A Credit report consists of all information related to your borrowing history and discipline of its repayment. It essentially indicates your financial stability and helps the lenders in deciding whether lending is worth taking a shot. Simply speaking, Credit Score explains the probability of a borrower paying back the loan well in time.
What is the basic purpose of a Credit Report?
A Credit Report helps to measure the ability of a borrower to repay the loan? The lenders refer the report and measure your financial conditions & capacity to take another loan.
Important things you should know about a Credit Report:
- Decides the credibility: Credit Report describes the credibility of an individual. If you are an individual who has managed to repay all the loans on time, you will have a good credit report.
- Maintains a Monthly Record: Credit Report is based on month-on-month details about the type and number of loans taken by an individual. It provides the entire credit related information of an individual.
- Assists in score Improvement: The Credit Report facilitates an individual to analyze the credit history thoroughly and find out areas of improvement. So, if you’ve borrowed a Home Credit Loan, you can make timely repayments and make a change to your credit score.
- Main component of Credit Report: A Credit Report essentially depicts the payment history of the loans belonging to an individual. It basically displays the exact portion of loan an individual has cleared along with the current debt status.
ADVANTAGES OF A GOOD CREDIT SCORE:
- Ability to get a quick line of credit
- Fast approval for mortgages
- Low interest credit card/loan rates
- No security deposit required
- Better negotiating power
- Approved for higher loan limits
- Low interest rate home loans & car loans
HOW IS A CREDIT SCORE ACTUALLY CALCULATED?
Credit Scores are calculated basis different factors such as past payment history, number and type of loan accounts, length of one’s credit history. Once the Credit Score is calculated, it is sent to the banks and financial institutions for evaluation. Each bank or credit institution has its own benchmark that constitutes as a good score. It differs across banks.
WHY ARE CREDIT SCORE IMPORTANT?
Credit Scores are very important when it comes to taking credit, particularly loan approvals. Banks check your Credit Score through Credit sponsored platform. A Credit score helps determine your creditworthiness which in turn will help avail loans faster and easier.
When a borrower applies for a loan or credit card at a bank/ financial institution, the lender checks the Credit Score first to determine applicant’s eligibility for loan. The lender will not consider an application if the Credit score doesn’t meet their expectations or its too low. On the contrast if the credit score is high, the lender will consider the application and evaluate other factors before approving the application.
While the Credit Score is mainly used by lenders but nowadays it is being used for other purposes as well. You may not be able to buy or rent a house, get a great job, a good insurance policy or even a post-paid connection with good limit with a bad credit history.
CONCLUSION:
The loan market has well transformed in the last 5 years with the availability of individual credit information through credit report. It is used not just by lenders for arriving at a decision to approve or reject a loan but also for other important decisions. So, it’s a good practice to pay your loan EMIs on time & work in sync with your due dates!