How to get your Credit Score and Credit Report

We have seen a lot of changes and developments in the financial sector particularly in the area of lending. One of the major developments is a credit bureau set up in India. This has changed the credit assessment procedure of lenders, who can now judge and evaluate the credit worthiness of a customer or potential customer by analyzing individual credit scores.

In simple terms a Credit Score is a measure or indicator of how promptly you pay your loans, credit cards, telephone bills and insurance premiums, etc. Earlier this was only restricted to loans, but gradually expanding to include various other forms of payments – utility payments, insurance and others. Before getting to “how to get your credit score” lets understand who gives out the score.

If you have watched Hollywood movies or seen detective serials on television you might have noticed how detectives and police officers track a database to find clues about an individual.

People who have watched “CID” on Sony TV would recall how ACP Pradhyuman and his team of officers try to track a person based hand impression, hair, DNA samples, etc.

Similarly a Credit Bureau shares relationship with banks and financial institutions to collate data on credit worthiness of all borrowers. This centralized database can be accessed by banks or lending institutions to make faster and informed lending decisions.

Who gives a credit score? What does it convey?

CIBIL (Credit Information Bureau India Limited) is the first player to set up credit bureau in India in 2004. Later a few other players including Experian, High Mark, etc are entering this space which is growing in tandem with credit growth in the Indian economy.

A credit score is a 3-digit number ranging from 300 to 900 which reflects the information across lenders and various loans. A higher credit score indicates that the borrower is good or prompt in his payments.

Contents of a Credit Report

A credit report is a comprehensive document that provides a borrower’s personal details as well as data and information pertaining to various loans and credit facilities. For instance details of bank accounts, auto loans, home loans, personal loans, credit cards dues, etc are shown. Further, more information on length of overdues, amount of overdues, latest payment, etc would also be covered.

Importance of credit scores for borrowers and lenders

Benefit for Lenders

In the past banks and financial institutions had to rely on their own internal assessment and systems to judge a customer who applies for loans/credit facilities. Although there were ways to track or judge an existing customer, it was practically difficult to predict the credit worthiness of a new customer.

For instance if Lets assume Mr.Prasad has taken a home loan from Bank X and an auto loan from Bank Y. In the recent past he has defaulted on his auto loan payments. Now if he applies for a personal loan from Bank Z, he would get the loan based on other documentation without any trouble in a scenario where there were no credit bureaus or credit scores (say 5 years ago).

Today with the same situation if Prasad applies for a personal loan his application would be rejected because Bank Y would share the details of his auto loan with the credit bureau.

Benefit for Borrowers

A credit score is well intended to help banks/lenders to weed out defaulters and people with a bad credit standing. However, borrowers who promptly pay their dues and are prudent in their credit habits will benefit from a good credit score.

Borrowers with high scores can get a favorable interest rates, higher loan amount or get other favorable terms.

To credit scoring system will also help the genuine borrowers to get good terms for their prudent credit habits. In the absence of this system assume A and B borrow from the same bank for the same type of loan, both would get similar terms because there was no system to judge new borrowers. However, if A has a better credit score he would get a better or lower interest rate compared to B.

How to get your credit score?

Banks and financial institutions who are members of CIBIL have access to credit information reports of individuals. Similarly individuals and borrowers can access their credit report and credit score by paying a fee.

Rejection of Loan Application

Your loan application can get rejected due to a bad credit report. In this can you can work towards resolving this as follows.

#1. If this is true then you need to work on your repayments. Probably you have too many loans or a large amount outstanding already and it may not be worthwhile lending to you. Now its time to accept you mistake and try resolving this issue by saving enough and repaying as much as you can until the outstanding is paid off.

If you are unable to pay then approach your bank and discuss your situation. Your bank manager could provide you some more time or restructure your repayments to help you tide over the crisis. Remember, that your loan is still outstanding and only a small leeway is provide to help you come out of a bad situation.

#2. If this is false and you have been prompt on your repayments, then you can get in touch with CIBIL and your bank or lending institutions and get the discrepancies sorted out.

#3. In case of wrong charge that is under dispute and later got resolved, you have to get in touch with bank and CIBIL and get it resolved.

#4. If it is a one-off case of a delay or default which got resolved subsequently, the effect of the same may not be updated or reflected in credit report.

For example if Mr. Shakeel who defaulted on his home loan payment for two months (due to emergencies) and later settled the same by restructuring the loan and paying part of the dues. However, in the meantime bank has reported the default to CIBIL.

Now it is important for Shakeel to ensure that his bank updates the records and informs CIBIL of the changes. Shakeel can by a credit report and check to make sure that he has a good track record for future loans.

#5. Identity Theft: Today there are several cases of hacking, phishing and other forms of identify theft, with respect to online banking accounts, credit cards, etc. There have been cases where a person’s credit card has been misused without his knowledge.

This case happened to Mr. Ankit, who receives a bill with huge outstanding and purchases which has been done by a fraudster. He avoids paying the bill and his card is frozen by the bank. When he applies for a new card with another bank his application is rejected given that he is a defaulter.

This has to be resolved by the individual with the bank and informed to CIBIL as well.

How to get your credit score – final words

Although a credit bureau provides valuable data and information, it is not 100% fool proof. Hence it becomes your responsibility to check your credit report for any errors, discrepancies, etc so that you don’t face any nasty surprises in future.

If you are contemplating taking loans its better to get your credit report to know your credit score and how you have fared. As an old saying goes ‘prevention is always better than cure’, the same applies to credit reports too.