5 reasons to check your credit report regularly in times of Covid-19

Reviewing your credit report not only helps you control your credit score, but also gives you plenty of time to take corrective action and rectify errors, if necessary.

While the RBI’s moratorium guidelines during the lockdown ensured that the credit scores of those facing financial hardship were not affected, any misinformation or errors in your report can still lower your rating and even lead to applications being rejected. loan and credit card. This can be difficult, especially if you need urgent funds in the near future.

Here are 5 reasons why you need to review your credit report on a regular basis:

1. Indicates your creditworthiness

Credit bureaus calculate credit score based on information provided by lenders. In addition to being one of the main loan eligibility parameters, credit scores are widely taken into account in establishing risk-based pricing and also when selecting recruitment in certain sectors. Therefore, it is imperative to check your credit report at regular intervals, to get a fair idea of ​​your creditworthiness, especially before submitting any credit application. Reviewing your credit report not only helps you control your credit score, but also gives you plenty of time to take corrective action and rectify errors, if necessary.

2. Helps find errors quickly

Any mistake, whether on the part of the lender or the credit reporting agency, can hurt your credit score. Reviewing the credit report periodically can help identify errors, if any, and have them corrected. Common credit report errors include –

# Error in credit repayment details

Your credit repayment history helps lenders predict your repayment behavior. When checking your credit report, make sure that repayment information is accurately listed and updated.

# Error regarding personal information

Any incompatibility between the personal information on your credit report and that on your credit application may result in the rejection of your loan and credit card application. Contact the relevant credit bureau if you find any inconsistency or error in your contact number, communication address, name or PAN details.

# Error in credit account details

Since the credit report lists information regarding all active and recently closed credit accounts, any misrepresentation can hurt your credit score. Reviewing your credit report would help verify your loan and credit card details to ensure it is error-free and up-to-date. Contact your credit bureau if you find missing or unknown transactions or accounts on your credit file.

3. Identify Unknown Difficult Requests

Each time you submit a credit application, the lender pulls your credit report from the credit bureaus to assess your creditworthiness. These lender-initiated inquiries are treated as serious inquiries, which can lower your credit score by a few points. If you spot an unknown serious inquiry in your credit report, contact your office immediately and have it rectified.

Submitting multiple loan and credit card applications, especially in a short period of time, can hurt your credit score. Therefore, instead of directly submitting applications to multiple lenders, consider applying through online financial marketplaces. Although these platforms also retrieve your credit file from the bureaus, these inquiries are termed as informal inquiries, which do not harm your credit score.

4. Helps control your credit utilization rate (CUR)

The credit utilization ratio is the proportion of the credit limit you are using compared to the total credit limit available. Since lenders generally prefer to lend to credit card users by keeping the CUR below 30%, not meeting this limit can not only lower your credit score, but also present you as a credit-hungry consumer. Therefore, you should avoid exceeding the CUR limit. If you tend to go over that 30% mark frequently, consider either getting an additional credit card or asking your lender for a credit limit upgrade. This would increase your total credit limit and thus reduce your CUR, provided you do not increase your spending.

5. Helps maintain a balanced credit mix

Lenders generally prefer to lend to those who have a higher proportion of secured loans (such as a car loan, home loan, or property loan) than unsecured loans (such as a personal loan and credit card loan). Credit bureaus may also rate borrowers with a balanced credit mix favorably. Those with a higher proportion of unsecured credit can either consider prepaying your existing unsecured loans, if possible, or opt for loan consolidation, in which you replace your unsecured loans with secured loans. This would help maintain a healthy and balanced credit composition, which is likely to have a positive impact on your credit score as well.

(By Radhika Binani, Product Manager, Paisabazaar.com)

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