By now, it’s very clear what role does the credit score plays in our financial life. But, one thing that people still overlook is to check the credit report. In fact, credit score and credit report are pretty confusing terms for many people and thus, most of the times, they skip pulling their credit health reports. Though both the terms serve the same purpose of determining financial health, there is a thin line difference between both. Let’s understand this with an example. A student scores 78% in the board exams (which is the scores), but the report card shows poor performance in a few subjects (that is the financial report). Hence, to get a 360-degree knowledge of your financial standing, it is significant to check the credit health report as well and not just the scores.
What details does a credit report contain? ?
Personal information – This section of a report contains personal information of an individual such as name, address, date of birth, mobile number, email address, and social security number. Though, personal information is not used for calculating the scores, it is important to pay attention to the errors or spelling mistakes, if any, and to make sure that the details are updated ones like any change in your email address or contact number.
Account information – This section includes the details of loan and credit accounts such as types of loans, credit card, and mortgage loans. Account information consist of details like the starting date of a loan or credit account, outstanding dues, account balance, and the past payment history. It also contains the details of both active and closed loan accounts in order to help potential lenders to determine your credit health and overall experience of handling various types of loans and credits.
Credit inquiries – There are two types of credit inquiries – soft and hard. While soft inquiry hardly has any impact on the credit scores, number of frequent hard inquiries could hit the scores badly. Basically, soft inquiry is when you check your own credit report or the banks and insurance companies do so to extend you pre-approved loan, credit cards, and insurance plans. On the other hand, when lenders or insurers pull your credit report to review loan or insurance eligibility, it is referred as hard inquiry. Experts suggest to avoid making unnecessary loan applications as it is would pull a hard inquiry and frequent number of hard inquiries could show you as credit hungry and the lenders might decide to decline your loan request.
Public records – This section contains red flags or derogatory remarks such as bankruptcy, account collections, repossession of loan, or foreclosure. Any derogatory remark on the credit report could poorly impact your civil score.
Importance of checking credit report:
Credit reports are of utmost importance to keep an eye on our financial health. In fact, there have been several reasons for checking credit report on regular basis.
Quick loan approvals – When you’re aware of your financial standing, you can apply for the loans that you are eligible for and thus, lenders would quickly approve the loan application without wasting much time on reviewing the credit health.
Negotiation power – Another benefit of checking the credit report frequently is that you could get the power of negotiating on interest rates and loan tenure as you’re well aware of your financial standing. Remember, the rate of interest on your loans is directly linked to your credit score.
Report the errors – There have been several instances when even a single error has poorly dragged the scores down and thus, it is important to check the report on regular basis to ensure timely reporting of any error or system failure. For example, your credit report is showing an outstanding balance of a loan, which is already closed and paid in full. If this error remains on the report for longer, it could hit the scores hard. But, if you’re keeping an eye on the credit reports regularly, you can report the error to your respective bureau as soon as the error is found.
Higher credit limits – You can certainly qualify for higher loan and credit limits when your credit report shows no red marks or public records such as loan repossession and bankruptcy. Lenders could trust you with the finances and thus, might decide to extend your credit limits.