Credit Scores and Credit Reports are very important and familiar terms in most western countries due to frequent use of credit cards. However, these terms have taken India also now in its grasp for the past few years. With more Indians now using credit cards instead of cash, they are finding it very hard to understand how this system works. Credit scores are crucial data for checking loan eligibility as they would provide information of the person’s credit management, in the past. This way, a bank determines whether you are capable of paying off the loan.
Credit Information Bureau India Limited or simply CIBIL is a credit information company that gathers credit information of individuals around the country. The information about your credit activities is then analyzed to create a Credit Information Report, which is handed back to the banks to help them determine the loan eligibility of an individual. This being said, there are pieces of information that are not explained well by the Credit Bureau. The Credit Report does not have information on following factors:
Boost Your Score
CIBIL won’t let you know how you can better your credit scores. Simply, an average Indian quickly decides that the less you borrow, the better it should look on your profile. However, this can be just opposite to what is required. Having fewer loans under your belt can be very convenient to you; however, if you want to be approved for future loans, you need to have some credit history. This means that taking a loan and paying it on time, looks better on your credit report than taking no loans at all. Make use of your credit card and always make your minimum payments on time; this proves that you are good in paying your debts, and hence you can be trusted for a new loan.
Credit Scores and Credit Reports
Credit Scores and Credit Reports are two very different aspects. The Credit Report generally is a report on all your credit activity. This report will include all credit payments and loans and the enquiries done on your Credit history. However, Credit Score is a three-digit score given to you based on the analysis of the credit report and is not included in the Credit report. This means that in order to know your Credit Scores, you need to purchase it separately and the usual credit report does not have your score on it.
The Credit report does not have any information on loan eligibility or interest rates that you will get. Keep in mind that it is just a track record of your credit history. The interest rates and eligibility-related information is provided by the banks. This doesn’t mean that there is no point in checking your report. Checking your report at least once every year is good for your credit history. Keep in mind that applying for loans, when your credit score is not up to the mark, can further affect your credit scores.
If you check your CIBIL report, you may find many unknown enquiries listed on your report. It is easy to misunderstand those enquiries, as you have been told that frequent enquiries on your credit report can affect your credit score. There are two types of enquiries termed as hard enquiry and soft enquiry. The unknown enquiries are simply from companies and firms that would’ve reviewed your report, before approving their services to you. You have nothing to worry, as these reports are soft enquiries and don’t have any effect on your overall credit score.
The Credit Report is just a track of transactions and payments that you have made till date. This does not have information on where you need to improve, to get better credit scores. The improvement fields are to be understood personally to prevent misuse of the credit scoring system. The CIBIL Report won’t tell you what you need to do; it will just tell you what you have already done. You should personally calculate your loans and payments and make sure that the entire minimum required payments for your loans are paid on time.
Now you know what a Credit Report actually is and how it can be used to get easy loans. Check your Credit Reports annually and plan your loans and credits for the next year, wisely.