The Way Forward for Credit Bureaus in India

Credit rating is still a developing concept in India with the first Indian credit rating bureau, CIBIL being just more than a decade old. The CIBIL credit report and score was introduced to banks in November 2007 and in April 2011, this facility was made available to individuals. CIBIL, also known as CIBIL TransUnion, currently maintains information on 1 billion consumer credit accounts in more than 30 countries and has a membership base of over 90,000 data sources including financial institutions, private databases and public records repositories.

RBI has mandated financial institutions to access the credit scores of loan and credit card applicants to determine their creditworthiness. The credit score from CIBIL is a statistically generated 3 digit number between 300 and 900, which sums up the person’s creditworthiness. This computation is made on the basis of factors like payment history, past settlements/write-offs, the proportion of loans vis-à-vis income, etc.

The closer you are to 900, the better your score and the higher your chances of being approved for a loan by a bank. In fact, a majority of individuals who are approved for loans are reported to have a CIBIL credit score above 800.

Apart from CIBIL TransUnion, there are three more credit reporting agencies operating in India – Experian, Equifax and CRIF High Mark. All four credit bureaus use slightly different scoring models to compute your score. Therefore, you will tend to have slightly different scores depending on whether you opt for CIBIL TransUnion, Experian, Equifax or CRIF High Mark Credit Score.

Internationally, the use of credit scores is not just limited to lenders, but are also accessed by other stakeholders like telecom operators, insurance companies, house owners, etc. to determine the creditworthiness of prospective customers, renters, etc. The concept of credit score has a much wider reach and applicability in the developed world as compared to developing countries.

Also Read: How to improve CIBIL Score in 10 Smart Ways?

International Practices that Credit Bureau in India might Implement

Below are some of the global practices that may be implemented by credit reporting companies in India to expand the scope and usability of credit score in the country.

Customer Screening for Post-paid Mobile Connections

In many countries, mobile operators have started to analyse the credit score of applicants to determine the post-paid plans applicable to them. Following global trends, Indian telecom companies may also start enquiring about your CIBIL score to check credit history and determine the service plan and the credit limit on your connection as per your rating.

Fixing Insurance Premiums Based on Credit Score

Policy premium in India is majorly determined by the factors like age, health and financial condition. However, it works quite differently in countries like the US and the UK, where apart from demographic factors, credit score also plays a significant role in determining your insurance premiums.  Going forward, such a system may be implemented by insurers in India as well. Therefore, the higher the CIBIL score, the better are the chances of getting an insurance policy at a lower premium.

Use of Credit Report to Canvas Prospective Tenants

House owners or rental agencies in some countries access the credit report of prospective tenants to check if they are any payment delays or skips by him/her in the past. Although it may not be the sole criteria to select/reject the tenant, it may help the house owner improve chances of getting a good tenant.

In the not so distant future, Indian credit rating agencies may also start following a similar pattern at least in the comparatively more organised markets in metropolitan cities including Mumbai, Delhi NCR, Bangalore, etc. Though there is little chance that the rent payable would decrease based on your high credit score, it is expected to play a role in improving your chances of securing rented accommodations when you move to a new city.

Credit Report Services for Online Sellers

CIBIL and the Reserve Bank of India (RBI) are already in talks to introduce a credit rating system specifically designed to profile online shoppers. The system when implemented in India would help e-commerce platforms such as Citrus Pay, PayTM and PayPal India to provide customised offers to clients who have good credit history regarding online purchases. When fully operational, the system would encompass even leading online retailers like Flipkart, Amazon, Snapdeal, e-Bay and others.

Free Credit Score access once a year

In India, borrowers can access their credit score by paying a fee. This fee has to be paid every time you check your credit report. Across the world, many credit rating companies provide free credit reports to their customers once a year. This option of one free annual credit score helps in increasing the awareness and utility of credit scores among the common man.

Paisabazaar.com has tie-ups with CIBIL, Experian India, Equifax India and CRIF High Mark where you can get your free credit report and score online through our website. You can check your free score on a monthly basis and if required, work on improving it so that your creditworthiness improves. Additionally, periodically checking your credit score is necessary to ensure the prevention of identity theft and correction of credit report errors.

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