Q: What do lenders see when they look at my credit report for sanctioning loans?
Lenders check your credit report to assess your creditworthiness. They evaluate the risk associated with lending to you based on the credit score and your borrowing and repayment history. Lenders will look at
A) Your credit utilisation, or the amount of credit you’re using compared to your available credit.
B) Your credit mix, or the types of active and closed credit accounts.
Most importantly, they will look at your repayment history to see how you have serviced your credit. They will also look at recent inquiries made by other lenders to evaluate whether you are credit hungry. Consistent on-time payments, a low credit utilisation ratio, and a diverse mix of credit types can enhance your chances of loan approval.
Q: We have heard about one mandatory free credit report once a year. Is it true and is it applicable to all bureaus?
Yes, as per the guidelines issued by the RBI, an individual is entitled to access one free credit report annually from each of the licensed credit bureaus. This ensures that an individual is aware of their credit report and credit scores and can make informed financial decisions based on their credit report. This also allows individuals to identify any errors in their credit report and correct it by using the mechanisms available with the credit bureaus. It’s applicable to all credit information companies (CICs) operating in India.
Q: If I have a low credit score, how can I increase it and how long will it take to increase my score?
Increasing your credit score requires consistency and discipline. Ensure that you pay your EMIs on time. Lower your credit inquiries and avoid taking on new debts or credit cards. Additionally, reduce your credit utilisation and diversify your credit mix. These changes can help you increase your credit score over time, with noticeable improvements taking anywhere from a few months to a year, depending on individual circumstances. A best practice is to follow all of the above from the time you handle credit, so that your credit score doesn’t become low in the first place.
Q: If I co-sign a loan along with any of my close relatives or friends, will this affect my credit score?
Yes, when you co-sign a loan, the loan will appear on both the primary borrower’s and your credit report. It will influence your credit report in terms of credit utilisation and payment history. If the primary borrower makes timely payments, it can positively impact your score. However, missed or late payments can significantly harm your credit score. Additionally, the increased liability may affect your ability to secure new credit. Therefore, only co-sign for someone that you know very well.
Sachin Seth, Chairman CRIF HighMark Credit Bureau and Regional MD India and South Asia, CRIF
