Having a good credit score is becoming increasingly important in the matter of securing loans, says Arun Thukral, MD, Credit Information Bureau (India). Mr Thukral discussed this issue at a workshop hosted by Moneylife Foundation on Tuesday
With lenders increasingly seeking information on the credit-worthiness of borrowers before sanctioning loans, it has become essential to maintain a good track record and discipline in one’s borrowing habits. The credit score, a dynamic number reflecting an individual’s ability to repay, which is assigned by agencies like the Credit Information Bureau (India) Ltd (CIBIL), can play a crucial role in determining whether one is eligible for a loan, the extent of the loan amount sanctioned and how much interest one would have to pay on the loan.
Arun Thukral, managing director, CIBIL, discussed these and a range of related issues at a workshop at the Moneylife Knowledge Centre on Tuesday. An active audience listened attentively to Mr Thukral’s presentation on the goals and processes of CIBIL and raised numerous several issues and questions on this issue which is slowly assuming critical importance.
Here are excerpts from an interesting interactive session.
How many (credit) records does CIBIL have now? And how many of these records have been disputed, say every year? How many people write to CIBIL asking for a credit score?
Mr Arun Thukral (AT): We have over 160 million records. Aberrations do take place, but these are not even 0.1%-0.2% of the total. We sell millions of reports every month to 300 member institutions. Even at the individual level, the number of reports being sent to applicants is on the rise. The errors do take place and people do write to us. People are getting more aware of the credit bureau and how it can help them. I have been told by banks that people do come to them with records and ask why they are not getting better rates? That’s the revolution which is taking place; I am not saying everything is perfect. Last time, we did an exercise and found that the aberrations were 0.1%.
How many people ask for their reports? Are the numbers in thousands or lakhs?
AT: Right now, it’s in thousands because we are not fully equipped. We have to generate reports manually. Also people have to send their documents and the process is not easy. Many people are asking for their scores but they are not interested in knowing about their entire credit report.We are increasing our man power rapidly as I am sure a lot of people will ask for their scores and the traffic will increase in future. As I said, the moment we are able to give the scores the number will really go high.
So at the moment you don’t give scores?
AT: At the moment, we are not giving scores to the individuals; we are giving it to the credit guarantors. We are building a platform which will be a direct interaction between the consumers and the system.
Like a “find-your-score” kind of interface?
AT: We are building it up; hopefully by April we will be in a position to launch that service. As I was saying there are multiple services. We have launched a Mortgage Cheque. We have come out with CIBIL Detect, which is a fraud repository. We have also come out with Locate Plus which is a KYC (know your customer) product. In these two scores, one is the generic score and the other is a personal score. Because of what went wrong in 2008—the biggest hit was in the credit card and personal loan sector. So people wanted us to give a personal score which complements with the generic score, so that it is more focused on that portfolio. Then we have CIBIL Market Insights for members where you can benchmark their performance vis-à-vis the industry. If the delinquency level of the industry is “X” and if you are less than that, then it’s great. But, if you are not, then there is a flag which has to be moved.
You are now going to face competition with Experian, Equifax and High Mark which have been cleared by the Reserve Bank of India (RBI). How will this affect individuals?
AT: Even the biggest and most matured market today, which is supposed to be the US, has three bureaus. I really don’t know if India is ready for four bureaus. But competition, I certainly believe, is good for the consumers as they get the best. The way it evolved in the US was with a niche market. Some started of with certain products, some with housing data, etc, and then it evolved into a national bureau. But here, we have four national bureaus—initially, when the concept was being developed, they were looking at regional bureaus. Then the Ministry of Finance said we should have a national credit bureau, but it did not specify how many. One of them, I understand, will only concentrate on rural markets. CIBIL is even into micro-finance institutions (MFIs). We are in partnership with Microfinance Institutions Network (MFIN), a self-regulatory body, which covers 80% of the market. Globally also people work with two bureaus and not more than that. If the members work with more than one bureau they will get the same data; the only thing that will change is the quality of data which will depend on how good your processes are, your predictability of score and other value-added services that will make you stand at the top. In some countries where there were two bureaus, over a period of time they amalgamated into one. So most people in the business, including the regulators, know we can’t have four bureaus. May be 10-20 years later, when the maturity level and demand increases, we may have four bureaus.
Right now, you are charging around Rs140 for each report. But in the US, a credit report is given free of cost. Is CIBIL planning to do something similar?
AT: As of now the CIC (Central Information Commission) has permitted to sell the report at Rs100. The other charges include actual service charges. The whole process is manual. Once we get the economies of scale and the law allows us, then may be yes. Credit bureaus, ideally, are not here to make profits from reports.
Does the credit history of my relatives—parents or children—affect my individual credit score?
AT: Not at all, your report only talks about your factual history. It doesn’t talk about any of your relatives’ history. But if it is shown as a joint account, then it may affect your credit score.
What about people who are married and have a joint loan? Even if the woman is not working, the banks make her sign as a joint applicant. How is the credit history affected in the event of divorce or separation? It is said that the credit score gets affected?
AT: As I said earlier, both names will come only if it is a joint account. But if there is a spilt or divorce, and if you want to start to have an account with the bank individually, then your payment history will determine the credit score.
Suppose if “X” and “Y” are married. And X has a score of 800. Once they spilt the wife is on her own, and she needs to borrow. Then what score would she start with? Will her husband’s score affect her score?
AT: That’s a tricky a question. Logically speaking, if she doesn’t have a source and there was a score which was joint then that should also be considered for her. But tomorrow, if she changes her payment pattern, then it would be a different story. The score doesn’t remain stagnant; it would increase or decrease. Apart from loan defaults and late loan payment what are the other factors what could lower one’s credit score?
AT: Mostly it is the delinquency level (if there is any), the payment string—are you paying on time or not? In addition to this the number of inquires made seeking credit and what the usage can be factors that would affect your credit score.
But in the US, credit reports are sold to credit card and mortgage companies. In a way, it’s a business where credit bureaus are selling the reports to financial institutions for money without the customer being aware of it. Could this happen here?
AT: In very few countries, including the US, the data is accessed for marketing. In India, it is not allowed as per the law. You cannot access a report without valid application and you can’t use the data as a lead to market your product. In most countries selling the report is not allowed.
If a person doesn’t have a credit card, debit card or loan in India. But he has a bank account, then will his data be included in the credit bureau’s data base?
AT: If you don’t have any borrowing relationship, then you cannot be a part of credit bureau record.
In the US, the employment history of a person, his current income, is a part of his credit history. Do you think that is also going to be followed in India?
AT: No, as of today, there is no inclination to do that. In the US, it is done and is creating a lot of turmoil. In India, everything is done as per the law that has been laid down.
What is the time lapse between a transaction taking place and your data base getting updated?
AT: We get the data on a monthly cycle and update it accordingly. We have a process where we can now update within three days from the day of receiving the data, as compared to 15 days in 2005, when we started. When the banks send the credit data, we subsequently update it. Earlier, we used to get data on a quarterly basis as per RBI guidelines.
As you said earlier, CIBIL’s score is based on the data provided to them. So if I go to some other credit bureau there might be a chance of getting a higher or lower score. Is this possible?
AT: If the data is not the same, it could be possible. Banks are asking for the data from the credit bureaus in the CIBIL format. The data is coming from the same source. So there is a rare chance of getting different scores. If someone consciously submits different data then it is possible to get a different score.
In terms of credit card payments, many times banks agree for settlement; they often write ‘settled’ or ‘written off’. Will that show as a bad remark on my credit record?
AT: Even today, in our reports there is a column stating ‘settled’/‘written off’. If it is stated as written off in your report, and if you go for a loan to some other bank, there are chances of you not being granted a loan. Because the bank might think that we might also have to either settle or write off the loan based on your credit record. These things happen and you cannot wish them away. That is also an indicator. But in today’s world, your credit score will not be stagnant, it will change.
In terms of MFIs, like the way credit cards default happens, seven MFIs lend to the same borrower. All these facts came out after the SKS Microfinance issue. What’s your take on this?
AT: That’s the challenge. Multiple lending will always have a problem because it is over-leveraging. There have been cases where people are borrowing from more than one MFI; that’s where the role of a credit bureau comes into the picture, which can help in preventing fraud. Nothing is fool-proof; also nothing is going to get eradicated. We are building a vertical for MFIs because their data is going to be different from the regular ones. It will be ready in a year.
Earlier when you started you were dependent on the banks for data. But now everyone is dependent on each other. Would that be a fair assumption?
AT: Even today, we approach banks for data. That has not stopped. Over a period of time even banks have understood the value and how it can benefit them. That education is taking place, though it still has to filter down to the lower levels. — Moneylife Digital Team
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