Your report is a window to your past credit pursuits. It stores all information regarding your credit related activities that have been in the past. Based on the information given thereby and using a proprietary algorithmic formula, credit bureaus work out your credit score. It wouldn't be wrong to conclude that a credit score is a numeric reflection of your bygone credit acts. Or is it? Is it really a true reflection of your past?
Mostly yes. But sometimes one may have a good credit score but a poor credit report. It would be hard to swallow but the fact is despite a good score your loan application could be rejected due to a poor credit report. This may leave you with little options but to fund your requirement by looking out for a bad credit personal loan.
Here are a few things that differentiate your report from your score:
1) Debt to Income ratio: As a thumb rule credit institutions expect you to keep atleast 50% of your income aside to meet your life's day to day expenses. The balance 50% of income can be used to pay for EMIs. Debt to income ratio is not considered when calculating a credit score.
Take the case of Mohanty. He worked for a telecom firm as Senior Manager and earned 1.3 lakh every month. So as per banks he could bear a collective EMI of Rs. 65, 000/- and not more. Mohanty paid a car loan EMI of 10, 000, a personal loan EMI of 15, 000 and a home loan EMI of 41, 000 every month. He had already exceeded his Rs. 65K threshold with these EMIs. He was committed to making all payments in time. Yet when he applied for a small personal loan of 1 lakh only, his application was rejected inspite of having a good credit score.
2) Utilised Credit Limit - Let us first look at Amaira's credit card payments for the past six months. Amaira earned well as a brand manager for a reputed FMCG firm. She also believed in living life king size, or in her case "queen size". She spent heedlessly, to the tune of Rs. 1 lakh every month. Her credit card limit was 1.10 lakh. So she always spent using her card with the intent of using the credit period to save interest and to earn more reward points.
She knew she could afford to pay and staying true to her word she made all her payments before the due date in full. She never paid any interest on her credit card dues and also saved interest on her bank deposits. So she was quite proud of herself. Her score got a boost with timely repayments, but high utilised credit limit did not sit well with her lenders.
High utilisation ratios make lenders uncomfortable as that means you depend immensely upon credit to fulfil your needs. Unfortunately, the report does not record Amaira's real intent for using her credit card so aggressively.
3) Disputes and Remarks - Oftentimes, your report is riddled with discrepancies and errors. If there are mistakes that you spot on your report then you must immediately raise a CIBIL dispute to set the record straight.
Rohan noted that there were discrepant entries in his name and other personal details. He raised a dispute to have them set straight. Till then he couldn't apply for a loan as banks would find it suspicious due to mismatch of details. This led to a delay in getting a loan and Rohan had to push his plans for future.
4) Your report houses information for the last three years or more. Some flags, such as "settled", remain on it for several years to come. However, your score is calculated based on the information for the past two years only.
So you may have a good score because you have improved your payment pattern over the past few years. However, some flags that are older than two years that might have a less impact on your score now, but they appear on your credit report and can cause your loan application to be rejected.
Your report and score have an equal relevance when lenders are examining your loan application. Even if you have a favourable CIBIL score, you may have to face a rejection of loan or credit card application, all because of a not so favourable credit report. If you would like to stay on top of it then regularly monitor your credit report.