What is the role of a Credit Bureau?
As India’s first Credit Information Company (CIC) or Credit Bureau, CIBIL’s products and services have led to a significant change in the functioning of the financial sector, both for the banks and the consumers. Today, we take a closer look at one of these products- the Credit Information Report (CIR)- and how it helps banks and financial institutions manage their business, and helps consumers like you obtain credit faster, and at better terms.
CIBIL collects and maintains records of individuals’ and companies’ loans and credit cards. These records are submitted monthly to CIBIL by its members (banks and other financial institutions). This information is then used to create the CIR and the CIBIL Score (a 3-digit summary of your credit history) which are provided to lenders to help evaluate loan applications.
How does the CIR affect you as a customer?
The biggest impact of the CIR is that it makes your payment history (or ‘creditworthiness’) available to a lender, when you apply for a new loan or credit card. In the diagram above, a consumer applies for a credit card to a bank. To gauge his credit eligibility (i.e. will he make the monthly payments regularly?), the bank requests CIBIL for his Credit Score and CIR. The information in the CIR contains details of all the loans and credit cards availed by him and how he has been repaying his installments or dues. The consumer, for instance, may have existing home or auto loans with different banks. Banks submit monthly reports of their customers’ payment histories to CIBIL, making it easier for banks to judge customers’ creditworthiness.
Lenders would generally treat all loan-seekers equally. Each applicant, if approved by the lender’s internal credit policy, would get charged the same interest rate for a particular loan size and purpose. The lenders would charge a higher interest rate to all borrowers to compensate for the possible default of a small portion of the loans disbursed. In other words, it is similar to a college professor (the lender) punishing an entire class of students (borrowers) for the mischief of a few (defaulters).
Today, the Credit Score and CIR may help lenders differentiate between consumers who have honoured their financial obligations responsibly and those who have defaulted. Individuals who meet their obligations appropriately thus build ‘reputational collateral’ with lenders. This reputational collateral- in turn- helps individuals to avail of better terms with a lender.
Hence, it is advisable for you to purchase and review your CIR (and Credit Score) before commencing loan application. Firstly, it helps you understand what the lender will review while evaluating your application. Secondly, it is important to identify and rectify discrepancies, if any, on the CIR to prevent any disruptions or delays to the loan evaluation process. While a high score doesn’t guarantee loan approval, it does significantly improve the chances of approval, and helps you take control of your financial health.
What information does your CIR contain?
The CIR is a month-on-month record of your loan-related EMI payments and/ or credit card payments. It does not include your investment or savings details. Loans include home loans, personal loans, automobile loans and overdraft facilities.
Other information included in a CIR: