After busting some commonly followed personal loans myths and Credit card myths, it’s time for some Credit Bureau myths. Understanding credit bureau and its purpose is important. While applying for a personal loan, at a bank or digital lending platform like Loan Singh, your credit bureau report and score will determine if you are credit worthy or not. The same goes for application of a new credit card with a bank or card issuing company.
What is a Credit Bureau?
A credit bureau is an agency or an organization that researches and collects an individual’s credit information. This information is then compiled, scored and shared (only when authorized by customers) to lending institutions like banks, digital lending platforms and credit card issuing companies, to decide whether the individual in question is credit worthy or not. Credit bureaus are not responsible for deciding whether or not you should be given a credit or not. The bureau simply collects and abridges your financial information.
Credit bureaus look at your borrowing and bill paying habits to determine whether you represent a risk to the credit providing institutions. Bureaus acquire this information from data furnished by creditors, debt collection agencies and from public records (court record). This information is quantified & used in a formula to generate a numeric score (read “credit bureau score”). Along with maintaining information regarding your credit history, the credit bureau also maintains non-credit information such as your address, salary and employer details.
In India, the widely followed credit bureau is CIBIL. Some other credit bureaus are CRIF High Mark, Equifax and Experian.
What is a Credit Bureau Report?
A credit bureau report is a month on month record of your loan EMI payments (overdraft, personal loan, vehicle loan and home loans) and credit card bill payments. The credit bureau report does not include your investment or savings information. The report contains your personal information such as name, date of birth, residential address, PAN, passport number, voter ID number, contact number, type of credit availed, size of the loan or credit limit, outstanding current balance, any overdue amount, number of days the payment is overdue and its status.
As the report contains information about your credit and repayment history, it plays a key role in the credit institution’s decision when you apply for a personal loan. It is therefore important to know what information is shared by banks and lenders with credit bureaus. Applying for and going through your credit bureau report enables you to take control of your finances with regards to savings, budget, credit limit usage and EMI payments.
What is a Credit Bureau Score?
The credit bureau score is a 3 digit numeric summary of your credit history. The score is calculated using the information accumulated in your credit bureau report. The score ranges from 300 to 900. The higher the score, the higher are your chances to get a loan. Your credit score provides an indication of the probability of default based on your credit history; and how likely you are to pay back the loan should you get one. A credit bureau rewards regular and timely payments of monthly installments, and also penalizes any defaults.
Credit Bureau Score Ranges Explained
Score of 0 or -1 – A credit score of 0 or less means that you have no credit history.
Score between 350 to 500 – This indicates either a default in past EMI payments or excess credit utilization on credit cards. Loan applications will be rejected.
Score between 550 to 650 – A score at this range is acceptable as it indicates that you have been regular with your payments and can be trusted for fresh credit. The chances of getting a loan approved are good.
Score between 650 to 750 – This range indicates that you are doing well with your finances. You should stick to your financial habits to maintain or improve your score. The chances of getting a loan approved are great.
Score between 750 to 900 – This is considered the best range for a borrower. This clearly indicates that you have been regular with your EMI or credit card bill payments. You can avail a loan with ease.
Let the credit bureau myth busting begin!
Now that we know what a credit bureau does and what information is present in the credit bureau report let’s bust some credit bureau myths.
Myth No.1 – Only credit institutions can request a credit bureau report
Any individual can apply for his/her credit bureau report from the credit bureau. The information is yours so you have all the right to apply for it. You can visit the credit bureau’s website and apply for the report by paying a fee. Once you have the report, you can check for any errors with regards to your credit history. Report them to the credit bureau by filing a dispute on the bureau’s website.
Myth No.2 – Only prompt repayments improve the credit bureau score
MYTH DETECTED! Not just being prompt with your credit card bill payments or loan EMI repayments, you need to also have a good mixture of credit to see a healthy credit bureau score.
A mixture of credit means having a combination of secured and unsecured loans. Secured loans include home and car loans whereas unsecured loans are personal loan and credit cards.
Myth No.3 – Closing my credit cards will improve my credit bureau score
If you think that closing credit cards will improve your credit bureau score, you are wrong. Credit institutions such as banks or digital lending platforms prefer to look at borrowers with a long credit history to have a long track record for evaluation. If you do however want to consolidate your credit card debt, then pay off and close a new credit card instead of an old one. Losing your credit history will shorten your average credit age and cause your credit score to drop.
Myth No.4 – You cannot get a personal loan with zero credit history
What if we tell you that this is a myth and you can get a personal loan with zero credit history? Digital lending platform – Loan Singh, provides personal loans to salaried professional who have been salaried for a minimum of 6 months. Banks generally do not even consider individuals with no credit history. At Loan Singh, you have a chance.
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