Vault matters | Why credit bureaus need to be more borrower friendly

The best thing is that none of this is scientific or coded for one to understand what is affecting the credit score.

A few days back, Karti Chidambaram, a member of the Congress, raised a very interesting and important question in the Parliament. It was about Cibil score and how it is computed. Without getting into the politics of this, if one were to look at Chidambaram’s question, it holds a lot of merit as it pinches each of our wallets in some way. No loan product is extended without an assessment of the Cibil score. While there are three other credit bureaus, Cibil is the first reference point for most banks and NBFCs. Yet, no one knows what goes into computing a score.

Broadly one knows that if a loan repayment history is clean, the credit bureau score will be high. However, it’s not a straightforward thing.

There are times when banks mysteriously charge some fee, especially on credit cards. If a card is not in usage, the unpaid fee is promptly reported as a lapse to bureaus and this could completely change his credit score. There are instances where a two wheeler or a car loan is fully repaid, but there could be charge levied by the bank which is unpaid and that can hurt the credit score. Sometimes one might have paid the loans but a few days after the due date. That too will hurt the credit score.

There are times when too much surfing of loan products on the internet can impact the score as it’s some sort of a giveaway that the person is in need of credit.

But, the best thing is that none of this is scientific or coded for one to understand what is affecting the credit score.

The same question surfaces even to those who are prompt with their repayments. It is rare that two people with identical credit discipline have the same credit score.

That makes credit scores quite intriguing leading to the question of how a score is formulated to start with. Most bureaus say the mystery number is randomly thrown up by the computer after reviewing data pertaining to one’s credit record or banking history. What makes credit score more complicated is when one attempts to correct inaccuracies. There are times when repayments are done to the date, but credit scores reflect differently. There is almost no redressal in such cases. Credit bureaus put the onus of remedy on the banks or NBFCs to initiate modifications. The reason here is that the credit score is computed based on banking history and data from banks, and any amendment to the score should be after validating inward data from the lender.

Who then are these bureaus working for? The people who seem to benefit most are banks and the bureaus themselves. The aggrieved customer is often caught between a rock and a hard place. Unless data is fed by banks and NBFCs to bureaus on a daily basis, it may not serve the purpose. Especially in the world of net banking and UPI.

Moreover, take the case of credit rating agencies who rate corporates. Assigning a rating isn’t a unilateral process and the borrower is given a chance to defend or revise his rating upwards if the company’s financials improve. If there should be a downgrade in rating, they get an opportunity to present their case. When corporate can be entitled to a more transparent credit rating mechanism, why are retail borrowers treated differently? If credit penetration should move in a systematic manner beyond the metros and cities, credit bureaus earning trust is the key. Transparency would help here.