Rising credit score updation issues vex customers

Credit score of a customer is important as banks look at the score while deciding the eligibility and interest rate of a loan.

The RBI’s supervisory assessment had raised concerns about the functioning of CICs, prompting the central bank to take steps to address these issues. However, banking sources said the number of complaints has risen further. Currently, there are 4 credit bureaus which are authorised by the RBI: TransUnion CIBIL, CRIF High Mark, Equifax and Experian – all are majority owned by foreign entities. CIBIL, which is the market leader, has access to the credit information of 60 crore people and has 2,400 members that include all types of lenders.

On Wednesday, highlighting issues with CIBIL scores and KYC norms, Lok Sabha MP Karti Chidambaram questioned their effectiveness and impact on small borrowers in the Parliament. The major complaint from customers is that when a credit default is rectified by a customer, CICs don’t update their status in its system. This leads to a low credit score and affects the chances of a customer to get a higher amount of loan at a low interest rate.

The RBI’s banking Ombudsman received 1,039 complaints against CICs, which were brought under its ambit, in FY2023, the central bank said in a report. While this figure has gone up in FY2024, many customers are unaware of redressal through the Ombudsman route.

According to banking sources, the major complaint of customers was the mishandling of data correction requests from them. There was inordinate delay in reporting updated credit information to the CICs resulting in wrong credit report, RBI’s Ombudsman report said.

Delays in reporting updated credit information has turned out to be a glaring loophole in the country’s credit reporting system, with credit information companies relying solely on data fed by banks without verifying its accuracy. This has led to numerous instances of incorrect default information being reported, causing undue hardship to individuals. Despite requests from customers, these errors are not reviewed or corrected, highlighting a clear bias towards banks.

The lack of transparency in the credit scoring system has left individuals in the dark about how their ratings are calculated. Customers are forced to periodically check their scores, verify transactions, and appeal against errors. However, this process is often cumbersome and frustrating. Most customers are unaware of the significant role played by credit bureaus like CIBIL, which seems to be more focused on serving the interests of banks rather than individuals.

When contacted, TransUnion Cibil said in a statement to The Indian Express, “data is reported to credit information companies by banks and credit institutions that are members of the CIC. As per regulations, CICs are dependent on the data reported by credit institutions for making any updates.” The RBI recently mandated improving the frequency of reporting of credit information by credit institutions to CICs from monthly intervals to a fortnightly basis or shorter intervals. “This is a very progressive move which will significantly strengthen the credit information ecosystem,” it said.

“With more frequent data reporting by banks and credit institutions, CICs will be able to update credit records faster and this will translate into more updated data being available for making informed lending decisions by credit grantors. This will also help in resolving consumer disputes faster based on updated data in credit records,” CIBIL said.

A consumer’s CIBIL Score is calculated using the data reported by credit institutions as reflected on their credit report. An individual’s CIBIL report displays the latest 36 months of credit history and their CIBIL score is calculated based on this data. Consumers can access their Free Annual Credit Report (FACR) via the TransUnion CIBIL website through an easy and quick authentication process and without any fees, the company said in the statement.

As per the governing CICRA law, CICs are not authorized to make any changes to the data they hold unless confirmed by the credit institution concerned. “If a consumer finds any inaccurate information on their credit report, they can raise a dispute with us in a number of ways including via our website and mycibil app, and also by directly contacting our consumer services helpdesk through email, letter or personal visit to our offices. We raise this dispute with the member credit institution concerned, which sends us correction instructions if they accept the dispute, and we update the information accordingly, TransUnion Cibil said.

“Banks also often adopt a lacklustre approach while informing CICs about the change in credit status, especially resolution of defaults. This delays the updation of score,” a banking source said.

In October 2023, the RBI announced that lenders and credit information companies will pay compensation of Rs 100 per day to customers for delays in updating and rectifying credit records. They will provide compensation if they fail to resolve matters within 30 days of a filed complaint.

The credit institution and CIC should communicate the action taken to the complainant in all cases, including cases where the complaint has been rejected. In cases of rejection, the lender and CIC must provide reasons for the rejection to the complainant, the RBI said.

In a bid to reduce the customer complaints, the RBI said it is shortening the frequency of reporting by banks to CICs from once a month to once a fortnight. The move was aimed at improving timeliness and accuracy of credit information available to lenders.

According to a CIBIL report, the number of consumers monitoring their credit profile grew by 51% year-over-year (YoY) in FY23-24, reflecting that 43.6 million more consumers are intentional about knowing their credit status. Young people are spearheading the credit revolution in India, with 77% of the 119 million credit monitoring consumers being Gen Z and Millennials, it says.

What’s credit score

A credit score is an indicator of how consistent customers are with repaying their debts. When a customer borrows money from lenders like banks, his repayment information is sent to credit information companies that compute a credit score. The higher your credit score, the better your chances of securing loans with favourable terms.

Credit score is usually expressed as a number based on the person’s repayment history and credit files across different loan types and credit institutions. The CIBIL credit score is a three-digit number, which ranges from 300 to 900, with 900 being the best score. A good credit score is considered to be 750 or higher.