written by khatabook | November 18, 2022

Safeguard Your Credit Profile, Steps to Avoid Identity Theft, Credit Profile Risk

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Table of Content


The Credit profile of an individual or a company is a really important aspect of your financial reputation. When you apply for a loan, the lenders check your credit history along with your entire information including your work, assets, and all your debt records before you can obtain a loan from them. Your credit report serves as a record of your credit availability as well as your credit usage in the past.

All lenders and organisations which extend credit check a person’s creditworthiness through their credit records.

Did you know? An individual with a good credit record has better chances of obtaining a loan as compared to the one with a poor credit history.

What is Credit Profile Risk?

 Apart from lenders, even landlords, companies and others who may be interested in a person’s credit history tend to check their credit profiles. Maintaining a healthy credit profile is important to maintain an excellent financial image. 

5 Cs of credit are mentioned below:

1. Character-

In case of a personal loan, it is important that the borrower have a good credit history. Character refers to the reputation and dependability of a firm's management about commercial creditors; if a company is a private corporation, the character also includes ownership.

 2. Capacity- 

The ability of a borrower to acquire and repay debt is referred to as capacity. A borrower's capacity is assessed based on a variety of debt service and coverage ratios for both retail and commercial borrowers. Understanding the borrower's competitive edge is important for commercial lenders since it will affect their ability to create future cash flow. The borrower's ability to preserve or expand this advantage is crucial.

3. Capital- 

The overall wealth owned by an individual is described as their capital. Lenders will try to figure out how much debt and equity sustain the borrower's asset base. Knowing whether a borrower can obtain alternative funding from other sources is crucial. 

4. Collateral- 

The collateral security the borrower provides plays an important role in the lending process. It decides the amount of credit risk. This may include the valuation of assets, their location, and the ease of transferring the title, which may be crucial.

5. Conditions- 

This mostly refers to the goal of credit and external factors that may be outside the borrower's control and may present dangers or opportunities. They may consist of political, macroeconomic, or economic cycle-related variables. Conditions for business borrowers include issues unique to the industry and societal or technological advancements that could impact competitive advantage.

Also Read: Steps To Correct Credit Information Report (CIR) Mistakes

Steps To Protect One’s Credit Profile

It is really important to maintain a healthy credit score. The most important way to achieve this is by being proactive and keeping your credit profile secure. You must practice good financial habits like paying your bills on time, repaying past debts regularly, etc. 

The following ways can help you protect your financial image:

1. Conduct Regular Reviews Financial Accounts

Check all of your accounting information for suspicious activity and review them regularly. 

Make it a habit to regularly check your:

  • Account statements
  • Credit card statements
  • Credit reports
  • Log into your financial institution's online portal to view your bank and credit card statements. 
  • Accessing your credit history is simple, but you must go to a separate site. 

2. Freeze Your Credit

When someone applies for a new line of credit, the creditor orders a credit inquiry to ensure that the applicant's credit health is good. This grants the lender permission to see the credit report to review the applicant's application. When identity theft occurs, thieves may attempt to open entirely new credit lines in the names of their victims. 

This allows them to go undiscovered for a longer duration and less likely to notice a new line of credit than unauthorised charges on an existing one. To prevent thieves from opening unauthorised lines of credit, place a security freeze on new credit inquiries. A would-be thief must conduct an unauthorised credit inquiry to open a new line of credit.

3. Install Fraud Alert Credit Report

When you apply for a fraud alert service, a fraud alert appears on your credit report, alerting potential creditors that you have been the victim of identity theft. This instructs them to notify you before opening an account in your name to obtain additional identification. Unlike credit locks and freezes, fraud alerts do not prevent lenders from viewing your credit report. This is both good and bad because it means they don't fully protect you, but it also means they are more convenient because you don't have to eliminate the alert every time you apply for credit. 

4. Use Multi-Factor Authentication

Setting up additional security on online accounts may seem excessive, but amplified security features are frequently the only barrier between authorised and unauthorised activity. Multifactor ID systems use layered authentication requests to reinforce account security by asking a user to provide something only the user knows. 

Also Read: This is What You Should Know about CIBIL Score

5. Establish Good Credit-Building Habits

Safeguarding your credit score is about more than just avoiding identity theft. It also necessitates the maintenance of good credit-building habits so that you do not inadvertently harm your credit. 

Make certain that you do the following:

  • Pay your bills on time: Your credit account payment history is the most significant factor contributing to your credit score. It is critical to always pay your bills timely, as even a single late payment can be disastrous to your credit.
  • Maintain low balances: A lot of existing debt and a large debt-to-credit ratio is bad for your credit. Keep your credit card balances as low as possible to improve your credit score. Keep your old credit cards open: While closing old, unused credit cards may seem like a good idea, it's safer to keep them open (unless they have high annual fees). 

Each card you have added to your total available credit raises your credit score. Apply for new credit only when necessary: Applying for new credit should be done with caution. Every application you submit will result in a credit check. 

6. Register in a Credit Monitoring Service

All three credit bureaus provide credit monitoring services, which alert you to any unusual or new credit activity, such as transactions or accounts opened in your name. These services keep you up to date at all times. The price varies depending on the service you select. 

7. Filter Personal Data 

Personal information like your date of birth and bank account information are vulnerable to exploitation, so avoid providing it to unauthorised sites. Also, when disposing of hard copies of your PAN and Aadhar cards, bank statements or invoices, shred them to prevent any printed information from being combined with other information. 

Also Read: Know All About your CIBIL Score and Report

Conclusion

Your credit profile significantly impacts your financial well-being because it determines your ability to borrow, finance large purchases, and find a place to live. Use these tips to protect yourself, your finances, and your credit so you can focus on what matters. The ultimate peace may be achieved by using the above information to safeguard your credit and enjoy a safe and secure life.

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FAQs

Q: What is the reason I don't have a credit score?

Ans:

There could be several reasons for the lack of a score. To begin with, you must have used a credit product like a credit card or loan to have a credit score. It's also possible that you used a credit product, but there hasn't been any activity on it in more than 36 months, making it too old for an accurate assessment. Another possibility is a discrepancy in data or contact details.

Q: What's the difference between a credit score and a credit report?

Ans:

Your credit report includes your entire history of using one or more credit products, your payment history, the number and type of credit accounts, and your current status - active, closed, delinquent, settled, and so on. Your credit score is based on these and other details from your credit report.

Q: How does having more personal loans affect credit score?

Ans:

A greater number of personal loans would also hurt the score because such loans have a higher interest rate than car or home loans and are thus more likely to result in defaults.

Q: Will getting a credit card lower my score?

Ans:

If your old credit card has no outstanding balance, there is no reason to be concerned about it and close it. Suppose you have a credit card with a clean payment history. In that case, it will reflect your responsible credit behaviour and keep your utilisation rate low, which will benefit your score.

Q: What Makes a Good Credit Score?

Ans:

The measurement scale used by each credit reference agency varies, but, as a general rule, the higher the number, the stronger your chances of being accepted when you make a credit application.

Q: Why do you need to filter your online personal details?

Ans:

Identity fraud occurs when somebody gains access to your personal information and tries to pretend to be you online. Individuals who have accessed your data can obtain your username and password or other financial information and misuse it to commit online fraud while posing as you.

Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.