Free Credit Information Report: What does it mean for you?

Under RBI's new law, an individual is entitled to a single free credit report every 12 months from each credit bureau. Currently, there are four credit bureau in India: Credit Information Bureau India Ltd. (Cibil), Equifax Credit Information Services, Experian Credit Information and High Mark Credit Information Services. It means  in a year you can avail four free reports from four different bureaus. Over and above report from bureaus, you can also get additional reports from online aggregators such as BankBazaar and PaisaBazaar.

While applying for a loan, the lender asks a credit bureau for the person's credit background to check earlier dues and payments were made in time or not. The information shows one's monthly payments and how their credit is managed. In the current context of digitization, it's even more imperative to monitor credit report at regular intervals, especially when people notice unusual or suspicious transactions; as they could be victims of identity theft. Moreover, experts say availability of free report will encourage people to start using it and will increase consumer awareness.

Process of getting a free report

To access a Free Full Credit Report (FFCR), one can log onto the company's website of any of the credit bureaus and go for their free credit report. Details such as name, email id, mobile number, date of birth and PAN needs to be provided. The application process is simple and easy and the companies promise the credit report to be sent within 48 hours of the submission. In cases of Experian, a voucher code is emailed in the registered e-mail address. After receiving the voucher code, for verification few questions are asked relating an individual's credit history to complete the process and receive the report. Companies like BankBazaar and PaisaBazaar have also started providing these reports monthly, quarterly all year for free. BankBazaar who has partnered with Experian claims to provide the report instantly; within a minute if all the information provided by the customer is correct.  

Documents needed

When applying for a credit report one needs to share documents to verify their identity. Details such as PAN card, passport and alternative information like amount of one's monthly mortgage payment, credit card number etc are needed to ensure identity protection for the credit report.

To get the credit report online one needs to fill in the online form available in the websites of the credit bureaus, authenticating themselves by answering few questions based on their credit and loan accounts and credit cards. Once the online authentication is complete, then one needs to send an e-mail with the scanned copy of their identity and address proof from their verified e-mail address to the credit bureaus. The company verifies the documents and after successful verification, they e-mail the credit report to one's verified e-mail address.

Charges

After the RBIs rule since January 2017 the 'free credit reports' that are being offered by the credit bureaus in India and companies like Bank Bazaar and Paisa Bazaar are not charging anything for the credit report. Whereas normally to avail a credit report and score a nominal amount around Rs.399 including taxes was getting charged.
 
What does the report reflect?

A credit score reflects the credit history of an individual and is derived from an individual's repayment history of previous or existing loans and credit cards. "A credit report is a compilation of the borrower's credit history from various creditors including banks, credit card companies and collection agencies. It primarily reflects the borrowing behavior of an individual" says, Mohan Jayaraman, MD Experian Credit Bureau, India. Higher the score, the more favorably it is viewed by banks and financial institutions. One with a higher score is more likely to have their financial application accepted. Lower score means fewer credit opportunities. Good credit score ranged between 750 and 900 while low credit score would be between 500 and 750.

Credit score factors which determines 'creditworthiness'

Credit history plays a key role in obtaining credit and determining the terms, it is important to understand the information that is shared by the lenders with a credit information company. "By understanding your credit history it enables you to take control of your financial situation, make informed financial decisions and also helps to protect yourself from identity theft" says, Navin Chandani, Chief Business Development Officer, BankBazaar.com. Credit score can't be improved over night, but action should be taken for better results.

Points to make your Credit Report and Credit Score work to your advantage:

Reviewing credit report on a regular basis

Reviewing credit report regularly makes it up-to-date and accurately reflects the circumstances as mistakes can harm your credit score. In particular, check those credit accounts where you have been a guarantor or are a joint accountholder to ensure repayment is as agreed with the lender. "In case of a settlement, it is important for you to know how the loan has been treated. Ask the lender whether it would be considered a waiver since a settlement is considered more negative than a loan repaid in full, but more positive than a default" adds, Chandani. Checking your own credit report and credit score does not impact your credit score.

Pay on Time

Pay your EMIs on time and as agreed; all repayments - and missed ones - are recorded in the credit report. Stay within the credit limits and make necessary credit card monthly repayments in full and on time. If the loan providers see a patchy credit history that shows missed repayments, it suggests that the person struggles to manage credit effectively which negatively impacts one's credit score.

Space out credit applications

Space out your credit applications and limit making several applications close together. Too many enquiries might mean that you're taking on too much loan or that you're in some kind of financial trouble and are looking for credit to help you out.
Shopping around for the best deal in terms of best interest rate for home loan or a new auto loan shouldn't cause a problem but always make sure that the lender knows you are asking only for a quote and not making an application for loan or credit.
In India the credit score ranges between 300 and 900 and the scores may differ across the bureaus, but a good credit score would be above 700. The actual cut offs for an acceptable credit score may vary across banks according to their risk appetite.