Today, we decided to pop some myths about the credit bureaus. Many of our borrowers don’t understand the concept of these institutions. That is why they struggle in understanding what it does and how it is directly linked to their ability to avail credit. Whether applying for an online personal loan at Loan Singh, or a new Credit Card, a credit bureau is crucial in getting you credit as your credit bureau report and credit score will determine your creditworthiness.
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 applicant is credit-worthy or not. Credit bureaus are not responsible for deciding whether or not you should be given a credit. 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. This information is quantified & used in a formula to generate a numeric 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 decisioning on your personal loan application. It is therefore important to know what information lenders share 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 repay the loan. In a credit bureau report, regular and timely payments of monthly installments are rewarded and defaults are penalized.
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.
Time to Bust Some Credit Bureau Myths!
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 #1 – Only prompt repayments improve the credit bureau score
Not just being prompt with your credit card bill payments or loan EMI repayments will improve your score, you also need to have a good mixture of credit to see a healthy 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 #2 – Only credit institutions can request a credit bureau report
Any individual can apply for his/her credit information 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 #3 – 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 individuals who have been salaried for a minimum of last 6 months. Banks generally do not even consider individuals with no credit history. At Loan Singh, you have a chance.
Myth #4 – Closing my credit cards will improve my credit bureau score
If you think that closing your credit cards will improve the 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. However, if you 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.