A credit report is an all-important font of information that all banks and financial institutions rely on today. As part of the loan approval process, a lender first checks the credit report and then determines whether a loan is to be sanctioned or declined. The better your report reads, better are the chances of your loan application going through.
What is a CIBIL report?
CIBIL is India’s oldest credit bureau, of the four operating today, the others being Equifax, Experian and CRIF High Mark. Hence very often, a credit report is referred to colloquially as a CIBIL report.
However, credit reports are provided by all the above mentioned bureaus.
What kind of enquiry is made against a credit report?
There are two types of ‘hits’ or enquiries that are made against your credit report:
- Soft enquiry, wherein a lender (or credit card company) requests for a copy of your credit report in order to offer you an enhanced credit limit. Typically, the bank or financial institution does not request for your consent when making this enquiry.
- Hard enquiry, which is done by a lender when you apply for a loan or credit card. Again, most lenders do not require your consent to pull this report, but some may do so. In which case, it would be mentioned as part of the loan application terms and conditions.
If you realise that there are hard enquiries made against your credit report, it would be wise to bring them to the attention of the concerned credit bureau. There is a possibility that these are a result of your credit report being misused, for example in case of an identity theft wherein another person is attempting to use your personal information to get a loan or credit card. Remember, each hard hit pulls down your credit score, so this should not be taken lightly.
Where are these enquiries used?
Globally, credit reports are used in businesses other than financial services for loans and credit card, such as insurance companies and telecom operators.
In India however, the usage of credit reports is mainly restricted to the financial services sector, as an entry-level check when you apply for a fresh line of credit.
Who can access a credit report?
In the United States, for example, the Fair Credit Reporting Act (FCRA) determines who can get access to an individual’s credit report. Some of the reasons a report can be made available include:
- A bank or financial institution, to process your loan or credit card application
- The individual agrees (in writing) to share their credit report
- On the behest of a court order or subpoena
- For prospective employment, by an employer (with the candidate’s prior permission)
- With regards to a business transaction initiated by the individual
- When utility companies process your application to apply for services, such as telecom
- When a landlord is appraising your request to rent their property
- When an insurance company is underwriting your policy
If an individual reports unauthorised use of their credit report, the FCRA will take up the enquiry. For example, an insurance company can view your credit report at the time of underwriting, but not if you subsequently file a claim. It caps actual damages at US$ 1,000 if there is an error owing to oversight, but consumers can also sue for punitive damages, lawyer’s fees and associated court costs.
In India, as per the Credit Information Companies (Regulation) Act, 2005 (CIC Act), the borrower’s consent is not required to (a) collect data from lenders and (b) furnish this information to specified users of credit information by credit information companies. This ‘consent clause’ has been made redundant as per a Reserve Bank of India (RBI) notification dated July 01, 2013. Hence, it is likely that you would know when an enquiry has been made only when you request for a copy of the credit report yourself.
It is important to note that not just about ‘anyone’ can get access to your credit report without your permission. A prospective employer for instance cannot obtain a copy of your report unless you agree to share it with them. Simply put, as on date, no individual or corporate body/ organisation can check your CIBIL report without your permission, unless you have applied for a line of credit as mentioned above.
How can you safeguard yourself?
It is always prudent to keep track of your credit report at regular intervals by obtaining a copy from any or all of the credit bureaus. While the score itself may differ slightly across bureaus, you would be able to tell if any unusual activity is reported. In such an event, contact the concerned bureau(s) immediately to have the data rectified.
Your credit health is the key to your financial future, and the credit report is an extremely crucial factor in the process. Hence, it is never too late to begin monitoring your credit report and safeguarding your financial future.