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If you plan to apply for a vehicle or a home loan, or a credit card, you should first find out if you have the credit score to be eligible — else your application could be rejected. The credit score of an individual is based on their full loan history, which is stored in the database of a credit information company (CIC) which is registered with the Reserve Bank of India (RBI). This data is accessed by banks while considering the customer’s application for a loan or a credit card.
There are four CICs, TransUnion CIBIL, Experian, Equifax, and CRIF High Mark, all of which are regulated by the RBI. They maintain credit information of borrowers — including individuals, corporates, and small and medium enterprises (SMEs) — which can be accessed by banks and other lending institutions.
They collect information from a variety of credit providers, including banks, credit card companies, and non-bank financial institutions, and rate borrowers on a scale of 300-900 with 900 being the highest rating.
Banks and finance companies normally take a decision on giving a loan based on the rating given by the credit bureaus. Banks mandate the use of credit information report (CIRs) in their credit appraisal process. Both CICs and banks are supposed to keep the credit information collected/ maintained by them updated monthly, or at mutually agreed shorter intervals.
The closer the score is to the maximum of 900, the better it is. A score between 550 and 700 is deemed to be fair, and 549 and below is deemed to be poor.
If the borrower’s score is more than 800, she will likely get a loan or credit card easily and at a lower interest rate. On the other hand, scores nearer to 300 mean there is little chance of the borrower getting a loan or credit card.
Ratings change with the repayment behaviour. If a borrower defaults, her score will fall. Once it falls to below 500, chances of getting low interest rates and even loans or cards also decline accordingly.
What’s in the database of CICs?
CICs have details of all creditors and borrowers in the financial system. This effectively means they are monitoring credit outstanding of Rs 158.29 lakh crore in the banking system. CICs also capture the names of directors, guarantors, and partners involved in the loans.
As of March 2023, there were 36,217 suit-filed accounts — where banks had filed cases against borrowers for loan defaults — involving Rs 926,300 crore, according to TransUnion CIBIL data. There were also 16,899 wilful defaulters, involving a cumulative Rs 353,905 crore, CIBIL data show.
How can borrowers be sure that their data is correct?
If a borrower defaults, and subsequently makes the repayment, they should approach the CIC after a month to check if their status has been updated. If they are still classified as defaulters and their rating is consequently down, they should take up the issue with the CIC for rectification.
This is important because borrowers are in the dark about their credit rating and credit status until they seek a report from a CIC. Unlike banks, they don’t have direct access to the CICs’ database.
Are there cases where customers have complained?
Yes, the RBI has received many complaints about CICs not updating the status of borrowers. Customers have complained that when they rectify a default issue or point out a wrong classification, the CICs have failed to act within the stipulated timeframe. As a result, many customers have been unable to get loans or credit cards.
It has been pointed out that if a credit card holder defaults on payment, or if she fails to pay a loan instalment, the CICs are immediately notified. However, when the customer has rectified the payment, the CICs have not reclassified them with the same urgency.
What steps has RBI taken to address these complaints?
In October, the RBI asked CICs to provide easy access to a Free Full Credit Report (FFCR) including credit score, once in a year (January-December), to individuals whose credit history is available with the CIC. The link to access the FFCR conveniently should be displayed prominently on the CIC’s website.
The RBI also said that lenders should inform customers of the reasons for the rejection of their request for data correction, if any, to enable such customers to better understand the issues in the credit information report (CIR).
The central bank said CICs should have a board-approved policy for undertaking periodic reviews, at least on a half-yearly basis, of the ‘search & match’ logic algorithm that they use to provide the borrower’s CIR. The CICs should undertake a root cause analysis (RCA) of complaints to identify issues in the existing ‘search & match’ logic algorithm, it said.
