‘APPLICATION REJECTED’ are two words that can break our morale. We toil hard during our professional careers, trying to hone our skills to reach the pinnacle of the corporate ladder. Yet, despite earning well, we sometimes need the assistance of a lending solution to fulfill our financial requirements. We have written at length about what credit score is and what makes it so important in the personal loan application process. With this piece, we look at some more ‘Whats’ that are generally asked when trying to understand the credit score.
What Can You Do With Your Credit Report?
The journey for your personal loan application begins much before you type ‘loansingh.com’. The first task is to identify if you are personal loan eligible, or not. Loan Singh’s digital lending platform may be robust and easy to apply for, but your salary and credit score have to be good enough. Your minimum monthly salary should be Rs.15,000 and you should have a good credit history before applying for a new personal loan.
As per Section 21 of the Credit Information Companies (Regulation) Act of 2005, you can apply at a credit institution to furnish a copy of your credit information. It is a good practice to request for your credit report directly from a credit bureau, to look for any errors before you apply for a personal loan with Loan Singh. This not only helps in looking-out for errors, but also in preempting any loan issues and gauging spending patterns and repayment responsibilities. Upon receiving your self-applied credit report, look for the following…
You can request for a credit score report just once, or can have bi-annually & quarterly subscription. When you access your report, look for any discrepancies. If you spot any errors, you must file for a dispute. Try to resolve the issues by contacting the credit bureau.
If the error is not being rectified, at least the bureau will have the intimation about it and not consider this error during your loan application process. This will also leave you with enough time to collect supporting evidence and to resolve the credit report issues.
What to Look At On Your Report?
Getting a copy of your credit report will allow you to not just look for errors, but also take a look at your past credit behavior. There are some factors that can give you a gloomy picture about your credit report, a personal review can hence help you to look for the following score reducing factors and become more careful in the future.
Debt-to-Income Ratio (DTI Ratio)
The ratio indicates the amount of debt that you owe compared to the overall income that you earn. Banks look at DTI ratio when they try to decide whether to lend money, or not. It is calculated by dividing the total monthly debt payments (including credit card payments, if any) by the net income being credited to your account. A low DTI indicates that you maintain a good balance between debt and income. Take measures to ensure a low DTI.
If you have never borrowed credit in the past, there will be no updates about it in the report. So, the credit bureau marks it as ‘No History’. Banks tend to reject a loan application for lack of details in case there is no previous history. But luckily Loan Singh doesn’t. Loan Singh’s digital lending platform is built to serve the under-served salaried individuals. But do remember that
Late Repayments or Defaults
Your repayment history has a significant impact on your credit score. If you have regularly missed payments on any of your existing loans, your credit score is likely to be negatively affected since it indicates your troubles in servicing the loan obligations. You would know the reasons as to why you could not make the repayments on time. Try to fix that and then think of applying for a new personal loan.
While the report indicates past defaults, check if you managed proper credit card usage and prompt credit card bill repayments which have helped boost your credit score.
Check if you have avoided making late repayments or were successful in avoiding stretching of the credit limit. Spending over the credit limit and increasing your outstanding balance shows signs of repayment burden, and hence indicate unwise spending routine.
Multiple loan enquiries
If you have tried to apply for a loan at multiple banks or institutions during the same period of time, then this indicates ‘credit hungry’ behavior, which hit your credit score negatively.
What Are The Types of Errors On Your Report?
The credit report consists of information pertaining to 5 sections – Personal, Contact, Employment, Account/Credit and Enquiry.
Personal information errors
Your name can be misspelt on the report. For example: your name is ‘Ram Krishnan’ but the report shows the name as ‘Ram Krishna’. Your date of birth, passport number, income tax ID number, voters ID number could be rearranged leading to an error. Your gender could be wrongly declared, as well.
Contact information errors
Errors here could include quoting your old address, the State you live in being declared incorrectly, pincode mentioned could be rearranged or incorrect, etc.
Employment information errors
The report might still be showing you working for your previous organization. Your monthly salary may not be updated; your current organization work period could be incorrect, etc.
Account or credit information errors
The credit type could be incorrect, for example – instead of a home loan, a personal loan could be mentioned. The sanctioning date for a loan could be wrong, a previous sanctioned loan amount could be incorrect, the status for a loan could show ‘pending’ even if cleared, etc.
The number of times you applied for a loan could be incorrect. You might have applied for a credit report only once before but it could show up on the report as 2 or more. Keep in mind that too many enquiries can affect the report badly.
Inaccuracy in current outstanding balance towards your credit card, multiple accounts registered in your name, the report generated is not yours but somebody else’s, etc. Multiple accounts could be registered against your name in the report.
What to Do In Case of Errors?
You won’t know about any error, unless you apply for a credit report yourself. We tend to undermine the importance of a credit report until we hit a roadblock in the loan application process. In case you find any error, you need to ‘initiate a dispute’ at the credit bureau’s website. Once the bureau receives your dispute claim, they will investigate the matter.
It could take time to get a response from the bureau because the credit bureau has to wait for the information that comes back from a bank or lending institution. This can take approximately 30 working days.
In case the bank or lending institution has supplied incorrect data to the credit bureau with regards to loan or credit card details, then you should contact the bank and report the discrepancy. The bank will then have to contact the bureau and rectify the earlier information. This can take approximately 45 working days.
In case of a mistaken identity for a loan or card amount not availed by you, contact the credit bureau who in-turn will contact the bank or lending institution and revert to you once the error is rectified. This can take approximately 30 working days. In case the bank finds the profile of the person your identity has been mismatched with, it could take more time to get the mistake rectified because the bank has to then contact the other individual to get the mistaken identity cleared.
Your credit bureau score is very important when it comes to availing a loan from banks or digital lending platforms. It is your responsibility to ensure that an error prone report does not hamper your loan approval chances.
What are the Ways to Boost Your Credit Score?
A good credit bureau score can easily get you a personal loan from Loan Singh. Being a digital lending platform, the application process, submission of documents and EMI repayments happen online. You can apply from a number of personal loan purposes such as travel, marriage, medical, house repair, home improvement, festivals, second hand cars, etc. Some ways by which you can improve your credit score are
- Ensure that all your loan repayments happen on time each month
- Try to keep some extra cash handy so that you do not run short on funds, while paying EMIs regularly each month
- You can set-up an auto debit feature with Loan Singh to allow the debit of your EMIs directly from your account
Credit card limit
- Keep credit card spending at a minimum
- Make sure you pay your monthly card obligations, in full. Too much spending above the credit limit could increase your credit utilization and pile up with your credit card debt
Closing of multiple credit cards
- In case you are operating more than one credit card and feel the need to close all of them, then make sure you don’t close all the cards at once
- The sudden closure of credit cards will lead to an absence of credit history which is the main criteria that lenders look at while evaluating your credit worthiness
- A hard enquiry is made by the lender to the credit bureau when you apply for a new loan or a new credit card
- Too many enquiries in a short span of time would indicate desperation for credit and hence affect your credit bureau score
- Make all loan repayments on-time – before the EMI deadline date
- Always have some spare cash or daily balance in your account to avoid a bounced EMI
- In case of a default, approach the lender and pay-off the amount immediately
Credit card payments
- Stay out of Credit card debt, it’s an expensive way to ruin your credit score
- Ensure bill payments are done before EMI payment deadlines
Credit bureau score report errors
- Although very unlikely, there are chances that the report might have some inaccuracies
- Check if the lenders have sent a correct repayment history to credit score bureau
- Raise a dispute with the credit bureau if you find any data discrepancies
Increase credit utilization
- Use it as a last resort in case of unplanned expenses
- Check with the bank or credit card company for an enhanced credit limit
- Do not use an increased limit to spend unnecessarily
- Start budgeting so as to curb spending
Be wise while spending
- Always keep a check on your credit utilization
- Avoid using your credit card for all payments