Need a new phone connection? Make sure you have a good CIBIL score!

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.

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New updates on credit report and score from the RBI

The concept of credit reports and credit scores has been fast gaining acceptance in today’s financial scenario in India, with all lenders using the model to determine whether to extend credit to a customer, or reject an application for a loan or credit card.

While globally the usage of credit reports has gone beyond financial services and extends to employment and even property rental, in India we continue to use reports primarily when it comes to lending. To this end, the Reserve Bank of India (RBI) has been working on the guidelines that need to be followed with respect to credit bureau products and has been revising them periodically.

India’s first credit information company, or credit bureau is CIBIL, and is the oldest having commenced operations in the year 2000. Subsequently, the other bureaus licensed to operate in the country are Equifax, Experian and CRIF High Mark.

In the nascent stages of credit bureau inception, the Credit Information Companies (Regulation) Act, 2005 (CICRA) was operationalised with effect from December 14, 2006. As per Section 15(1) of the Act, every credit institution had to be a member of at least one credit bureau within a period of three months from commencement of the Act. This applied to cooperative banks as well, as they fall under the definition of credit institutions as defined by the Act. This included data sharing by institutions to the bureaus, as a bureau relies on its members to provide information.

Subsequently, in January 2015, the RBI modified this circular, and as per the revised circular as per Section 15 of the CICRA, every credit institution (Non-banking Financial Companies (NBFCs) and banks included) would need to become a member of all the bureaus and moderate the membership and annual fees suitably. With bureaus dependent on their member institutions for data, there is likelihood that credit history of an individual related to non-member credit institutions would not be reported. This would result in incorrect/ incomplete information across bureaus, and the effective solution to streamline the process would be to mandate membership for all institutions. One-time membership fees to be charged by the bureaus to credit institutions cannot exceed Rs. 10,000 each, while the annual fees cannot exceed Rs. 5,000 each.

With membership comes the question of submitting data to credit bureaus on the part of member institutions. A Committee to recommend data formats for furnishing credit information to credit information companies was constituted by the RBI under the aegis of Aditya Puri, MD, HDFC Bank. On examination of the recommendations of the Committee, it had been derived that increased recognition of credit reports is required, especially by Regional Rural Banks (RRBs), State Cooperative Banks (StCBs) and District Central Cooperative Banks (CCBs), to ensure better screening of loan applicants and usage of credit information reports in credit appraisal. Hence, bureaus would now need to hold regular workshops for these institutions.

Further, the Committee also recommended that RRBs should, as part of their credit appraisal process, have suitable provisions for obtaining credit reports from one or more bureaus so that the credit decision is based purely on information available in the system.

On a related note, the databases currently available with bureaus are not adequately populated with data pertaining to commercial borrowers, and hence member institutions are required to report this data to the bureaus in a timely manner, for bureaus to upload this data within a six-month time frame.

To streamline the process still further, standardisation of data formats had been proposed by the Committee for consumer and commercial borrowers. This would be submitted in a non-proprietary reporting format known as the ‘uniform credit reporting format’. A Technical Working Group would be sent up to regularly review the same and suggest modifications as required. However, those NBFCs registered with the RBI as core investment companies, primary dealers and those solely into investment activities without any customer interface are exempt from this inclusion.

The RBI had also requested for changes in reporting data to bureaus for defaulters (Rs. 1.0 crore and above) as well as wilful defaulters (Rs. 25.0 lakhs and above), wherein additional information regarding the PAN number has to be included.

In conclusion

The RBI has been reviewing and monitoring the usage of bureaus as well as the practices adopted by them and member institutions both. With better governance and uniformity of processes, the road ahead for credit information companies looks positive.

Effect of Marriage on Credit Score

When they made the movie “Shaadi ke Side Effects” or Side Effects of Marriage as translated in English they forgot to talk about effect of matrimony on Credit Score!! No worries we will remedy that. First questions first “does marriage have any effects on your credit score at all”.

Does Marriage Affect the Credit Scores of Both Partners?

The short answer is “no” at least directly. When two people tie the knot their credit scores do not merge. The credit scores are for individuals and reflect the individual credit history and continue to so even after two people officially decide to live together. While after marriage you may choose to have a joint bank account there is no joint credit score.

So even after you get married the debt and credit cards in your name get treated just the way they were before you get married. So if you default on your payments only your credit score is adversely affected and the converse is also true.

Similarly if you apply for a loan in your name only your credit history will be evaluated and not that of your spouse. Any digression only in your credit history will be considered and not his/hers. A good credit score for your spouse cannot get you any brownie points. However if you apply for a joint loan then both your credit histories will be considered individually and the decision will be made accordingly.

Some Special Tips for Women:

Women need to take care of some aspects especially when they get married. Even if you take your husband’s surname post marriage it will have no bearing whatsoever on your credit score; the credit history in your maiden name does not get erased. So you can continue with your credit trail whether god or bad.

You need to inform the concerned parties including banks and creditors about the name change so that changes can be made at appropriated places. The history gets carried forward with the new or the changed name/surname. There are others aspects like the date of birth etc that establish the identity of the person so there is no need to worry on this aspect i.e name/surname change post marriage.

Now the next aspect I want to touch upon is that women should maintain their individual credit cards and bank accounts and continue to maintain them irrespective of the fact whether you are working or not. Even if you start a joint account or take an add-on credit card do continue with at least one card and one account in your individual name whether maiden or otherwise. An old account is much more helpful when it comes to establishing the credit habits of an individual.

Your credit history could come in handy in case due to some exigency like financial hardship, death of spouse or bad credit score of spouse you need to use your credit score for applying for a loan. In case years down the line you want to start afresh and have a credit history it might become difficult and cumbersome for you to get a credit rating. Also at least a six month trail is required for a credit rating.

However…..

In case of a loan taken in joint name shall impact the score similar to a loan taken in individual name, irrespective of the fact that the person may be second or third joint applicant and repayments are being done from the primary applicant’s account.

Marriage does have some indirect impacts on your credit score. In case either of the partner is not financially disciplined it can affect the family finances and can cause you do default on payments thereby impacting the credit score negatively.

Marriage involves a lot of expenditure (at least in India) whether its pre-marriage preparations or post-marriage shopping and setting up a new house. So it’s important that you plan carefully and don’t overspend or max your credit cards. It’s not a good idea to begin a new life in debt.

A positive outcome of a marriage is two credit scores. So in case one partner has a lower credit score than you always have a choice of using the credit score of the other partner when applying for a loan.

Though marriage does not affect the credit score directly, it does impact your life and lifestyle. With careful planning, you can avoid any pitfalls and make the best of it; financial or otherwise.

How often should you check your credit score?

One may not need the credit or loans at all times, but it is prudent to keep track of your credit score regularly. If you find anything out of the ordinary, it would be wise to report it to the concerned lender immediately, and have it rectified.

As a consumer, you should be aware of your credit history, as any small error can play havoc with your score. Make sure that the information captured in your report is accurate and up-to-date, ideally checking at least once a year.

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When should you check your credit score?

There are four credit bureaus in India licensed to operate by the RBI. You can apply for a report to any (or all) of the bureaus, and check the scores across each.

A good strategy is to spread out your report requests throughout the year, instead of getting them from each bureau at the same time. That way, you would be able to keep track of your score year-round.

You may want to check your report additionally if you are planning to avail of a new line of credit – a loan or a credit card – as the score plays a critical role in the approval process. A good score can ensure you get a loan on the best possible interest rates and terms.

Alternately, it would suffice to request for a report from the bureau once a year. Checking your personal credit history as often as you like does not impact your score.

How to get a free credit score?

While the bureaus themselves do not offer a free credit report to consumers, you can log on to freescoreindia.com, for a free credit score from Equifax, one of the bureaus in the country today.

To summarise, while a free credit report is not available currently, spending a relatively modest sum to know that your financial information is correct is well worth it. Know your credit score and earn yourself some well-deserved peace of mind.

It’s time to know more about your CIBIL Score

A credit report (of which the score is an integral part) is the first document that a lender refers to when scrutinising an application for a loan or credit card. It helps them gauge whether it would be risky or otherwise, extending credit to that particular customer. Having a good credit history is important, and therefore as an extension, it is equally important to know more about your score.

CIBIL is the only credit bureau in India – This is one of the first questions that are asked: are there any other credit bureaus (or credit information companies) apart from CIBIL? The answer is yes – there are four bureaus operational in the country today, namely CIBIL, Equifax, Experian and CRIF High Mark. Owing to the fact that CIBIL is the oldest bureau, it is interchangeably used as a term to define bureaus.

Of course, while each bureau has its own scoring pattern for credit reports (typically ranging between 300 and 900), the basic logic is the same. Each of them uses a set of information to derive the score through analytics.

Closing a bad account does not erase it – Let us say a consumer has defaulted on a loan in the past, or made repeated late payments. Even if subsequently the entire loan has been paid off, remember that the information does not get wiped off your report. While an old ‘good’ or ‘bad’ account may be closed following complete outstanding payment, detailed payment history stays as-is on the credit report.

It is therefore a good practice to make sure any loan outstanding is paid on time, to avoid any blemish on your report, and consequently translating into a low or a poor score.

A poor score means no loan – It is true that the higher your score, the better are your chances of a loan or credit card application getting approved. Further, it also helps to get debt at the most competitive terms and interest rates. However, do keep in mind that a credit score is not the only deciding factor – other information such as your income, other current outstanding etc. also play an important role.

Hence, while a low or poor score may get you a loan, you may wind up paying more by way of interest. It is also possible that while you for example applied for a home loan of Rs. 1.0 crore, a lender would approve a loan of a lower amount. It is therefore important to build up your score.

Repairing a low score is impossible – At the initial stages, the very idea of repairing a low score seems impossible. However, this is not so – with persistence and financial diligence it is indeed possible to not only better your score, but maintain it as such. If you do not want to travel this path alone, it may be a prudent decision to avail of the services of a credit health monitoring company, wherein you would be guided at length as to how to build your score from the ground up.

Do remember therefore that help is always at hand, and you can (successfully) attempt to improve your cibil score.

Checking your own score brings it down – In order to track your credit history, you would need to obtain a copy of your credit report. It is a good practice to check your report annually or additionally if you’re applying for a fresh line of credit. It is commonly believed that checking your score can bring it down; however rest assured it is not so. This practice in fact helps you monitor your score and stay financially healthy.

Purchasing a credit report is expensive – None of the bureaus currently offer free scores to a consumer; they are available for purchase on payment of a small fee and on providing basic documentation.

Alternately, Freescoreindia.com offers a free score from Equifax, one of the bureaus. You can avail of this service by logging on to the website and following a simple hassle-free process.

Social media and credit scores – With the advent of social media, there is a new concept by which your presence on social media networks such as Facebook and Twitter can help assess your credit score. As per a recent update, companies are exploring new ways to gauge the creditworthiness of consumers by understanding their profiles and behaviour on social media.

In places where structured credit scores are not available, this emerging platform may just be a viable alternative for lenders to explore.

The bottom line is, you need stay credit healthy at all times, and knowing more about your score is the first step in the right direction.

Why you need to know about your credit score

If you are a student, how would you feel, if you are denied your academic report? How will you evaluate your performance on various subjects that you are studying? If you are an employee, can you be oblivious to your professional performance?

It is equally important to know your credit performance, the way it is to know your academic and professional performances. A person’s credit performance – means, how they handle loans and credit – is indicated by a three digit number called the ‘credit score’. Credit score appears on the individual’s credit information report and is a reflection of the person’s financial and credit worthiness. Knowing your credit score will tell you whether or not you can seek a new loan or a credit card; allow you to take important decisions regarding your finances; and seek financial help when you really need it. Loans and credit have become an important, indispensable part of common man’s life since they allow people to meet their financial goals and fulfill their dreams. In that case, knowing whether you are loan-worthy or not, means, knowing about your credit score becomes inevitable.

What exactly is this credit score and why is it so important?

Credit score is a three digit number, that shows the financial worth of an individual. In other words, credit score and credit report will let you know if an individual has a good credit behaviour or not; OR, whether the individual is employ-worthy. Credit score is a clear indication of a person’s loan eligibility also. It is computed on the basis of a person’s credit usage and loan re-payment patterns over a period of time. In case of organizations, credit score will let a prospective investor or a business partner judge, if the company is worth investing in or worth partnering with. Knowledge of your own credit score is therefore crucial.

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One would be able to manage their credit products better, if they are aware of their credit score. Means, running a credit check will tell them whether the scores are low, average or high. A low score will give them the opportunity to improve credit score and become loan worthy, before they approach a lender. Which means, to a potential lender, your credit score will reflect as good. Whereas, a good score will translate into a good credit health, means, it shows that you are loan worthy [or employ-worthy]. There are several factors apart from a credit score, which impact a loan approval process. But, a credit score is the one that directly impacts majority of credit decisions. In accordance with your credit usage patterns, your credit score may fluctuate.

Knowing your own credit score will also allow you to make timely corrections on flaws or errors before such a factor can turn a potential lender away. So, now you have understood how to know your credit score, and approach a bank or a lender with confidence. Credit score is a crucial factor in all borrowing and lending decisions.

Know how to get free credit score