How To Read Your Credit Report?

A credit report is one of the most vital financial documents. It is the first thing the lender looks at after you submit your application. If the credit report contains several negative remarks or if the details do not meet the lender's qualifying conditions, then they are more likely to reject your loan application. 

Finance experts recommend reviewing this report at least once a year. If you are unfamiliar with lending terminology or are applying for debt for the first time, you should first learn how to read a credit report.

What is a Credit Report?

A credit report is a financial document that gives insight into your financial behaviour. It contains information about your past and current debts, as well as details about your EMI payment pattern. This report is prepared by registered credit bureaus. The credit bureaus develop this document after gathering information from lending institutions, insurance companies, and other prestigious financial institutions.

How to Read a Credit Report?

Credit bureaus provide information in different formats. However, the information contained in each credit report is the same. Here is a breakdown of what is included.

1. Personal Information

This section contains your personal information, such as your name, date of birth, address, account information, and a few other details. While reviewing this section, keep an eye out for a misspelt name, incorrect address, or incorrect bank information. If you find any, notify the credit bureau immediately by filling out the request form on their website. Incorrect personal information can sometimes be a sign of credit fraud.

2. Employment Details

Your credit report contains information about your current and previous employers, which is displayed in the personal information section. Some credit bureaus also keep track of your employment history.

Remember that your employment history has no bearing on your credit score. It is only there to help with identity verification.

Also Read: Can A Personal Loan Help You Improve Your Credit Score?

3. Credit History

This is perhaps the most exhaustive section on your credit report. It includes the following pointers.

• Credit Length

It reflects ongoing and closed credit accounts over the last seven years. The term "credit account" refers to revolving credit, home loans, joint loan accounts, and individual debts.

• Payment History

This shows all of the payments you've made on your past and current debts. If you previously delayed paying your monthly obligations, the number of days you were delayed will be reported as 30, 60, 90, and so on. Remember that if you miss three consecutive EMI payments, the lender will classify your account as Non-Performing Assets (NPA).

• Lenders Information

This includes the names of all previous lenders from whom you obtained a loan.

4. Credit Limits

If you have revolving loans, such as credit cards or a line of credit, the approved amount will appear in this section. 

You must carefully review this section because the possibility of errors is high due to your lender failing to send the update to the credit bureau. The list of possible errors is as follows.

• A closed credit account that is still listed as active.
• Cleared EMIs that are shown as unpaid.
• A single loan appears multiple times as different credit.

5. Public Records

Public records have the most negative impact on your credit report. They are displayed under payment history, which accounts for 35% of your credit score. Credit bureaus obtain this data from government and judicial sources such as courts. Public records contain information on bankruptcy, liens, and non-payment legal actions.

This information is not confidential and is available on the credit bureau's website. Moreover, public records remain on your report for at least a decade.  

6. Credit Inquiries 

Credit inquiries reveal who has requested your credit report and when. They are classified into two types.

• Soft Enquiry

It occurs when the lender with whom you have ongoing debt or your previous lender requests your credit report in order to decide whether to make a pre-approved loan. The soft enquiry has no bearing on your credit score. 

• Hard Enquiry

It happens when you apply for a new or top-up loan, a credit increase in a revolving loan, or a mortgage. If you apply to multiple lending institutions at the same time, your credit score will suffer as a result of multiple hard inquiries.

How do I Resolve a Credit Report Discrepancy?

You can settle the dispute by following the steps below.

• Visit the official website of the credit bureau.
• Assess your credit report.
• Fill out the online dispute form and upload the supporting documents for your rectification request.
• It can take up to 45 days for the credit bureau to respond.
• Check the updated report after the bureau sends it to see if any changes were made.

 Also Read: How To Improve Your Credit Score After A Loan Settlement?

Final Words

If your credit report is full of negative remarks, you will not be approved for any kind of loan. However, you can get out of this situation by opting for debt foreclosure, obtaining a consumer loan and making timely payments. Having both secured and unsecured loans in your debt portfolio is also helpful. If your lender is to blame for your poor creditworthiness, file a dispute right away with the credit bureau and have it resolved.