Make yourself credit-worthy


- dEsPeraTe cRaNky -
Loan applicants are becoming better aware of credit scores and how their money management styles can affect it for the better or for the worse. Let's trace the developments in this segment and figure how credit scores in India will have a big impact on lending in the future.

Personal loan score
In May 2009, CIBIL, a credit information bureau, launched the Personal Loan Score. This is an evaluation based on the most recent personal loan data available in the past few years. Essentially, this data pool will help the bank ascertain whether a person is eligible for a loan in terms of past repayment track record. Of course, this is largely dependent on if the person applying for a new loan has already taken a personal loan in the past. Based on the track record of how effectively that particular loan was repaid, the bank will decide on whether to approve the individual's loan application or not. If the person has defaulted or has faltered in between, then based on the bank's discretion, the individual might end up getting loan at a higher rate of interest. This application was launched mainly to address the concerns surrounding the rising loan defaults in recent times.

Other features
To further cement the process and weed out or reduce the percentage of defaults going forward, more such features are being worked at. This includes home loan and a fraud repository. As the names indicate, the home loan repository will contain relevant and recent home loan data of individuals to help the bank decide on aspects such as refinancing an existing loan or providing a top-up loan. This information can come in handy especially when an individual wishes to apply for a refinancing loan or a new home loan with a different bank.
A fraud repository keeps track of individuals who took loans and did not intentionally repay the banks. Therefore, it helps banks and other finance institutions in weeding out people who indulge in fraudulent activities related to credit. CIBIL has already launched a paid service for banks, where if a willful defaulter applies to the bank for a loan, an alert is issued immediately to the bank based on the applicant's track record. This is fool-proof, even if the defaulter has changed locations several times.

All these aspects are expected to further strengthen the credit system, weed out regular defaulters, eradicate fraudsters and help save funds that can be disbursed to genuine loan consumers who utilise credit in an appropriate manner.
In general, a repayment history of around six months is essential for a credit score to be assigned to an individual. Credit can be in the form of payments through an EMI (equated monthly installments) for loans or credit cards. However, in the case of a personal loan score or a home loan repository, data relevant only to these particular loans will be taken into account. In such a scenario, the next step is to evaluate credit score on the basis of credit card repayment history. If even this data is not available, then it may boil down to gauging certain bill payments like telephone bills or insurance premiums. This will be along with other aspects like net worth, salary and employment details, which will come into the picture to evaluate loan eligibility.

New entrants

All these measures are being taken to establish the credit-worthiness of potential borrowers. The entire credit information bureau scenario is also likely to get a face-lift not only because of the introduction of these initiatives by CIBIL, but also because more such credit agencies have now made their entry into India. These include Equifax Credit Information Services, Experian Credit Information Company and Highmark Credit Information Services. The competition is expected to further strengthen the infrastructure capabilities of CIBIL, which currently has the first mover advantage and a huge database to its credit, not to mention a huge list of banks and financial institutions as its members. On the other hand, the new entrants come with rich experience of having handled various facets of credit agency activities in a different geographical setting.
With these aspects in place, the Reserve Bank of India (RBI) has also granted consumer access to credit reports, ushering a new era in the way loans are being applied for and granted. This is expected to bring about transparency in the credit system and ensure a methodical inflow and outflow of money in the lending cycle.

How to correct errors in your credit report
It's a universal truth that nothing can be perfect. The same applies to your credit report. Most often, lack of updated information is the culprit and could result in a bank denying you a loan. Here is what you should do in case you identify an issue with your credit report.

a. Contact the bank that has not updated your credit information and collect proof that everything has been settled.
b. Submit this proof along with the control number of your credit report to CIBIL.

c. Get in touch with CIBIL by calling their help desk numbers at 1800 - 224 - 245 or +91 -22 6638 4600 / 2281 7788 provided on their website, You could also drop in an email at referring your credit report's control number.

Dealing with an uncooperative bank
When a bank is uncooperative, you can post a complaint on the bank's website and if the bank does not respond within 30 days, you can register the complaint with the banking ombudsman, presenting a copy of the complaint posted on the bank's website as proof.

Half the battle is won if you have the right information. The remaining half can be taken care of through proper planning and execution.