Have you ever wondered as to who keeps a watch on your financial dealings when it comes to having availed of credit, be it a loan or a credit card? Do you have a credit bureau watching you, or is it the lender or both? Here is a brief insight into the world of credit health.
Tell me more about CIBIL and credit bureaus
CIBIL is India’s oldest credit information company, or credit bureau, that has been licensed to operate by the Reserve Bank of India (RBI). CIBIL was incorporated in 2001 and has been providing credit bureau services since 2003 for banks in India. A credit bureau generates credit information reports that provide a wealth of information regarding an individual’s credit history, both past as well as ongoing. These credit reports are summarised by credit scores, which typically range between 300 and 900. A high credit score indicates better repayment behaviour and satisfactory credit hunger of the consumer.
In addition to CIBIL, there are three more credit bureaus, namely Equifax Credit Information Services, Experian Credit Information Company of India and CRIF High Mark Credit Information Services. These bureaus were granted licenses in 2010 and since then have been working closely with banks and financial institutions to fill in gaps that were present in the market at the time when there was only one credit bureau.
These bureaus also have expanded the data coverage and introduced specialised segments such as microfinance (MFI) loans. This data is also now available with the credit bureaus in addition to the commercial loans and consumer loans data traditionally available with the bureaus. There is a mortgage check repository also and a separate database for fraud checks; bureaus have also been working to get more and more data into their databases and like in some other countries with time telecom and insurance data may also come to credit bureaus in India. This will greatly help a lender establish whether they want to extend a fresh line of credit or not. For example, if a borrower features in a fraud report, the next lender they approach for credit of any kind is likely to decline the application.
Credit bureaus and the RBI
As per the Credit Information Companies Regulation Act, 2005 (CICRA) the RBI is the regulator for credit bureaus and over the years has brought in several robust guidelines and policies to monitor bureaus. As per the latest guidelines, lenders are required to submit data to all bureaus. This means that every bank or financial institution is required to become a member with each of the bureaus present today. This is a significant move to ensure that credit history and repayment behaviour of all types of borrowing is available with all the bureaus.
Apart from bureau data, the RBI also requires credit bureaus to share a list of wilful defaulters, and this data is published on the RBI website.
What does a credit bureau check?
A credit bureau maintains the credit history of a borrower, detailing in its reports the repayment track record of a borrower. When you approach a lender for a loan or apply for a credit card, the first thing the lender does it to pull a copy of your credit report, which helps them gauge both the willingness and ability of a borrower to repay any outstanding debt.
Bureaus however do not make any changes or modify this data either in entirety or in part. They merely put together the data received from their member institutions, i.e. banks and other financial institutions. Essentially, bureaus don’t track individuals they only maintain and organise the data submitted by lending institutions.
Hence, from the time that you obtain your first credit card and right up to your existing home loan, for example, the lender(s) you have borrowed from will be the entities that monitor you closely, and not CIBIL or any other credit bureau. This monitoring is translated into your credit health, which needs to be maintained as you would your physical well being.
How does one track the credit score?
The first thing to do is to call for a copy of your credit report from either one or all bureaus. Once you receive the same do go through it at length and also check the score. If you think the score is not on par or you need help to improve credit score, consider availing of the services of a credit health management company. In tandem with trained credit counsellors you will be able to restore your credit score and even enhance it over time.
Therefore be it your first credit card or current home loan, make sure you maintain credit health.