“Your credit report and credit score are two of the most vital aspects of your financial health!”
It was a lazy September afternoon when I was lounging around in my house, looking for things to do.. And I received a call from my uncle. As I settled down for a nice, long hour of chitchat, I discovered that he was thoroughly harassed. It was only last week that my uncle had applied for a car loan in a renowned bank. It got rejected because of his low “credit score”. At present, he was vehemently searching for a banker who would be able to tell him what exactly is a credit score, and how to improve it. Then, I realized that it is not just my uncle, but many others who suffer from such lack of information.
What is your “credit score”?
A credit score is a number based on an analysis of a person’s credit files, primarily based on a credit information report collated from credit bureaus. A credit information report provides your detailed credit history based on the data received from various banks and lending institutions. It is a report of your credit worthiness which contains your credit history and all the details about our past loan payments (including credit card).
Depending on your history, the Credit Information Bureau (India) Limited (CIBIL) rates you between the score of 300 to 900. Higher your CIBIL TransUnion Score, higher are your chances of loan approval. 79% of the loans approved are for individuals with a score greater than 750.
Every lender uses this report to understand how trustworthy you are and if you should be given a loan or not..
This credit score is used by banks and credit card companies to evaluate the potential risk posed by lending money to an individual. Lenders use credit scores to determine who qualifies for a loan, at what interest rate, and what credit limits.
In order to mitigate the various problems and confusions arising out of this system, on September 1 this year, the Reserve Bank of India ruled that every individual is eligible to receive one full credit report for an year (January to December) – free of cost. As of now, one has to pay Rs. 550 for getting a onetime credit score and report from CIBIL.
This service would be available to all individuals whose credit report is available to the CICs or Credit Information Companies, when a request for the FFCR or Free Full Credit Report is put forward. With this free credit report, people will start looking at their report and can immediately start working on improving their score and take measures to remove the bad remarks from their report. Investors will also be able to find out if there are any fraud loans on their name taken by others if any.
(NOTE: Other than CIBIL, there are three other credit bureaus in India — Experian, Equifax and CRIF High Mark. But at the moment, only CIBIL reports will be given for free.)
The RBI stated that since a credit report plays an integral part in the finances of an individual, he is entitled to have a copy of all the information that can be accessed by any financial institution while considering requests for fresh credit facilities. This report shall also allow the borrower to find out errors in their reports and to have them rectified accordingly.
The report shall be available in electronic format, on request, after due authentication of the requester. It will show the latest position of the credit institutions’ exposure to the individuals as per records available to the CICs. The contents of the FFCR shall be the same as appearing in the most detailed version of the reports on the individual provided to financial institutions, including the credit score.
This is an excellent initiative by the RBI, but will only be beneficial if every individual uses this to access the report, and take action!