In India we can get Credit Scores/Credit Reports from CIBIL. What started as a surprise in 2009-10, has now become the norm for issuance of loans, credit cards and the like. Credit score is important to get any kind of financial assistance from reputed institutions today.
About Credit Score issued by CIBIL
Credit score are issued by CIBIL, the Credit Bureau licensed by Reserve Bank of India.
The score, technically known as “CIBIL TransUnion Score”, is a three digit integer between 300 to 900. It is a summary of your credit history that indicates your past credit health – whether you have repaid your loans on time, whether you have defaulted any credit card payments, availed loans beyond your repayment capacity, and so on.
While the score is the summarized overview, the detailed analysis is contained in the Credit Information Report. This report outlines all your credit performance till date.
Getting a good credit score is important.
As per CIBIL 80% of loans sanctioned are for people with a credit score of more than 750. Unless you are confident of gaming the system, can supply larger collateral for a smaller value, or are open to securing credit from unscrupulous sources, you need to try and stay in the top 80%.
Banks and other financial institutions become a member of CIBIL and enrich it with the financial history of individuals. They in turn get benefited when a new individual requests financial assistance. All those banks are now on the same page with respect to the standards – it is of course their prerogative on how they apply those standards.
As of July 2014, the CIR alone costs Rs. 154.
While CIR + Credit Score costs Rs. 470. Since Credit Score is what is important, it makes absolute sense to opt for this package.
The case for monitoring credit score
While we place all of the trust in our banks, and expect them to submit only the correct information to CIBIL, there can be multiple things going wrong.
- You had a unclaimed credit card that was mysteriously used by someone else. The bank is now unable to reach you and that default has impacted the credit score
- Another person has claimed the same PAN for some reason in one of the lesser known outlets to get a loan. And, now you are being penalised for that (this was a rumour I heard, not substantiated yet)
The onus shifts to the individual like you and me to monitor the credit score, and make sure our fellow humans do not err. This is only possible when we know what our credit report is.
Make Credit Reports free
Although Rs. 154 is not a big amount for a middle class family with an individual worrying about his credit, every bit adds up :).
Even if the Credit Score is not made free, I would believe it becomes one of our rights to know the details of the credit report. This is the information about us that is submitted by the bank to a third party company, and this would make us entitled to the report.
Giving individual access to credit reports also enable better transparency in what is being passed across to the credit bureau and why. If there are mistakes, they are corrected then and there instead of making an individual answer for a credit card payment default of 2009.
In the US, this is being addressed in a couple of ways. There is a Government mandated website AnnualCreditReport, that supplies the annual credit report for an individual at no cost. However, this is only once an year.
There are also companies that have developed business models around providing free reports. While a few provide both Credit Report and Credit Score for free, a few other deal with only credit report. For example, Credit Karma, Quizzle, Credit Sesame. These websites enable individuals to monitor what is going on with their reports, and take action when they see a discrepancy.
It is not necessary to follow the “developed country model” for everything, but this is one of the things that we need to apply as soon as possible.