In several instances, the borrower gets to know of the impaired credit history only while applying for a new loan
Ahmedabad-based financial consultant, Natarajan TG, has always had a spotless repayment record. His credit score, he says, has been higher than 830 (a score of 900 is typically the maximum). In mid-2018, however, he was surprised to learn that his score had slipped, when he applied for a home loan transfer. “While the loan was sanctioned, the officials pointed out that my credit score had dropped to 810 in two months. I was taken aback as I have never defaulted on any loan or delayed paying my EMIs,” he says.
Upon going through his credit report, he zeroed in on the bank whose data had dragged down the score. “It was the bank from which I had taken an education loan for my daughter. The data showed that I had not paid EMIs for two months, which was not the case at all. Even in those two months, the EMI amount had been deducted from my savings account,” he adds. Enquiries showed that while the savings account was debited, it did not reflect in the loan account. The culprit? Glitch in the bank’s systems due to the software migration being carried out. “I approached the bank and obtained a letter stating that the error was at their end. Subsequently, the issue was resolved, as the credit bureau made the necessary changes,” he explains.
This is not an isolated case. For Chennai-based marketing consultant, Kannan Srinivasan, monitoring his credit history is a regular activity. He checks his credit report and score once in four months – something that most individuals don’t. According to him, his credit score has always been upwards of 800. Despite his diligence, however, in 2019, he was surprised to note that the score had slipped below 760. After going through his report, he traced the discrepancy to a 16-year-old episode. He had closed a personal loan in 2002, after paying all the 36 instalments. Says Srinivasan: “However, the bank claimed that I owed them around Rs 4,000. I had paid this amount back then, got a letter from the bank and the issue was resolved.” Or so he thought. He received a court notice in 2019 from the bank, asking him to clear the dues of Rs 4,000. This affected his credit score adversely. He wrote to the bank and furnished the letter on loan closure issued by them in 2002. “They apologised to me, gave a letter certifying that I had no outstanding dues and informed CIBIL too. My credit score has started going up again,” says Srinivasan.
While these two gentlemen’s stories had happy endings, this is not the case for many. Often, they do not know their rights and recourses available to get errors corrected.
Need for awareness
The level of awareness on the impact of credit reports and scores not only on loan applications, but also your insurance risk assessment and even employment prospects has been rising constantly. However, the same cannot be said about getting past errors rectified. Individual customers have a lot of ground to cover on this front.
Credit report and score, which are based on your repayment track record across lenders, are indicators of your creditworthiness. While credit information companies that compute this score get data from banks and not individual customers, constant vigilance at your end can ensure that errors are rectified at the earliest.
Grounds for complaints
Since banks are the entities that provide data to the credit information companies – Credit Information Bureau of India (Limited), Equifax, Experian and CRIF Highmark – any inaccurate reporting or failure to update can result in an unfavourable credit history. “There could also be instances of mixed files; that is, data related to someone else’s accounts reflects in your credit report. At times, credit bureaus mistakenly create two identical accounts linked to a single credit report,” says Hrushikesh Mehta, Country Manager, ClearScore. That is, the same credit card account could get reported twice, inflating your amount due and reducing your loan eligibility.
In several instances, the borrower gets to know of the impaired credit history only while applying for a new loan. “Often, there is an unresolved issue. Unfortunately, many times, people do not have documents in place. For example, they pay off or settle loans, but do not collect the no-dues certificate,” explains Ramachandra.
Then, there could be cases of fraudulent transactions that are not reversed in time, thus adversely affecting your credit history. “Merchants are obligated by Visa/MasterCard guidelines to provide customers’ signatures or proof of delivery of goods and services. If they cannot furnish it, the transaction will not be valid. If you notice fraudulent transactions, you must intimate your bank immediately and get it reversed,” says Mehta.
Complexities in loan as well as credit card terms and conditions constitute another cause for disputes. “Often, users do not fully understand the late fees and penalties. They do not realize that these could snowball into significant amounts if they remain unpaid over a period of time. Issuers might waive them off, but could report them as settled. When other lenders see this, they might be reluctant to sanction loans,” explains Mehta. Such instances are not treated as closures, potentially pulling down your credit scores. “The lender will waive off the interest, report you as a settled case with outstanding dues written off. When a lending institution pulls a credit report, it only sees the red flags and not details,” adds Aparna Ramachandra, Founder, RectifyCredit Services.
Also, if you are a guarantor and not the actual borrower, your credit history will reflect the information. While computing your loan eligibility, this loan will also be taken into account by lenders. “You might suddenly find that you are entitled to a much lower loan than desired, despite not having taken one,” she adds.
Tread with caution
For one, you must monitor your credit history closely. You can get a credit report for free, from any of the credit bureaus, once in a year. Also, keep track of your credit card account statements, especially if you are relocating. Update your mobile numbers and opt for e-bills. “There have been cases where credit card users moved abroad without closing their cards or informing their card issuers. The annual maintenance continued to accumulate, and years later, they found that their credit history was adversely affected,” says Mehta.
Be especially careful in cases where you arrive at a settlement with your bank. “Ensure that you collect a no dues certificate, so that you can furnish the same to get records updated to reflect your dues-free status,” says Ramachandra. If the dispute is over trivial amounts such as late fee, you could even consider paying them off. “My recommendation is that you should pay up fully instead of accepting a settlement,” says Mehta.
The final recourse
In case of a dispute, use the dispute resolution mechanism offered by the credit bureaus. You can raise a complaint online or write to them. For example, in case of CIBIL, such entries be tagged as ‘under dispute.’ They then approach the respective banks for their response. If the bank accepts your contention, the records will be suitably updated. You can also approach the lender and seek a rectification. “We have seen that in most cases, banks do agree to rectify the records after verifying documents. This is why having documentation in place is important,” points out Ramachandra.If your request is rejected, however, you can approach the banking ombudsman office in your city. However, the banking ombudsman will not entertain any complaint unless you have first approached the bank. If you are dissatisfied with the banking ombudsman’s order, you can knock on the appellate authority’s door, which in this case is the RBI deputy governor. If you are still unsuccessful, you can head to the consumer courts.
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