What Do Banks See When They Look At Your Credit Report?

Rakesh had applied for a housing loan with a leading housing finance company. However, when he read in the newspapers that XYZ Bank is offering relatively lower interest rate, it definitely appealed to him to approach XYZ Bank. Considering the high loan amount, even a 0.50% benefit in interest rate does make a huge difference in the overall outflow from one’s pocket. While the bank was doing its due diligence before sanctioning him the loan, Rakesh’s credit report was also fetched by the bank. Curious about what all would show up in the Credit Report, he visited Aditya, his neighbor and also a Chartered Accountant to look for answers.

“There’s more to a credit report than just how much of money you owe to banks. The credit report details out all of your credit information as has been gathered by the Credit Information Bureau (such as CRIF) from the banks, NBFCs and other types of lenders. Bankers keenly review various details in your credit report before approving the loan.” Aditya said and continued further.

Details Fetched By Bankers From The Credit Report:

1. Credit score: It is the first impression the banker can have of you as a borrower while going through your credit report. Reflecting your repayment tendencies, it indeed impacts your access to the credit. For an individual with a regular credit history, the credit score ranges from 300 to 900. For a bank, higher the credit score, lesser is the probability of customer defaulting on the loan. It, therefore, becomes imperative for you to have a better credit score i.e. above 700.

2. How much you owe and to whom – Your credit report includes information about each of your existing credit accounts, including credit cards, home loans, car loans, personal loans etc. This helps them since the existing liabilities on you and also the type of loans taken by you. Every loan will tend to reduce the repayment capacity of the borrower for a new loan. Bank will be able to understand your monthly outflows (sum of EMI amount and card payments) towards your loans.

3. Repayment habits – This is the primary parameter which impacts your credit score as well. Your credit report tells the potential lenders about your repayment tendencies. It shows up how much amounts are overdue presently, how much amounts had been overdue in the past and in case any one-time-settlement has been resorted to by the borrower in respect of the loans.

4. Are you a Loan Hungry Individual? – In case you applied for loans with many banks in a short period or applied for many loans or cards every couple of months, you’ll seem less appealing to potential lenders. A banker may conclude that you have a high dependency upon debts and therefore you may be desperate for loans.

5. Personal Details – Your credit report will also contain information of your addresses for your existing loans and credit cards. As such, the banker can have a fair idea about the stability of your residence i.e. how long you have been staying at your current place of residence etc.

“So in a nutshell, a credit report is the mirror of my credit profile and repayment habits. A bank is giving my incentive on interest rate if I have a good credit score the since they see me as the less risky customer.”
Rakesh tried summarizing his lesson.

“Spot on!” Aditya beamed hearing his disciple’s summarization. “You are the solution of all my financial worries. No wonder, I totally rely upon you.” Rakesh quipped.

Why banks use credit info when I have my savings account with them?

Twenty20 has always been pitched as the cricket format with the most crossover appeal. The success of this year’s IPL is living proof. Rakesh was indeed surprised on the performances by IPL Teams.

Yes, indeed. Anyways, even when our work makes us so busy in our own lives, these matches have just been giving us a chance to meet.

Oh, certainly. Anyways, you remember, I had applied for a housing loan. Even while the bank finally sanctioned my loan, it took them a century to process for it. They were saying that my credit history was now much old for them to process the loan faster. I don’t know why banks emphasize so much on historical data?” Rakesh was back on his learning curve.

Banks resort to credit reports for checking the past repayment history of the borrower. Credit reports show the information about existing loans and also the status of the outstanding amounts and in case any of such amounts are under default. This helps the banks to estimate the risk of default for the borrowers.” As always, Aditya was there for Rakesh’s questions.

Well, I can understand such an analysis for someone who is not an existing customer of the bank. I fail to understand why banks need to use credit information separately when I already have my savings account with them.” Rakesh shared a genuine concern.

That is indeed a valid point. However, even while you may hold a Savings Account with a handsome amount lying in it, your financial management and repaying habits are not clearly reflected through the pattern of transactions in the Savings Account. Banks need to factor in that how much of the regular monthly income is already committed for monthly EMIs, which they can estimate only once they have your complete credit data. Besides, in case you are utilizing the credit limits to the extent possible and paying only the minimum amounts due, that indicates your high reliance on the debt.All this information can only be fetched through credit reports and summarily reflected in the credit score. That is why banks give so much importance to the credit report data.” Aditya also made a good point in a bid to clear the confusion of Rakesh.

Credit reports certainly show off some valuable data for the banks. One should always be careful in dealing with the debts owed.” Rakesh was slowly getting a good hold over the subject.

“Just remember not to default on your EMIs and utilize debts only for productive uses.” Aditya closed the conversation on a crisp note.

Rakesh and Aditya were both smiling.

How do Credit Bureaus Work?

Rajesh and Aditya were again together, having some good time watching the IPL Trophy 2018. However, amidst the cricket talks, the conversation again shifted towards the credit score. Rajesh was indeed happy knowing the procedure to get the credit score in the last conversation. However, he could remember that the bank wasn’t able to find the score from one credit bureau but then finally caught hold of his credit score from another credit bureau. He was just wondering “How” and he instantly knew who will clear his doubts as always.

Every lender shares loan data with all credit bureaus generally within the first two weeks of each month. Each credit bureau takes its own time processing that information and refreshing it on your credit report and score. Further, it may be possible that the same set of information is processed in a different manner by different credit bureaus. So, it might be possible that one credit bureau missed your information or left it on grounds of being inadequate while the other credit bureau creates your credit history based on that information itself. Also how a credit bureaus searches your data in its own database depends on its own logic – remember Google vs Bing! These are some of the reasons why your record could be missing with one credit bureau but found in another.” Aditya was indeed happy to be Rajesh’s guide.

Oh, that’s quite complex. But why do banks share my data with credit bureaus? Is my data all secure? It seems like anyone can access my personal data.” As always, Rajesh was still far from being convinced.

RBI mandates banks to share this data with all 4 credit bureaus in India. The data collected and stored by the credit bureaus is kept under many layers of security. Your personal data and is accessible only to you or to a lender whenever you apply for a new loan.” Aditya was leaving no stone unturned to convince Rajesh.

Oh, that is good. It is always good to learn something new from you. The match wasn’t good, but this learning will indeed be helpful. I have much more to learn from you, but next time” Rajesh seemed happy now, and needless to say, convinced too.

“Yeah. Let’s keep something for next time. Now, it’s time to enjoy some tea now.

Aditya moved towards the kitchen to get some biscuits for the tea. Rajesh and Aditya were both smiling.

How to Check your CRIF Credit Score?

The last time Rajesh and Aditya met, they had a good session discussing the basics of the credit score. They were again together to enjoy the one-day IPL Match between CSK and KXIP. CSK won this match comfortably by 5 wickets but Rajesh seemed much happier. Digging a little, Aditya came to know that ABC bank had finally sanctioned Rajesh the housing loan after his credit score was traced from another credit bureau.

I owe you a party, my friend. It’s all thanks to the basics you made me aware of the credit scores. I went to the bank next day and possibly due to my discussions about the credit score, the banker searched more into my credit history. I was pleasantly surprised when he said that while he could not fetch my credit history from one of the credit bureaus, he could find my credit history and credit score in CRIF High Mark database. With a score of 755, it was easy thereafter.” Rajesh said all this in one go. He was not able to hide his excitement.

Aditya was happy to hear about Rajesh’s housing loan sanction.

“Oh great, a good score indeed. CRIF score is calculated by CRIF High Mark, India’s leading credit bureau, which has the largest credit bureau database of individuals and supports millions of lending decisions every month.”

But there must be a way to check this score by myself too. I must keep a regular track of my credit score now.” As always, Rajesh was excited about the new thing he was made aware of.

Aditya was happy to guide him again. It seemed like he had been waiting for this question since long.

Here are the steps to get your free CRIF Credit score:

  1. Open CRIF portal, https://cir.crifhighmark.com/
  2. Click on “Get Your Score Now” button.
  3. A pop up will open asking your email address for communication purposes. Enter your email address here to proceed.
  4. The next window will ask you about few details which will help CRIF High Mark identify you amongst the complete database. The details as may be asked are name, date of birth, mobile number, address and PAN or Aadhaar number.
  5. Once you review and submit the information, you will be asked one security credit question, which will be based upon the records so traced basis the information furnished above.
  6. If you are able to answer the security credit question correctly, your CRIF credit report is available to you for download.

You should also be happy to note that everyone is entitled to a free credit report and score from CRIF High Mark once every year. So, get your credit report without paying any charges.

Oh, that is good. I will definitely download my CRIF High Mark credit report once I get back home.” Rajesh was happy to again learn something new.

It’s time to enjoy the tea now. The rainy weather is calling pakodas to my kitchen now. I will not let you go before we enjoy that.

But yes, how could bank not find my credit report with one credit bureau while getting the same from another credit bureau.” Rajesh was in no mood to let Aditya go.

We always have a good time when we meet over the weekends. So, let’s keep this question for then.

Rajesh and Aditya were smiling now.

 

Know your Credit Score

IPL Trophy has gripped the country since the last month, more so since the game involves competing teams inclusive of international talent. Rajesh, an IT professional and Aditya, a Chartered Accountant, were also spending the day together watching the IPL Trophy. Even while they were put off by a dismal performance by their favorite team in that match, Rajesh started discussing the recent query he faced from ABC Bank after he applied for a housing loan.

Rajesh was visibly upset for his favorite team’s loss and also for the delay he was facing for his housing loan sanction.

“Aditya, amidst low score today by your favorite team, please tell me what is this credit score? My bank is unable to fetch my credit score. As such, my housing loan application is getting delayed as the bank wishes to gather more documents in support of my application.”

Credit Score is a score calculated on the basis of your repayment habits like paying installments on time, rolling over your credit card bills etc. For a lender, your credit score is your first impression, as your bank forms your opinion as a borrower on the basis of this score only. If one doesn’t have a credit card or any existing loan, the credit report will not have any data and as such, this person would not have any credit score.” Aditya, being a professional in the field and also his best friend was there to his rescue as always. Click here for more details on What do banks see when they look at your credit report?

I think I need to clear my basics. I am totally clueless about the subject. What’s the range for this score and what does it denote?” Rajesh seemed interested to know more.

Credit score is calculated once you have an credit history of more than 6 months. CRIF score ranges from 300 to 900, higher credit score reflecting better credit habits. So, an individual with a credit score 800 will get a loan more easily than one with a credit score of 650. . Aditya was happy to educate Rajesh about an unknown subject.

“So, what is it which I can say to be a good score? Or it’s all relative to credit scores of other individuals?” Rajesh seemed confused now.

“A credit score above 700 is what banks consider as good score. However, a lower score does not make you ineligible for a loan. Banks are just more cautiously sanctioning a loan then and hence, may ask for additional documents to process your application.” Aditya cleared his confusion happily.

“I am so relieved now. No wonder, I trust you for all my financial troubles. Now I know one more score apart from the cricket scores, the credit score. But I do need to know how can I check my score?” Rajesh was much more excited now.