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Securing loans in India is no longer a hassling process as it used to be decades ago. Now, if you secure a loan from banks, it is monitored. This includes the number of loans you secure, the amount, the type of loan, and how soon you pay it. All these pointers are analyzed to determine your credit behaviour. This credit behaviour ascertains if you will be a suitable candidate to secure loans in the future. All of this is monitored by the credit bureau in India. They are established to monitor and analyze financial transactions in India.
We will be learning more about credit bureaus in India, including what they are, their functions and the number of credit bureaus that currently operate in India.
List of Credit Bureaus in India
There are four major credit bureaus in India. These include:
1. TransUnion Credit Information Bureau (India) Ltd. (CIBIL)
The CIBIL credit bureau was established in 2000 and is India’s oldest credit bureau. The bureau maintains the credit record of over 600 million individuals and 32 million companies. It was first established by the Reserve Bank of India; however, later, it merged with TransUnion International, a Chicago-based credit bureau.
2. Equifax India
Equifax India is the Indian arm of Equifax Inc., which happens to be the world's most renowned credit bureau across the globe. Although established in 1899, the bureau received a license to operate in 2010. Besides providing credit reports, the bureau calculates risk and portfolio scores.
3. CRIF High Mark
After being established in 2007, the credit bureau obtained a license to operate in 2010. The bureau claims to be India's first full-service credit bureau. It provides a number of financial services, including providing comprehensive credit information to lenders, MSMEs, and commercial and retail customers. Along with it, the bureau also offers data management, analytics and insights and software solutions to NBFCs, housing finance companies, insurance companies, and telecom service providers.
4. Experian
The credit bureau was the first to be accredited under the 2005 Act of New Credit Information Companies (Regulatory). The credit bureau provides credit reports and credit scores. Along with that, they also offer marketing services and analytics tools to support businesses and individuals to take well-thought credit decisions.
The Role of Credit Bureaus in India (H2)
As established before, a credit bureau is an agency that accumulates and examines the credit information of a person or business. This financial information can include income tax refunds & payments, utility bills or credit loans taken. Such information is sourced from lending institutions, and data collection agencies, among others.
The objective behind the collection and analysis of this information is to determine the credit behaviour of individuals. The Credit Information Companies (CICs) or credit bureaus in India are licensed by the Reserve Bank of India (RBI), which regulates these bureaus to restrain any malpractice.
Here's a brief of a credit bureau's role in India:
- The objective of credit bureaus is to maintain financial transparency. This includes providing better access to financial records to lenders and individuals through an elaborate credit bureau report. In addition to this, the liberty to file disputes and complaints against any financial disparities.
- Another important function of the credit bureau in India is to prevent bad loans and fraud. A credit bureau determines an individual's credit score, which ultimately helps lenders decide if a particular candidate is credit-worthy or not. Any bad financial behaviour in the past would label the candidate as risky, thereby preventing bad debts and fraud in the future. Consequently, efficient credit reporting systems in India can mitigate a number of market risks or failures that are prevalent in financial markets in India
- Credit bureaus collaborate with multiple lending institutions and creditors to help them taking several lending decisions.
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What is a Credit Score and Credit Report?
One of the pivotal functions of a credit bureau in India is to collect financial information to prepare credit reports for individuals. A credit bureau report gives the details of your credit situation. This includes your credit score.
A credit score or credit bureau score is a rating that indicates the credit behaviour and creditworthiness of the individual.
Factors such as the number of open accounts, credit cards, amount of debt, and repayment history affect your credit score. A credit score rating can range anywhere from 0 to 900. A credit score below 600 is considered a red flag by most lenders. However, a credit score above 700 is considered excellent and categorizes the individual as creditworthy. A credit score ranging between 600 to 700 is considered moderate. A moderate credit score highlights a little risky credit behaviour. However, there are various ways you can increase your credit score even if it is low.
Do Credit Score and Credit Reports Differ from Bureau to Bureau?
Yes, credit bureau scores differ from one credit bureau to another. This happens due to differences in the algorithm and scoring models used by different credit information companies (CIC). The details in the credit report will however be the same for the individual as all credit bureaus get the same data from lenders. However, there can be other factors that cause a variation include:
- Credit bureaus source their information from financial institutions and banks. Some variation may be witnessed in case some data is not provided to the credit agencies at the same time. Consequently, one bureau may possess updated information, or more information than the others, ultimately influencing the credit score.
- Even though credit scores can differ slightly, if you witness a significant variation, it can be owing to an error in the information. This can result from wrongly identified data points or incorrectly reported information. If you experience the same, you can report the errors to the bureau for their rectification.
Inconsistencies can also result due to variations in the contact information provided when an individual applies for a loan or credit card. This is most commonly reported in joint applications.
Conclusion
A credit score is an important factor that determines financial and lending decisions across banks and financial institutions. A credit bureau in India is established to accumulate financial information and prepare credit scores that help these financial institutions make informed lending decisions.
Frequently Asked Questions (FAQs)
1. Will the rejection of a loan application affect my credit score?
A credit report contains credit information reported by financial institutions and banks. Consequently, any information regarded rejected loans or credit card applications is not highlighted in the report. However, you can enquire as to how many times your commercial credit report has been demanded by a bank or lender.
2. Can a customer's repayment record be overwritten in the database of the credit bureaus in India?
Financial institutions and bank send their customer data to the credit bureaus every month. In case a customer makes an outstanding payment in the current month, the same will be highlighted in the next report. However, the credit records for the previous months will continue to highlight the payment behaviour shown by the customer.
3. What information does a credit report include?
A credit report can include personal information, credit enquiries, current status of credit card and loan accounts information, historical information like closed credit accounts/defaults, etc. It however does not contain details of your life insurance, health insurance or even details of your investments like term deposits or bank accounts.
4. Does my CIBIL report highlight the details of other loans or credit cards I availed from other banks?
A CIBIL report displays all the current and previous loans or credit cards you have availed with various banks. Additionally, the CIBIL credit report also contains details of inquiries made by prospective lenders in reference to request for new credit made by you.
5. What is to be done if I observe some inaccuracy in the credit report?
If you observe some inaccuracy in the credit report, you must report it to the credit bureau and the financial institution you have availed of your loans. Once the inaccuracy has been established by the financial institution, only then the credit bureaus can rectify it.
Sources:
https://indialends.com/credit-bureaus-in-india
https://www.fullertonindia.com/knowledge-center/credit-bureaus-in-india.aspx
https://indialends.com/credit-bureaus-in-india
https://www.onescore.app/blog/why-do-credit-scores-vary-across-credit-bureaus/
https://www.creditmantri.com/article-does-loan-rejection-impact-on-your-credit-score/
https://www.sbicard.com/en/credit-bureau-faqs.page
https://www.experian.in/understand-your-credit-information-report
https://www.hdfcbank.com/personal/resources/learning-centre/borrow/what-is-the-cibil-credit-score-and-why-should-it-matter
ARN No: Jan23/Bg/21B