Earlier, lenders had to rely on their own internal assessment of a customer before sanctioning loans or even credit cards. However, gradually the situation has changed with the availability of individual credit information through CIBIL (Credit Information Bureau India Ltd), which has enabled lenders to determine creditworthiness by dipping into this database to assess the applicant.
So the question of whether you will be sanctioned that home loan and at what interest rate would be determined by your credit score. That’s why, it is important that you monitor your credit scores and purchase your credit report from CIBIL.
Elsewhere in the world if you have been rejected a loan on account of a low credit score then you have the option of approaching select lenders who specialise in lending to borrowers who have recently come out of a bad credit situation. But in India, this is not widely prevalent though there are a crop of banks that do provide loans for such individuals at very high interest rates and a lenient credit profile appraisal.
So it becomes all the more critical for you to monitor your score to ensure that your loan does not get rejected on the grounds of a poor credit score. Otherwise, you will struggle to obtain a loan when you badly need one and might end up signing for an exorbitantly expensive loan, which might be difficult to repay!
Credit Score: The basics
What does a credit score look like, and what counts as a good score?
A credit score is generally a three digit number within the range of 300 and 900. Higher the number, better is the score. This score will reflect information from several lenders and across various loans.
What information does a credit report contain?
The report contains basic information about the consumer (name, date of birth, passport number etc.), location, details of loan accounts (auto loans, home loans, personal loans and credit card), overdue accounts, highest amount of credit sanctioned in case of credit card, number of times credit report requested by the creditor along with enquiry purpose.
What should I do if the score is incorrect?
Sandeep applied for a home loan from ABC bank. The bank rejected his loan application on the grounds that his credit report mentioned that he has a long overdue outstanding amount on a credit card.
This took Sandeep by surprise and the issue was amicably settled with the bank, after which he stopped using the credit card. He got the bank to acknowledge the fact that he had cleared his outstandings and he subsequently informed CIBIL, presenting the acknowledgement from the bank as proof for his claim. CIBIL then verified and incorporated the updated, correct info in his credit report and he was granted a loan.
So we see from this example that errors are bound to happen due to incorrect reporting by lenders or due to human errors.
If you find an error, you would need to report it to CIBIL with valid proof and if you are not satisfied with the action you can lodge a complaint with the Banking Ombudsman's grievance cell, who will take up the issue and evaluate it from a neutral stand.
How often does my credit score get updated?
Updating the credit report will be an ongoing process — lenders send updated data regarding an account to the agencies. It depends on how may credit accounts the individual has and if there is a change in the credit data. The moment there is a change in the credit data, it will reflect in the credit score.
What makes this system fool proof for lenders?
Rajat has taken a home loan from ABC bank and has been paying his EMIs in a timely manner.
Simultaneously, he has taken an auto loan from XYZ bank and has defaulted on the last few payments.
Rajat now applies for a personal loan from ABC bank assuming that since he has paid his home loan EMIs with the bank in a timely manner, he will be granted a personal loan without any trouble. However, what he was not aware is that ABC bank obtains a credit score from CIBIL where he shows up as a defaulter with another bank.
This could either result in a rejection of his personal loan request or the bank might charge him a high rate of interest. The emergence of CIBIL as a repository of information on individual lenders makes it impossible to hide anything from your creditor.
Is there any benefit of a good score to me as a consumer?
The most significant advantage of a good credit score is that you can use it to negotiate with the bank for a more favourable interest rate, citing your impeccable repayment track record.