RBI revises credit reporting rule: How it’s going to affect your credit score

The Reserve Bank of India (RBI) recently introduced a new policy on credit reporting methods for a more timely and accurate depiction of the financial activities of borrowers. As per the RBI guidelines, the lenders are now needed to update credit bureau records every 15 days, instead of the existing monthly cycle. These new guidelines have come into effect from January 1, 2025.

The transition might totally change the way credit scores are generated and managed by the credit bureaus. Earlier, the credit scores used to be updated once a month, often resulting in a delay in reflecting borrowers' repayments. Such delays posed a risk of adversely affecting the credit scores of the borrowers, leading to problems in accessing new loans or better credit facilities.

The RBI’s move is aimed at removing any such barriers and to improve the credit score accuracy of the borrowers.

What does the 15-day rule mean for borrowers and lenders?

The 15-day rule makes the credit score management process faster, more accurate and responsive. This will be beneficial for both the borrowers and lenders, by offering a clearer and more up-to-date picture of the handling of credit instruments by loan seekers.

The previous monthly reporting scheme used to take up to 40 days in some cases for missed payments or defaults. This discrepancy frequently resulted in lenders receiving outdated information, allowing them to make a wrong evaluation of the borrower's creditworthiness. On the other hand, the faster updates of payments towards existing loans and credit cards will help the borrowers in availing better credit facilities.

Many platforms offer free credit score checks. For instance, you can easily track your credit score on the Moneycontrol app and website without any cost. Moreover, you can apply for personal loans up to Rs 50 lakhs from eight lenders. Moneycontrol also offers a fully paperless process for applying for personal loans, with interest rates starting at 10.5% per annum.

Benefits of revised RBI guidelines on 15-day credit reporting rule

• Faster credit score updates: With a new reporting cycle of 15 days, the actions taken by the borrowers, like on-time payments or defaults, would be observed and reported to the credit bureaus  more frequently, resulting in borrowers seeing faster updates to their credit scores.


• Improved decision-making: The financial institutions will now be able to make better and more informed decisions about personal loan decisions as they have access to the current credit information.


• More effective monitoring of borrower behaviour: The 15-day rule will also help in handling numerous loan applications without hassle. Many first-time borrowers apply for multiple loans at once, and they frequently struggle to make their loan payments on time. By regularly updating credit scores, lenders will be able to keep a closer eye on the borrower's behaviour and evaluate their ability to repay. This will help the lenders to minimise the loan defaults and its overall impact on the bad loans in the retail segment.


• Preventing 'Evergreening': Additionally, this policy will help prevent 'evergreening’, a practice where a borrower takes out a new loan to clear an existing borrowing, creating a never-ending debt trap.

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According to industry experts, the earlier once-a-month reporting cycle used to delay in reflecting the defaults and payments by borrowers. It even took up to 40 days in some cases to receive the updated credit score data and the lenders were evaluating the personal loan applications based on outdated credit reports. The new 15-day cycle will significantly reduce the delays.

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What is the Ideal Credit Score?

Your credit score is a number between 300 and 900 which indicates your creditworthiness and chance of repaying your loans. The better your credit score, the more likely you are to be eligible for low-interest loans.

The ideal credit score varies based on the lender and loan type, but a score of 700 to 750 or above is considered excellent because it can help you qualify for loans with better interest rates and terms.

• 300–579: Poor


• 580–669: Fair


• 670–739: Good


• 740–799: Very Good


• 800 and above: Excellent

However, this credit score categorisation may differ based on the classifications of different credit agencies.

Conclusion

To conclude, the new 15-day reporting rule will make credit information more accurate and clear. With the RBI asking lenders to update credit reports every 15 days, borrowers who pay on time will see their credit scores improve faster. This will help them get better loan deals and improved credit facilities.

ALSO READ: What’s the most important factor affecting your Credit Score?

It’s advisable to regularly check your credit score to find out any discrepancy regarding your payments and defaults. If you notice any error in your credit report, immediately raise an objection with the credit bureau. You can check your credit score for free on the Moneycontrol app and website. Additionally, Moneycontrol also offers personal loans up to Rs 50 Lakhs through 8 lenders in a completely digital process. The interest rates start at 10.5% per annum.