Credit Reports – How to improve your personal Credit Rating

The credit report is one of the most important documents that are scrutinized when you apply for a debt/loan – such as credit cards, home/vehicle/personal loan, bank account etc. While NRIs are asked to submit a credit report (issued by a credit rating agency in their country of residence), incase of Resident Indians, the individual’s credit report is pulled from CIBIL by respective lenders/banks whenever they apply for any loan in India.

A credit report gives the prospective lender the required information about your credit history, your outstanding debts and repayment track record, to make an objective decision on whether to lend or not and to decide on the terms and conditions of lending, the rate of interest to be charged, etc.

Hence it is very important to make sure that your credit history and report are well maintained and have accurate and up to date information. Here are 3 simple steps to make sure your credit history is well maintained :

1. Get your updated reports :

Order your credit Report (with credit score) online to get a complete picture of your current credit profile. It is always better to order a 3-in-1 report as that will have data from all 3 reporting agencies, so this way you can check if all have the same data or if there are any discrepancies in the same. Look closely at the data from each credit reporting company to see that it all matches up. Most importantly, you should double check the following details as they could cause lot of problems if not recorded properly :

i)                  Current & correct mailing address.

ii)                Correct Social Security number.

iii)               Inaccurate employer information.

iv)               Errors in your credit accounts.

v)                Incorrect payment history.

vi)               Unauthorized hard inquiries.

2. Rectify Inaccurate Data

If you spot any errors or missing info in your credit statement, contact your creditors or send letters of dispute to the credit reporting companies to have those errors corrected. The credit reporting companies are required by law to investigate your claim and reply back within 30 days, the results of their investigation.

3. Improve your Repayment Habits :

Identify problem areas on your credit report and make a plan for improvement. If you’ve had a hard time paying your bills on time, sign up for an automated payment service. If your debt levels are above 50 percent of your available limit, create a payment plan to reduce your balances. Set goals for improving your credit and be sure to celebrate when you reach a milestone.

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How to Improve 2 Key Deciding Factors :

By working towards achieving the following 2 criteria, you can assure yourself a hassle free loan experience and the best of interest rates, terms and conditions, etc. when it comes to applying for a loan in India or for that matter anywhere else in the world.

i) Credit Score Target (for NRIs)

A credit score of 80% (on respective scale) and above virtually guarantees you a loan in India. Here is how you can meet the target –

i)                 Pay your bills on time for 6 months.

ii)                Avoid unnecessary applications for credit.

iii)               Reduce your debts to below 50 percent of their credit limits.

iv)               Clear inaccuracies from your report.

ii) Debt-to-Income Ratio Target : 20-30 percent.

A debt-to-income ratio analyzes the extent (in percentage) of your monthly salary that is being diverted towards repayment of your existing mortgages/loans (in terms of Equated Monthly Instalments being serviced). Here is how you can meet the above target :-

i)                 Pay off small loans.

ii)                Reduce your credit card balances.

iii)               Increase your income by co-signing with your spouse.

What Lenders Look For :

When you apply for a loan, a lender takes into account several factors. Key evaluations are: your credit profile & debt-to-income ratio.

When a lender evaluates your credit, they look at your credit score as well as your credit report to see how financially responsible you have been in the past. Timely payment of all EMIs/outstanding amounts regularly and staying within 50% of maximum credit limits will mean an increased loan eligibility for you.

The lender also looks at your existing mortgages/loans to evaluate what amount of loan you are eligible for. Your debt-to-income ratio i calculated by dividing your monthly income by your monthly payments towards debts. A debt-to-income ratio between 20-39 percent is generally considered good. Anything above this will drastically decrease your loan eligibility.

Hope this article gives you a good overview of how you can mantain and improve your credit history and score which in turn will make you eligible for higher credit limits and loan amounts.

Read our articles titled “Common Credit Report Myths Busted” to read about popular credit myths and how overcoming these can help you further improve your understanding about credit reports.

By Jhashank Roy Chowdary (About the Author)

G&C Global Consortium ™
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