Credit scores likely to be in public domain soon
Credit Information Bureau is expected to allow individuals to access their credit scores. This will offer additional bargaining chips to creditworthy borrowers to secure loans at lower rates.
By Vidyalaxmi, TNN |
Credit scores which reflect the financial well-being or creditworthiness of individuals will soon be in the public domain. For a long time, the laws governing credit bureaus did not provide for individual borrowers to ascertain their credit scores. But soon they will be in a position to do that just like their counterparts in many countries.
Credit scores for individuals will fall in the range of 300 and 900. The higher the credit score the better the individual’s credit rating, which in turn means greater bargaining or negotiating powers with hardnosed bankers when it comes to contracting a loan.
Says Credit Information Bureau (India) Ltd (Cibil) chairman S Santhankrishnan: “All borrowers can ask for their credit reports from Cibil at a fee of Rs 100. Till some time ago there was no enabling law or provision which would permit the borrowers to access their credit scores. Now, however, enabling legislation has been gazetted. So, the credit scores are likely to be in the public domain soon.”
The Reserve Bank of India (RBI) is expected to unveil a set of guidelines in a couple of months which is expected to provide clarity on this issue. “The law has been gazetted. But which portion of it becomes effective depends on what RBI has to say,” Mr Santhanakrishnan says.
According to the current norms, only member banks can access the borrowers’ customer information reports (CIR). As an individual, a borrower cannot access these reports directly from Cibil. If a borrower wants to check his/her credit information then a request has to be put in to the bank. The bank, in turn, seeks the relevant information from the credit information bureau.
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However, this is a far cry from what prevails in developed economies such as the US. The Fair Credit Reporting Act (FCRA) stipulates that every consumer reporting company in the US has to provide the customers with a free copy of their credit report. A customer has to place a request for CIR and he can avail of it absolutely free of cost, once a year. In the US, The Federal Trade Commission insists on every borrower having accurate knowledge on his or her credit information report. The main reason being that it helps the borrower to have an up-to-date information on his or her credit history before he or she applies for a loan. It could either be for buying a house, car or for some other personal expenditure. Since the borrower is aware of his credit score and if it is a good one then he/she has an upper hand while negotiating for a better rate.
Even in India, Cibil was created almost five years ago to help financially disciplined borrowers by offering soft rates and to rein in defaulters by either denying them a loan or charge a relatively higher interest rate to enforce financial discipline among them. The credit bureau collates data on credit worthiness of all borrowers from banks and prepares CIRs to help credit providers make quick and objective lending decisions.
Every time a prospective borrower walks into a bank, the bank posts an online query with the credit bureau. Then the loan application is evaluated on the basis of the borrowers’ repayment history, other loans and host of other factors like income, age, security and number of dependants.
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But so far only banks have access to this information and the disciplined customer may actually lose out on benefiting from a lower interest rate. Consequently every borrower pays the same rate, be it a home loan or an auto loan. Explains a senior banker: “Today a bank may be able to distinguish between a good and a bad customer. But the customer is not able to evaluate himself before signing up for a loan. Consequently, good customers end up getting a raw deal and, in fact, bad customers are also unaffected because of standardisation of rates. With customers having access to their credit scores, standardisation may come to an end.” Start a SIP with as low as ₹500 with ET Money App!
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