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A ll a b o u t Yo u r

Credit Reports
Looking for a loan? Wondering how your
loan application will get evaluated?
Do you know the importance of
credit information agencies or
credit bureaus in the loan
evaluation process?

Connect with Moneylife Advisory Services

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CREDIT REPORT ADVISORY
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C
redit bureaus accumulate information about your credit record, earlier
loans and credit cards, then share this information with banks. When
you apply for a loan, the lender asks for your credit report from one of
the credit bureaus, like CIBIL (Credit Information Bureau of India Ltd),
Experian, Equifax etc. The information on your credit information report (CIR)
plays a vital role in banks’ decision on whether to lend to you or not, the interest
rates to apply to your borrowing and under what terms and conditions, if at
all, should it lend to you. The lender uses your credit report to calculate your
income-to-debt ratio and estimates your eligibility for the loan. Other than the
income-to-debt ratio, the lender also studies your past loan repayment pattern
to assess whether or not you are capable of taking on additional debt.

Remember, you
credit score and
credit history
have become an
important indicator
of your financial
discipline and
credit eligibility

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Impact of Credit Information

T o understand how the loan approval
process is influenced by credit
information, let us take a scenario
where two applicants Rohan and Nidhi
apply for a loan, and let us assume that
both of them have nearly equal credit
scores. Banks usually earmark 50% of
your monthly take-home income as your
repayment capacity. Rohan has a salary
of Rs 50,000 with a previous loan EMI
of Rs 10,000. Now, Rohan can afford
an additional EMI of Rs 15,000. So, his
income to debt ratio allows him to take
an additional loan. Nidhi’s monthly take
home is Rs 1 lakh, and her ongoing EMI is
Banks prefer
Rs 50,000. Since her EMI outflow is already
50% of her monthly take-home salary, her
lending to more
loan application could be rejected even disciplined
though her income is higher Rohan’s. Your borrowers, with a
income and credit score are important high credit score
factors on which banks base their loan
approval decision, but they are by no
and a healthy
means a guarantee that you will get a credit history
loan.

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CREDIT REPORT
How to access your credit
report
Online
• Visit the credit bureau’s official
website and fill in your details
online.
• Payment can be made online
through credit/debit/cash cards or
Net Banking.
• Submit scanned copies of required
documents through the website
itself.
• Once the process is complete, you
will be given access to your report
either instantly, or else within a
given timeframe.
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Offline
• Take a printout of the online
application form provided on the
website.
• Attach the documents mentioned
with the payment DD and courier
it to the specified address.
Alternatively, you can also deposit
it by hand.
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CREDIT REPORT
How to read your credit report
T his section of the e-book will help
you understand how to study
the composition of your credit report
and what to do if there is information
mismatch. Usually credit reports are
neatly divided into the following sections:
• The first section displays your cur-
rent credit score, Credit scores range
between 300 and 900 for CIBIL and
between 0 and 999 for Experian.
CIBIL scores of above 700 are usually
acceptable to banks.
• The second section usually displays
your personal information as shared
by your banks. This includes your
name, date of birth, gender, ID card
number including your passport,
PAN, and driving license or the voter’s
ID card. You should make sure these
details are correct, because these are
used to formulate your report.
• This section provides you with the
details of all your past and present
loans, and credit cards. The section
also contains a month by month
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detail of your repayment for all op-
erational loans and credit cards over
the past 36 months. It contains in-
formation on whether the loans are
single or jointly held, details of when
and where each account was opened,
the amount of credit availed, date
of the last payment made, whether
the account is already closed or not,
the current balance if open, amounts
overdue and the days past due are
recorded. Days past due or DPD is
the number of days after the due
date when you paid your relevant
EMI/s.
• Your credit report also gives details
of all the inquiries that you have
made for a loan or a credit card to
various banks and credit institutions.
This section displays a list of all those
lenders which have viewed your cred-
it report for assessment of your credit
worthiness-the name of the lender,
date of application for a loan and the
amount you applied for, on a loan or
a credit card.
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How banks
view your
score
• If your credit score is among
the top 10%, banks are likely
to respond favourably to your
loan application. You might also
be able to negotiate for a lower
interest rate.

• If your credit score is among top 30% but lower than the top 10%, your
loan application is likely to attract some additional terms and conditions.
The bank may ask for additional collateral, more down-payment, stronger
guarantors or higher interest rates, among other demands.

• If you have a credit card that you “max-out” all the time, you are likeliy to
be looked at as someone who depends too much on borrowed money - a
negative sign for lending institutions.

• For credit scores below the top 30%, it becomes very unlikely that
your application would pass. In case you defaulted due to exceptional
circumstances in the past, you should discuss this with your relationship
manager, along with other strengths of your profile, which might help.

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CREDIT REPORT
Tips to build
a high credit
score
C redit scores are weighted
cumulative results of your credit
behaviour, with more weightage given
to your recent credit history. This
means that you can improve your
credit profile.
Tip 1: Avoid late payment on your
credit cards and loans, and do not
default unless under exceptional
circumstances.
Tip 2: Keep you utilisation of credit
cards within its limits. An increase in
current balance over a period of time
may negatively impact your score.
Tip 3: A greater proportion of secured
loans are better for your credit history.
Since unsecured loans carry a higher
repayment burden as compared to
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secured loans, they reduce your credit
score.
Tip 4: Avoid needless taking on of
credit and do not frequently apply
for loans, even your applications are
reflected in your credit history
Tip 5: While your personal details
like addresses and PAN numbers
don’t affect your score per se, faulty
information can end up linking faulty
details to your score. Keep your
information correct and up to date.
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Watch our video where Sucheta Dalal explains what

your credit score means and how it affects your financial
decisions in the present and in the future.

This ebook is part of the finest knowledge base on personal finance in India which Moneylife
group has developed since 2006. Moneylife Advisory Services is not a financial planner or
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