When we go for financial advice, first thing we get is advice about checking the credit report. But what is credit report? And why is it so important? Let’s find
out!
What is credit report?
Credit report is the report of all your borrowings. It contains details about all
your current and past loans, credit cards. It sums up the entire details of your
life regarding loans and credit cards. It contains a 3 digit number ranging from
300 to 900 which is assigned by the credit bureaus. It is similar to grading of
your credit history as good, average and bad.
What is considered a good and bad credit report?
A good credit report shows all the positive feedback of your credit history. If
you have a score more than 700, then you are considered to have a good credit report. A good credit score mean that you have paid all you instalments timely.
However, less credit score ranges from 300 to 500. If you have a bad score
then it means that you have not paid instalments at proper times. If a person
has a credit score ranging from 500 to 700, then he has moderate credit score.
Why is credit report essential?
Credit report is essential if you want to take a loan or want to take
responsibility to pay someone else’s loan. The banks check that you have a
good credit score or not and accordingly they allow you to take loan. Let us
look at some points and understand why credit report is important.
Approval for your loan is much simpler with good credit report as the
banks trust the person who has good credit score
Lower Interest rates are available for loans
You are able to negotiate better loan terms
You can easily get best credit cards.
When you are co-signing a loan for you relative or friend, it is essential to have
a good credit score because the co-signer is responsible for paying the loan or credit if the loan borrower fails to pay. So this is very essential when someone
is co-signing.
Why it is important to check your credit report regularly?
It is important to check the report regularly because it is updated periodically
by financial institutions. There are various benefits of checking your credit
report regularly. Some of them are:
You will always know the credit score so there is no need to worry
about.
If the credit score is decreasing, you can always increase it by paying the
credits timely.
You can correct the errors if there are any in your reports. This may
improve the score if your error is corrected.
Inference
As we can see how much the credit report is valuable in taking financial
decisions. You must consult a chartered accountant before taking any financial decision. These are designated people that will guide you to take better decisions. Maintain a good credit score and it will assist you in taking financial decisions like taking a loan etc.
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