Your credit history, and why the bank checks it
Know what a credit report shows a lender, how to check yours, and the habits that build it.
5 min read
Before a bank lends to you, it looks at how you have handled every loan and card you have had before. That record is your credit history, and for a first-time business owner it is often the most important document in the file — more than the business, which may not exist yet.
What a credit report shows
Banks and lenders report what you borrow and how you repay it to credit bureaus. In India the main ones are TransUnion CIBIL, Experian, Equifax and CRIF High Mark. Each keeps a report on you, with:
- Every loan and credit card in your name, open or closed: home, vehicle, personal, gold, phone EMIs, buy-now-pay-later.
- How you repaid them, month by month. A payment made late shows up, and so does how late.
- Settlements and write-offs. A loan "settled" for less than you owed reads very differently from one paid in full.
- Recent enquiries. Every time a lender checks your report because you applied, it is recorded.
- A score, worked out from all of the above. Higher is better. Each bureau calculates its own, and each lender decides for itself what it will accept.
For a business with its own PAN — a company or LLP — there is a separate commercial report on the business as well.
Check yours before you apply
You can see your own report on the bureaus' websites. Do it a few weeks before you go to a bank, not on the day.
Look for:
- loans you never took, or that are listed twice
- a loan you repaid shown as still open
- late payments you do not recognise
- a wrong name, PAN, date of birth or address
Mistakes are more common than people expect, and you can dispute them with the bureau. Fixing one takes time, which is why you check early.
What hurts it
- Paying late, even a little. A missed EMI on a phone bought on instalments counts the same way a missed home-loan EMI does.
- Settling a loan. It tells lenders the last one did not get paid in full.
- Many applications at once. Each one is an enquiry. A burst of them reads as somebody badly in need of money.
- Using all of your card limit, month after month.
- Standing guarantor for someone who stops paying. Their loan becomes your record.
Do not apply to five banks at once "to see which says yes". Each application leaves an enquiry, and a string of them can lower your chances with all five. Find out which scheme and lender fit first, then apply to one.
What builds it
- Pay every instalment on time, every time. Set up auto-debit from an account that always has the money in it.
- Keep some credit, used lightly. Somebody with no credit history at all is hard for a bank to judge. A credit card used for small amounts and cleared in full every month builds a record.
- Close what you have finished with properly. When a loan is repaid, get the closure letter and check the report shows it closed.
- Keep old, well-run accounts open. A long record of paying on time is worth more than a short one.
If your history is thin or damaged
A thin history is not a dead end. Small-ticket loans exist precisely for people starting out, and repaying one well is how a record is built. A damaged history takes time to repair — usually a run of on-time payments after the problem. Be honest with the bank about what happened; they will see it anyway.
Run the scheme check below to see which of the four big schemes fit your loan amount — so the one application you make is to the right one.