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20 Quick FAQ on credit score in India

Credit score is a tool many lenders use while deciding if they should lend money to a borrower. However there are many myths surrounding credit report. Do read to get answers to some questions most borrowers want to ask

August 10, 2015 / 12:22 PM IST
Sukanya Kumar

In India, there are 4 credit information companies licensed by Reserve Bank of India. The Credit Information Bureau (India) Limited(CIBIL) started functioning from January 2001. Subsequently in 2010, Experian, Equifax and Highmark were given licenses by RBI to operate as credit information companies in India.

You may be knowing that CIBIL uses a three-digit numbering system for the scoring which ranges between 300 to 900, the higher the score, better it is for borrower. They have recently started a new version 2.0 for doing the credibility check by a different method, which is yet to catch up.

Here are 20 frequently asked questions that our team faces from the borrowers on a regular basis & hence I thought of compiling them here for all to read and share the knowledge.

1. What happens when I have a great credit score?
Truly, it doesn't enhance your loan credibility as of now. The direct effect is yet to be designed by the lenders. As of now, only the credit appraiser feels comfortable that you are not defaulting on any other credit. So, the impact is that of you not being bad, not being very good.

2. Can a credit score be really improved?
Good practice of returning borrowed funds on time enhances your credibility and improves the score. But the score is a trend, which develops gradually. Same like a character of a person. It can't be drastically improved or altered. So, if you suddenly pay off all your debts, your credit score does not jump up immediately.

3. Will a lender give me loan at a better rate if I have a good credit score?
Lenders look at various comforts in a home loan application and credit score is one of them. The profile of the borrower, his educational background, number of years in service, number of dependents, income, savings, other assets, property he chooses to buy and many more. So, it will be wrong to say that one gets a better deal just for great credit score.

4. Will I get a loan quicker if I have a good credit score and submit the report?
That is completely untrue. Unlike the commercials which come on media, the processing of any loan takes a basic period of time as the credit appraiser waits for reports from various other agencies to issue a loan approval letter. Credit score is available online and rather a very less time-consuming thing. By having a credit report in hand, doesn't enhance the process-time. Most of the lenders anyways do the credit check once more.

5. What if one credit report company shows bad numbers but another one shows good?
Most of the lenders now are using one major credit scoring service & others are yet to catch up. Even then when above is the scenario, the final call lies with the credit appraiser of the lender. There has been cases where though the credit report has come unsatisfactory or low in numbers, with clear justification & supporting proof of the reason, credit managers have agreed to do the loan. They are authorised to take calls on such home loan applications.

6. If I have never borrowed or never even had a credit card, will my score be low?
Yes, it will be. Gone are those days when our previous generation boasted of never borrowing a single penny. Credit looks at a new borrower with a magnifying lens and scrutinises more critically thinking 'why no one has ever lent him a single penny?' Don't get it wrong. You are not being encouraged to borrow more than you can pay up, but a basic credit card facility or a home loan for tax-savings will be no harm to have.

7. What if a wrong report has been uploaded on one of these bureaus? How to address that & get rectification?
Please understand that all these credit bureaus are maintaining a mere databank and has no direct influence on a low or high score. Yes, they draw up the numbers, but strictly basis the input they receive from various lenders where the individual has borrowed from. If you ever notice any anomaly, you can download the report yourself, find out the flaw, speak with the lender who has wrongly uploaded erroneous data, ask them to send the corrected information to the credit bureau and the bureau will correct it within 3 days. But if the discrepancy isn't resolved between the borrower and the lender, then credit bureau cannot change anything on their own accord.

8. What if I cannot contact the lender who uploaded the issue and sold the portfolio to another unknown company?
That is a big concern as contacting the current portfolio holder, if not the lender, is a tough task. Generally customers with very old issues face this. But in the current digital world, is it that impossible to find a company out, especially when they are also trying to locate you?

9. Will my employment get affected because of my low score?
These days, many employers have started perusing credit scores of potential employees, especially the financial services companies. As mentioned earlier, many consider the credit report as reflection of the character and try to read the person through that. Without saying that it is the right way, I am only presenting facts here.

10. Will my employing company's credit history affect my credibility?
Yes, it will. If you are employed by a company which is defaulting on their own loan to one or various lenders, then being an employee of that company, lenders may refuse to extend a loan to you, basis 'unstable job'. They might simply consider that the financial strength of the employer is poor and your pay might get affected too, if it already has not!

11. Will my colleague's bad credit history affect me in any way?
Surprising, but yes! If many employees of a company had defaulted in the past, the lender may blacklist the company and decline to lend you without any fault of yours.

12. Does cancellation of a credit card affect my credit score?
It does not if you inform the bank, pay up the dues, take a no-due letter and then cancel the card. But if you just decline to pay any dues and think that destroying the card is the end of it, it is not.

13. NRI-s who apply for loans will also have a credit rating?
NRI-s will have credit rating in their respective countries. Those reports are generally required to process a home loan in India. However, countries where credit scoring system is not followed, no such report can be provided by the potential borrower. Please note that credit score report of an NRI is also generated by the lender here in India, basis PAN card and Indian address. So, those you think getting an NRI status is end of the problem, it is not.

14. What happens to my credit score when I negotiate with the bank/lender and do a settlement payment?
Credit reports are quite categorised. Closing a loan by paying the complete due amount and closing with lesser amount by negotiating a deal doesn't get reported in the same way. So, potential borrowers who exclaim-"I don't have either credit or default elsewhere." need to introspect on that statement. If you pay, say, 20,000/- as 'settlement amount' to a lender when they claim to have a 80,000/- due, they will report that to credit scoring company too.

15. What happens when banks/lenders write off a loan against my name and I never pay?
That's truly bad and if the amount isn't a small one like a couple of thousand, which can be considered 'overlooked', all lenders in future may decline to lend you. 'Write-off' means you never paid off the dues and the lender had to let go of the money completely either because they could not trace you or you have denied to pay. That is not a welcome 'character' by the new lender.

16. Can my house-renting, applying for a gas connection or getting a post-paid connection be affected because of my credit score?
In India, though this practice is yet not so prevalent due to lack of knowledge, but the day is not far away when all credits are going to be routed through this check.

17. Will my credit score impact my family members such as wife, children & siblings?
It does. Lenders upload your address, DOB, landline and mobile number, father's name, spouse name(if available) etc. along with the data. This is to ensure that people with same name do not get each other's report. So, if you default in a loan & your brother applies later, his loan might get rejected. Sounds unreal, but there has been incidence when son-in-law's home loan application was denied for bad credit report of father-in-law where wife was co-applicant and her PAN card showed her father's name!

18. Does being a guarantor also gets me reported at the credit bureau?
Of course. Please read 5 Factors to check before being a guarantor

19. Can I raise a dispute with the credit scoring company, if I identify any anomaly in my report and/or scoring?
As explained earlier, please raise the dispute with the reporting lender instead of the credit scoring company, since the scoring company bases their numbering on the data reported and available with them with no power of alteration.

20. Can I access my own credit report since the lender I have applied with, isn't telling me which bank has reported my default?
The lender who is perusing your loan application now, has a limited access to your data. Though they can see the score and the default type, they cannot see the uploading lender's name. For getting that information, you can download the report yourself by paying minimal fee online and then take necessary course of action with the reporting lender for rectification, if any.

Hope the above input helps you understand the overall credit score process in a simple way. If you like the post and want others to benefit from it, please share it with your friends and in your contact-circles.

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