Borrowing in market place? Watch your credit score

Satyam KumarLoanTapVisiting a market place is quickest way of price discovery. We all do this and will be insane to consider anything otherwise. We check loan rates online at platforms like Paisa Bazar, Deal4Loans, Bank Bazar and other market place loan providers. We not only compare rates, processing fees and offers here; but also end up applying for a loan on these platforms. Since, the financials information is digitally uploaded and can be shared with multiple banks and NBFCs by merely ticking an additional box, we end up applying for a loan with more than one institution. This phenomenon is not limited to online behavior. Customers using offline channels (direct sales agent or direct marketing agent), also do not specifically mention names of institution or number of banks or NBFCs their loan papers should be discussed with and channels are more than happy to oblige multiple bank relations by providing them files of same customer. A business man, who regularly deals with banks and loan products, knows it well and he very clearly instructs the agency to discuss his loan proposal with the best one or two option. He clearly states that his loan file should not be shown to all banks. Salaried professionals (more than 65% of retail loan book), however are caught off-guard here.This leads to loan application at multiple Banks or NBFCs, so what is wrong with it? Let’s dwell a bit on this phenomenon in the context of credit score.RBI has mandated all NBFCs and Banks (lending institutions) to become a member of credit bureau. This means, they pull out credit report for each customer and submit customer loan track to the bureau. This appears to be just routine process and nothing wrong about it. But wait a minute.In the case of two or three lending institutions carrying out credit enquiry on you loan, your credit score is downgraded. Some bureau do follow single count norm for same product enquiry within a window of 15 days, but not all. Also, even though your loan enquiry has been done on day 1, the day a bank or NBFC conduct credit enquiry will depend on file completion cycle and their efficiency in loan approval process.So, once you have made a loan request over a market place, you are opening a Pandora’s box.This is not only limited to enquiries leading to lower rating. Many a times, based on your documents more than one institution will sanction the loan. You may be taking disbursal from only one place, but your credit report will carry one more loan, sanctioned however nil on utilization. And of course multiple loans reflect poorly on your Credit Report, more so if this is un-secured.Also, it creates an unnecessary hassle for your future loan applications, as the new Bank or NBFC might insist on loan closure letter for this sanctioned limit.Further, while it is necessary to have loans and cards to build credit score, we must know that a secured loan (such as auto loan, home loan, loan against property) carries positive weight. At the same time, higher and multiple utilization of unsecured loans (personal loan and credit cards) are viewed negatively, more so in the case of credit card. So, we should also be careful about number of personal loans that we should run concurrently or the utilization level of our credit cards.Last but not the least, most of the companies offering payday loan or salary advances are registered NBFC and as per policy they seek and share loan details with one of the four credit rating agency CIBIL, Experian, Equifax or Highmark. So, cash might seem a few clicks away for you, but un-planned borrowing reflects poorly on your credit score. These are short-term loans, you borrow and pay immediately and this cycle is repeated multiple times. Being app based loan and pre-KYC are in place, its much easier to borrow again. Also it is very tempting to re-apply since you get your salary quickly. Please note your each enquiry and each borrowing of unsecured loan takes you down by a few notches in CIBIL score.