data to CIC’s?

• Financial institutions have to populate borrower data and submit it manually to the respective credit bureau. Hence becomes a tedious job for them while doing a manual submission.

According to the RBI guidelines, the committee has come up with an agreement that all banks/financial institutions should submit the data in Metro 2 format which is not an industry standard.