How to read your credit report and safeguard your information? A step-by-step guide

History holds significance as it helps understand past events, which aids in making sense of the present, and taking informed decisions for the future. For financial institutions (FIs), such as banks and non-banking financial companies (NBFCs), understanding the history of a customer in terms of how he/she has managed credit in the past is critical to make quick and efficient lending decisions.

In the domain of personal finance, the statement of this credit history is referred to as a credit report, which is equally if not more important for borrowers. Simply put, a credit report is a comprehensive document which contains a person’s borrowing, as well as payment history. It includes:

• Personal & financial information (name, date of birth, address, account details, etc.)
• Credit & debit information (loans, mortgages, credit cards, overdue accounts, etc.)
• Information about extraordinary events (foreclosure, restructure, etc.)

Understanding your credit report

A good credit report is a reflection of the individual’s financial discipline and creditworthiness. It can provide both immediate and long-term benefits, such as quick and cost-effective loans with lower rates of interest, insurance cover at lower premiums, and employment opportunities with top-notch domestic and foreign companies. 

That’s because, in today’s digitised world, from bankers, property managers, and insurers to prospective employers, almost all stakeholders rely on credit reports before establishing an association with an individual.

To fully understand and improve your credit report, it’s important to start by reviewing the following key elements:

• Personal details— Always verify your name, address, phone and identity – e.g. PAN number, Voter ID number, Aadhaar number and phone number to make sure that they are mentioned correctly. If you see information about a phone, an address or an identity that you have never used or one that does not belong to you, then it could be a case of inaccurate reporting. On the other hand, if you see an unfamiliar name, it could be a case of identity theft.
• Accounts— Review and verify all open and closed credit accounts, such as credit cards, loans, mortgages, and lines of credit. In each account, you will also be able to see the name of the lender. If you have availed a BNPL facility on a merchant platform, the name of the lender may sound unfamiliar. Further, don’t forget to check whether accounts are listed as ‘open’, ‘closed’, ‘charged off’. Lastly, see when each credit account was opened.
• Payment history— Closely check for any late payments or defaults on each account as this is the most critical component of your credit report. Late payments or defaults are typically reported as Days Past Due or DPDs. If you see a non-zero value in DPD, it means your lender has reported your loan as a default.
• Credit utilisation and limit— Don’t forget to calculate the percentage of your credit limit used on each credit card. For Home Loans, check if the full sanction amount has been reported or whether only the disbursed amount has been reported. Make a note of the maximum amount you can borrow on each credit line.

Once you’re able to make sense of your credit report, you’ll likely be inclined to improve it. To do that, you can follow a few simple steps, such as paying your bills and other dues on time, maintaining a low credit utilisation ratio on your credit cards, keeping a diverse credit mix with credit cards and EMIs, and avoiding too many new credit lines in a short period.

Staying safe from scams

While understanding your credit report and knowing ways to enhance it should be a key aspect of your personal finance management, you must prioritise safety and security by staying vigilant. Recent reports* suggest that there has been a significant increase in online frauds, which could include credit score scams. 

A credit score scam is a type of financial fraud that involves stealing an individual’s identity and/or personal information to open a credit account, take a loan, or make unauthorised purchases. These attempts are made by fraudsters through phishing emails, phone calls, and online platforms to obtain illegitimate financial benefits.

Consumers who fall prey to the lure of quick credit score improvement often end up as victims as they unknowingly share their confidential information or pay an upfront fee in exchange for the promised services. However, this trap can be avoided by following these steps:

Don’t share personal information— This is a lesson we all learnt in school. Stick to it. Never share your personal and financial information with unknown parties over unsecured channels. Also, make sure you have strong passwords to access financial platforms and do not reveal those even to family members and friends. 

In case you submit a photocopy of your identity for loan processing purposes, to apply for an insurance, as a supporting document in your children’s educational institute or even to check in to a hotel, mention the specific purpose on the photocopy. This is a low effort, high-impact method to avoid identity theft.

Stick to authorised channels— While it’s natural for some people to be inquisitive about their credit score, one must remember to only rely on official channels for obtaining such information. 

The Reserve Bank of India has allowed every person to access his own credit information in the form of one free credit report from each of the four credit information companies annually. Make sure you use this facility to not only get your free report but subscribe to continuous monitoring services.

Shun unsolicited offers— If you receive a message in your email or on your phone from an unverified source to find out your credit score, know that it could be a scam. Further, don’t engage with parties who promise to improve your credit score instantly.

Stay updated— Don’t forget to monitor your credit report regularly to detect any suspicious activity. As mentioned earlier, you are entitled to a free credit report once a year from each of the major credit bureaus in the country. Your rights are also protected as any dispute (inaccuracy) flagged by you on your credit report needs to be investigated and corrected (if applicable) by the lender and the credit information company within 30 days. 

It is advisable to immediately flag the suspected fraud attack to your credit bureau. Stay informed about new tactics and share them with your family, friends, and colleagues.

Proactively seek help— Despite all these measures, if you fall victim to a credit report scam or an identity theft, make sure to proactively report the same, using the provisions available under the law. Promptly reporting any fraudulent activity helps ensure that it is flagged and addressed quickly. 

Additionally, if you suspect identity theft, consider placing a credit freeze on your accounts to prevent new accounts from being opened in your name without your consent.

Sachin Seth, Chairman CRIF HighMark Credit Bureau and Regional MD India and South Asia, CRIF.