Lenders such as banks and other financial institutions are not the only ones with access to CIBIL report, and are gaining acceptance as a means to perform a check on a consumer prior to extending services and offerings. These range from employers to insurance companies and telecom operators. CIBIL reports are sometimes used even for background verification purposes.
What a credit report speaks about you
Simply put, a credit report is a snapshot of your credit history – past repayment records, the type of loans (secured and/ or unsecured) you have availed of, the tenure of the accounts as well as the current outstanding on each of these accounts.
With this information, a lender or service provider can estimate the amount of credit they would want to extend to you, and at what terms and conditions.
A credit score is an integral part of the credit report. Typically ranging between 300 and 900, it is a numeric indictor of your credit history. Naturally, higher the score better are your chances for obtaining a fresh line of credit.
How telecom operators view the credit score
As per the Credit Information Companies Regulation Act (CICRA) 2005, telecom companies can make use of consumer credit reports prior to issuing a post-paid phone connection. Conversely, as on date, telecom service providers in India do not submit or contribute any data to credit information companies or bureaus. Also, this practice is currently restricted only to post-paid connections.
When they receive the report, like lending institutions, telecom companies also check whether the score is ‘good’ or ‘bad’. This helps them determine whether they would want to offer the connection or not, in the first place. With every new connection, as with loans, a physical or field verification of the consumer’s identity and address is undertaken. It is possible that with a healthy score, this requirement may be waived and hence the turn around time in providing the connection would be reduced, thereby making it convenient for the customer.
Once that has been established and the connection request granted, the same report and score are used to assign the credit limit that an operator is willing to set for the consumer. Of course, a higher score will translate into a higher credit limit. This is because a good score signifies that the customer is reliable and has a good repayment record when it comes to honouring credit. For example, say your credit limit is set to Rs. 5,000 by the operator and halfway through your billing cycle the amount outstanding is Rs. 7,500. At this stage, without making an interim payment, there may be temporary restrictions on the services available to you. Once the amount is below the credit limit upon payment, the balance can be paid in the next billing cycle.
Further, a telecom company also decides on the security deposit a person may need to pay for a new connection. A good credit history could mean that the amount required by way of the deposit would be lower than for someone with a poor or bad score.
What you should do
With the entrance of telecom companies and other financial service providers such as insurance companies increasingly making use of credit scores, it may not be long before most financial transactions require an individual to have a good credit score.
In some countries the world over, telecom operators do not offer post-paid connections to those users with no prior credit history. This practice may hit Indian shores going forward, therefore establishing a sound credit history gains importance.
Hence it becomes critical to not only know your score, but take measures to improve your credit score if it is not satisfactory. A consistent payment record that ensures no late payment or defaults will help in improving the score. At regular intervals, therefore, it would be a good practice to check your credit score and make it work for you.