Your Credit Information Report (CIR) is an essential document that provides lenders with an insight into your borrowing capacity and creditworthiness. If one’s credit score is not up to the mark, they are inevitably propelled towards availing bad credit loans with steeped interest rates. These bad credit loans can push one further into debt accumulation and hamper one’s credit score in a substantial manner. Banks and financial institutions place heavy emphasis on an individual’s credit score when evaluating their application for a loan or credit card. Essentially, your CIR is a data mine for others to determine your potential financial behaviour.
Hence, it is advisable that you check your score from time to time. This will not only help you to stay at the top of your financial game but also allow you to rectify errors that might be detrimental to your score. At the same time, your credit report is not an exhaustive list; it does not document all your financial moves, and a fair amount of financial data does not make its way into your credit report. Here are 5 financial aspects that are not covered in your credit report:
1. Savings & Investment Data
Your credit report does not feature information pertaining to your savings or investment accounts. Transactions conducted via these accounts are not recorded, hence, they have no effect on your credit score. This also includes essential information regarding fixed deposit accounts, current accounts, and trading accounts. It is important to remember that your savings and income sources are also representative of your financial position – credit scores only reflect your credit status and history.
2. Credit Approval Status & Analysis
While banks and financial institutions determine your creditworthiness on the basis of your credit score, your credit report does not explain how you can improve upon your score. Also, it does not inform the individual regarding his/her loan and credit card application status. Moreover, a high credit score does not always equate to sure-shot creditworthiness – despite having a high score, your loan application might get rejected if you have payment defaults on a previous loan, as that will also be featured in your credit report.
3. Your Credit Utilisation Ratio
Overutilization and underutilization of credit can have a major impact on your credit score. The ratio between your credit limit and credit usage, also known as Credit Utilisation Ratio, is also absent in your credit report. While this ratio can be calculated by banks on the basis of other information present in your report, it does not mention the degree of credit overutilization and underutilization. Generally, banks look for a credit utilisation of under 30%.
4. Reasons Behind Settlements
While your credit report will display your settlements, the reasons behind them will not be highlighted for third-party perusal. In several cases, you might have been prompted to settle an account due to genuine circumstances: for instance, a medical emergency, or fraudulent activities by hackers. However, these instances can only be explained and justified once settlements are identified in your report and raised as an impediment to your credit approval process.
5. Defaulters List
The absence of a defaulters list can prove to be a problem. It is a common misconception that lenders can access a credit record that leads to the blacklisting of an individual as a defaulter, based on their past credit. While defaults are documented in your report, they are not highlighted separately as a specific list.
Despite these shortcomings, credit reports are an indispensable part of your financial life. As credit report reviews are an important part of financial planning, they must be analysed from time to time.