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What Is a Credit Report And Why Is It Important?

While reading a financial newspaper or applying for a credit card or loan you may have heard about credit report, but have you ever thought what is it and what is the importance of credit report? Well, most of us do not have much understanding about a credit report and how does it affect us. However, in this age, where there are credit card and plastic money, it is essential to know the definition and importance of credit report by an adult. This is because it is one of the most crucial documents of one’s financial life.

What is a credit report?

A credit report basically provides your creditworthiness by compiling information about your financial accounts such as your debit and credit accounts. This includes all the information about the debts that you have taken, where you live, how you payout your bills, where you work, have had lawsuit judgments against you, whether you have ever filed bankruptcy, or whether you have had the vehicle repossessed, or home foreclosed. In this way, a credit report contains a lot of information related to your credit and sometimes an annual report of credit can be of 100 pages.

What is included in your credit report?

Your credit report contains the following information:

  • Information on Credit and Debit Accounts: The credit report contains detailed information related to your previous and current credit and debit accounts. This also includes your credit cards, installment accounts such as mortgage, credit builder, or student loan accounts. Under this section, account numbers, creators name, payment history, current balance, and status of the account are also included.
  • Your Personal Information: This includes your full name, employment information, date of birth, former and current address, personal identification number like PAN card. When you apply for a new loan or new credit card, then the money lender like a bank or other financial institution may ask various questions related to your personal information for verification of your identity and to prevent fraud.
  • Inquiries: This section contains a list of companies that have asked for your credit report in the past years.
  • Public Records: All the information related to your bankruptcies, previous liens, and court rulings.

You can get your credit report from any of the below mentioned six credit reporting agencies that are registered under the Security and Exchange Board of India (SEBI):

  1. TransUnion Credit Information Bureau (India) Limited or CIBIL
  2. CRIF High Mark
  3. Credit Rating Information Services of India Limited (CRISIL)
  4. Equifax
  5. ICRA
  6. Experian

When should you check your credit report?

You should check your credit report at least once every year to ensure the information listed in the report is correct. Doing this, you can ensure to prevent yourself from identity theft. If you are going to apply for a major loan, then you should check your credit report more frequently. Most of the credit reporting bureau provides at least one credit report for free every year. Therefore, for more than one reports, you may need to pay some amount.

Why is a credit report important?

Since most of the financial institutions or banks check your credit report to make an informed decision about your credit history and your creditworthiness. Banks check credit report before they approve any loan or credit card even including an auto loan or mortgage loan. Sometimes, the employers also check your credit report as a part of their application processing. These are some of the importance of credit report and these are the reasons why it is considered as one of the major sources to provide your financial information 

Your credit report from different credit reporting agencies may vary. However, a good credit record provides positive information for your finances.

Tips to improve credit history and increase credit record

A credit record is a three-digit number that is generated by a formula. Different credit reporting agencies may provide different credit history. However, a good credit history is necessary for improving your creditworthiness. Below we are discussing some of the tips to improve credit history:

  • Pay your credit card bills on time and regularly.
  • Apply for credit or loan only when it is essentially required.
  • Keep your credit inquiries low.
  • Keep reasonable unused credit amount.
  • It is suggested to check the credit reports regularly at least once in a year.
  • Raise a query if you find any dispute in your credit report. 

Final Words!

A credit report affects your life in many aspects. Therefore, it is necessary to build a good credit report. This can be done by establishing good habits of credit as soon as possible. A number of money lenders rely on a credit report for issuing your loan or a credit card. So keeping a high credit report is always necessary.