Good and Bad credit Report

CIBIL report is not always bad. It’s an extremely good concept which is now taking shape in India recently. If there are two people A and B and A is a good guy and B is a bad guy, obviously A should get better rates of interest, faster processing, first right to loan. Whereas, guy B should get loan at higher rate of interest (because he is risky) and may be banks can even deny entertaining him at all.

CIBIL gives us the power to build our credit report. So if you become responsible and use your credit effectively and with planning, you can build a good credit history with CIBIL, which will help you in long run. Also note that taking a lot of loans without having the capacity is also a negative thing and that can affect your credit report.

Credit Information Bureaus and 'CIBIL'

All information regarding your track record on servicing your loans or cards or other debt products are updated by the financial institutions to the credit bureaus at regular intervals. The standard interval of update is on a month on month basis.

During such large amount of information flow from the financial institutions to the credit bureaus there is a good possibility of the financial institution wrongly or in accurately updating information.

For example you might missed a couple of payments and your account has become overdue and the financial institution would have updated the same with the credit bureaus but when you regularize the account the financial institution may not have updated this information and still show your account as overdue.

In some other cases you might have pre-closed a particular account but the financial institution has still not updated the same with the credit bureaus.

In a vast number of cases and in our experience where the customer has settled a bad loan, we often find that the settlement would not been updated with the bureau.

What does it mean when my Score is "NA" or "NH"?

A Score of “NA” or “NH” is not a bad thing at all. These mean one of the below:

a) You do not have a credit history or you do not have enough of a credit history to be scored, i.e. you are new to the credit system

b) You do not have any credit activity in the last couple of years

c) You have all add-on credit cards and have no credit exposure


It is important to note that while these Scores are not viewed negatively by a lender, some lenders’ credit policy prevents them from providing loans to an applicant with Scores of “NA” or “NH” (applicants with no credit track record). Hence, you may have better chances applying for a loan elsewhere.

What does it mean when my Score is "0" or "1"?

A Score of “0” or “-1” is not a bad thing at all. These Scores mean 1 of 3 things:

a) You do not have a credit history or you do not have enough of a credit history to be scored, i.e. you are new to the credit system

b) You do have had no credit activity in the last couple of years

c) You have all add-on credit cards and have no credit exposure

It is important to note that while these Scores are not viewed negatively by a lender, some lenders’ credit policy prevents them from providing loans to an applicant with Scores of “0” or “-1” (applicants with no credit track record). Hence, you may have better chances applying for a loan elsewhere.

What do you do when you spot a mistake on your credit report?

Typically, you check your credit report when your loan gets rejected and the loan provider tells you it’s because of some information on your credit report. But there is no need to panic! Mistakes on a credit report can be easily corrected with the CIBIL’s help. All you need to do is:

a) Purchase your CIBIL credit report

b) Identify the erroneous information

c) Provide name, address, date of birth, an Control Number and the nature of the error on the credit bureau’s website. This is known as a ‘Dispute Request’ in credit bureau parlance.

The Control Number is a unique 9-digit number found on the top right hand side of your CIBIL Credit Information Report and is generated every time a credit report is generated. It is very important to provide this number to the bureau, as it helps identify the CIBIL credit report on which you would like to ‘dispute’ information.


          

What is identity theft?

The easiest way to prevent Identity Theft is to regularly monitor your credit history.  Purchase your CIR 3-4 times a year and ensure that your credit history accurately reflects your credit usage and activity.  If you see Enquiries (loan applications) that you have not made, immediately.

How do you improve your credit history?

Your credit history, other than your income, is the single most important tool used by a Loan provider to evaluate your application for any loan or credit card application. Naturally, it’s important that you understand your Credit Information Report (CREDIT REPORT) and what it takes to maintain a credit history, so that is viewed favourably by Loan providers. A good credit history can be maintained by following these 7 simple rules:

• Rule 1: Always pay your bills on time. Late payments are viewed negatively by Loan providers and may affect the chances of your loan getting approved.
• Rule 2: Keep your balances low. While the balances on your loans will only reduce over time as payments are made, you must be diligent about making timely payments on your credit cards. Also, you should control your utilization. For example, if you have used Rs. 90,000 out of a credit limit of Rs. 1,00,000, this may be viewed negatively by  a Loan provider. It’s always prudent to not use too much credit. 
• Rule 3: Maintain a healthy mix of credit. Your credit history should contain a mix of a home loan, auto loan and a couple of credit cards. A high number of just credit cards may affect the chances of a loan approval. Why is it so, you may wonder. Although a credit card offers easy access to finance, it’s also by far the most expensive form of credit. More the number of credit cards with high utilization, larger are the payments resulting from its high rate of interest.
• Rule 4: Apply for new credit in moderation. If you have made many applications for loans, or have recently been sanctioned new credit facilities, a Loan provider is likely to view your application with caution. This ‘Credit Hungry’ behaviour indicates your debt burden is likely to, or has increased and you are less capable of honouring any additional debt.
• Rule 5: Think twice before closing credit card accounts. While, using credit cards may negatively impact your credit history, unused credit cards actually imply that you are financially secure. This makes Loan providers view your application more favourably.
• Rule 6: Monitor your co-signed and joint accounts monthly.  In co-signed or jointly held accounts, you are held equally liable for missed payments. This is extremely important because your joint holder’s negligence could affect your ability to access credit when you need it.
• Rule 7: Review your credit history frequently throughout the year. Unpleasant surprises in the form of rejected loan applications can be avoided by ensuring that your CREDIT REPORT accurately reflects your current financial status. So reviewing your credit history 3-4 times each year is imperative.

Though these general rules are important to keep in mind, each loan provider has its own policies to sanction a loan to an applicant.

It is important to note that your CIBIL TransUnion Score will begin to rise as you improve your credit history