Introduction to Credit Report

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Introduction
Your credit report is a compilation of your financial records, submitted by the banks and the NBFCs to the
credit bureau. The purpose of a credit report is to provide the lenders with ample details to make an informed
credit decision. A healthy credit report increases your chances of getting the loan approved. Lets learn more
about credit reports.

Lesson submodule 1

Origin
The origin of credit reporting dates back to the early 1800s, when people started buying things on credit; all
merchants were made to extend a credit line to the customers on the basis of their personal knowledge of the
buyers, which later on turned out to be risky.

Origin
As a solution to this, the merchants started maintaining lists of individuals who were credit risks, and then
shared the lists with other merchants. In essence, they became the first credit bureaus. By circulating this
information, they lessened their own risk.

Origin
Data shared by these merchants included - character references, employment information, insurance
information, and driving records. There was no verification of the information and the only groups that could
access the information were lenders and merchants.

Origin
This process soon turned out to be inefficient and unreliable. As the number of people seeking credit grew, so
did the amount of data and the need to have consolidated sources of credit information. In 1899, the first
3rd party credit reporting agency- Equifax was established in Georgia.

Question Sub Module 1

In which year was Equifax established?

A 1899
B 1920
C 1800
D 1830
Answer: Equifax was established in the year 1899. It was formerly known as the Retail Credit Company.

Lesson submodule 2

Significance
A credit report is your credit payment history as recorded by various financial institutions. It is a very
important document which determines your financial soundness and credit related activities. It plays an
important role in your loan and credit card approval.

Significance
But in recent times, credit report is also being accessed by the employers to verify the financial stability of the
prospective applicants. Given its significance, you should know everything that there is to know about credit
report.

Significance
Your credit report is the sole source of information for your credit score. Credit score is a three-digit number,
usually ranges 300-900. Your credit score is directly proportional to your credit worthiness and it may affect
the lenders decision to offer you credit.

Significance
Credit score is not the only ground for getting a loan approval. People with no credit history can also get loan
sanctioned. Neglecting credit health will not only make it difficult for you and it will also lower your chances of
getting better loan offers.
Question Sub Module 2

Can an individual get a credit card without having a credit history?

A Yes
B No
C Maybe
D I am not sure
Answer: Yes, in case of no credit history the banks may approve the credit card on the basis of the salary of
that individual and other factors

Lesson submodule 3

Understanding your Credit Report

Lets learn about the various elements present in your credit report. The most important is your credit score,
which usually ranges 300 - 900. Your credit account information and credit behavior is the second most
important thing that determines your credit health.

Understanding your Credit Report

Your credit score is typically calculated on the basis of 4 factors- Recency (recent defaults in payment),
Leverage (credit accounts with total outstanding), Delinquency Status (Periodic Defaults in credit accounts),
and Enquiries (number of credit applications in last 30 days).

Understanding your Credit Report

Your account information impacts your credit report. Based on that information, if the lender sees that youre
overleveraged with current loan payments then adding another loan will add to that burden. Hence, the lenders
may not entertain you.

Understanding your Credit Report

Other crucial information like your personal, professional, and contact details are also present in credit report.
Any incorrect information can either lead to a mix-up or can make your report obsolete. If you find any
discrepancy, you can file a dispute with the credit bureau.

Question Sub Module 3

Can a credit bureau make any changes to your credit report without the banks consultation?

A No
B Yes
C Maybe
D I am not sure
Answer: The credit bureau only updates the information provided by the financial institutions.

A Quiz for your Knowledge

1. Are the credit enquiries made by the users also a part of credit report?

A Yes
B No
C Maybe
D I am not sure

Answer: Credit enquiries are a record of your recent credit applications and hence they are a part of your
credit report.

2. Can your credit report be used for any other reason apart from loan/credit card approval?

A Yes
B No
C Maybe
D I am not sure

Answer: Yes, your credit report can be used by your employer to determine your financial stability.

3. What is the typical range for a credit score?

A 300-900
B 0-1000
C 250-900
D 100-800

Answer: The typical range for a credit score is 300-900, where 300 is the lowest and 900 is the highest a
person can score.

4. Is it possible for a new-to-credit individual to get a credit card?

A Yes
B No
C Maybe
D I am not sure

Answer: Yes, based on their salary, fixed income, or mortgage an individual can get a credit card approval.

5. How did the credit reporting start in the early 1800s?

A Merchants kept credit record

B Through the banks
C Data Collection agency
D I am not sure

Answer: The credit reporting started in the early 1800s when merchants started keeping and sharing the
credit records of their customers.