Earlier, lenders had to rely on their own assessment (internal) of a customer before giving any loans or even credit cards. But gradually the situation changed with the availability of individual credit information through CIBIL. Lenders fetched details on your credit worthiness from CIBIL. So whether you will get your home loan, personal loan, auto loan, credit cards or not and at what interest will be determined by your credit score.
CIBIL, which has been operating in this space for a fairly long time, already has a large database of customers with their credit scores. Lending institutions dip into this database for assessing their creditworthiness. Be ready to accept the fact that your credit scores will be a key reason to determine your loan sanction. This makes it essential for you to monitor your credit score now that it is available from CIBIL, which earlier was not the case.
Elsewhere in the world if you have been rejected a loan on account of a low credit score then you have the option of approaching select lenders who specialise in lending to borrowers who have recently come out of a bad credit situation. But this doesn’t exist in India. So it becomes all the more critical for you to monitor your score to ensure that your loan does not get rejected on the grounds of a poor credit score.
What does a score look like and what is a good score?
A credit score is generally a three-digit number within the range of 300 and 900. Higher the score the better it is. This score will reflect information from several lenders and across various loans.
What information does a credit report contain?
The report contains basic details of the consumer (name, id, etc.), personal details (date of birth, passport number etc.), location details (address), details of bank accounts such as auto loans, home loans, personal loans and credit card (overdue accounts, highest amount of credit sanctioned in case of credit card, overdue amounts – oldest, latest, last payment, account ownership, closure, sanctioned credit in case of credit cards and other cards, number of times credit report requested by the creditor along with the name, enquiry purpose, date and amount).
Will my credit score be the same across different agencies?
As the source of information for each credit agency may not be the same, scores are bound to differ. All the lenders may not report to all the agencies. Besides, as competition in this space increases, each player will want to launch innovative products and new ways of capturing information which may affect the credit score.
Should I access my score from one agency only?
In countries such as US where individual credit scores have been in existence for long, experience from market information suggests that credit report of one agency may differ completely from the other. Besides, there may be errors in the report of any single credit agency which you will spot only if you access your credit report from all the agencies. In the US, evidence suggests that 25 per cent of the credit reports contain errors that are serious enough to cause denial of credit. In order to ensure your financial soundness, and also protect yourself from any credit reporting errors, it seems logical to access your credit report/score from all the agencies.
What should I do if the score is incorrect?
Sandeep (name changed) applied for a home loan from a bank. The bank rejected his loan application on the grounds that his credit report mentioned that he has a long overdue outstanding amount on a credit card. This took Sandeep by surprise as the issue was amicably settled with the bank, post which he stopped using the credit card. He got the bank to acknowledge the same and he subsequently informed CIBIL, presenting the acknowledgement from the bank as proof for his claim. CIBIL then verified and incorporated the updated, correct the information in his credit report and he was granted a loan.
Errors are bound to happen due to incorrect reporting by lenders or due to human errors.
You need to report the error to CIBIL with valid proof and if you are not satisfied with the action you can lodge a complaint with the banking ombudsman’s grievance cell, which will take up the issue and evaluate it from a neutral stand.
How often does my credit score get updated?
Updating the credit report is being an ongoing process. Lenders send updated data regarding an account to the agencies. It depends on how may credit accounts the individual has and when there is a change in the credit data. The moment there is a change in the credit data, it will reflect in the credit score.
What makes this system foolproof for lenders?
Sandeep has taken a home loan from ABC Bank and has been paying his EMIs on time. Simultaneously, he has taken an auto loan from XYZ Bank and has defaulted on the last few payments. Sandeep now applies for a personal loan from ABC Bank assuming that since he has paid his home loan EMIs with the bank in a timely manner, he will be granted a personal loan without any trouble.
However, what he was not aware is that ABC Bank has obtained obtains a credit score from CIBIL (CIBIL has varied sources of information from which it collates credit data and then arrives at a credit score) where he shows up as a defaulter with another bank. This could either result in a rejection of his personal loan request or the bank might charge him a high rate of interest.
About the author:
Pradip Phalore has completed MBA in Finance from K.J. Somaiya and is currently working as Senior Manager @ eClerx.
My loan was rejected. Credit Sudhaar was my choice. Initially they were slow. But their counsellors were able to handle all my queries. I will give Credit Sudhaar a positive review