Often people opt for loans due to its ready availability without giving thought to their other financial commitments. Also, they fail to account for an emergency fund and a savings plan. This could fall into perspective once a summary of a person’s credit repayment is available in a single log.
Have you been paying your telephone bills on time? Do you consistently forget the due date for your insurance premiums? You better watch it! If you ever intend to apply for a loan in future all these aspects are going to count! These are a few of the spruce up elements planned to be implemented in your current credit reports. What’s more from next year (2010) there will be a system in place through which you can have access to your credit reports!
Such spruce ups have been made possible through a recent move of the RBI (Reserve Bank of India), which has granted an `in principle’ approval for the registration of CIBIL and a few other credit agencies namely, Equifax, Experian and Highmark under CIC Act (Credit Information Companies (Regulation) Act.
Why a credit report?
The concept of credit reports came into existence to ramp up the credit system and ensure banks have an evaluation system in place to decide if a prospective borrower is credit worthy enough to lend huge sums of money to, in the form of a home loan, car loan, personal loan etc. Once the RBI approval comes into effect formally, more credit information on individuals can be accessed, which includes telephone bill payments, insurance premiums etc. This should provide a well rounded study of how an individual manages finances, how they repay their debts, how timely they are with their bill payments etc.
Access to credit reports – Advantages
There are several advantages to the enhancements set to happen with the existing credit information system. Here are a few of them.
Prevents Identity theft
If an individual’s credit card or bank account is being misused, keeping track of one’s credit report will help the individual take corrective action before it comes too late or before debts start mounting to unreasonable levels. It can help prevent identity theft and instances of fraudulent transactions to a large extent.
Creates discipline and improves money management skills
Often people opt for loans due to its ready availability without giving thought to their current lifestyle, other commitments and debt liabilities. Also, they fail to account for an emergency fund and a savings plan. All these could fall into perspective once a summary of a person’s credit repayment is available in a single log with a score spanning 300-900 points providing a measure of an individual’s creditworthiness.
More comprehensive credit reports
RBI’s “in principle” approval is the first step towards more comprehensive credit reports, where more periodic transactions involving money inflow and outflow can be tracked to analyze if an individual adopts a careful and methodical approach to his finances and eventually serve as a financial goal map for an individual who wishes to improve his credit score.
The proof of the pudding is in the eating
The very fact that individuals will soon have access to their credit reports can come as a sigh of relief to loan applicants. If they have a very good repayment track record and an excellent credit score their chances for bargaining for a better interest rate on the basis of their credit report is a viable option. It would also help banks significantly decrease the percentage of defaults by opting to choose a better customer for a more competitive interest rate. After all it makes better business sense for banks to have a higher percentage of customers who repay on time, every time, at lower interest rates compared to a higher percentage of defaulters with high interest rates.
More credit agency options
Now that they are more credit agencies to choose from, better systems that weed out errors and streamline the existing information systems will be given high priority. Establishing a reputation for being the most accurate credit agency will provide the impetus for credit agencies to overcome the several bottlenecks that will emerge in setting up the infrastructure and the actual process.
Knowledge is power
Access to credit reports is wonderful news for individuals who wish to apply for a loan but are unable to get one due to a faulty credit report or missing information. Currently, rejected applicants who have been informed by their banks that CIBIL reports were the reason, would need to request for the control number of their credit report from their bank and approach CIBIL for a clarification. This can be a complicated process, especially if the bank does not provide a valid reason for the reject. With direct access to their credit reports, individuals can directly contact CIBIL for a clarification or correction, even before they approach a bank for a loan. Verification and correction of credit scores can be far easier with such transparency.
The flip side
Such intensive credit tracking systems can also stir up a new set of problems to deal with. More often than not technology would play a key role in setting up systems that can source huge volumes of information of a large number of individuals. Credit information is also very sensitive and personal to an individual, which in the wrong hands could prove dangerous. So credit information sourcing could be a new addition to the number of tracking systems that are slowly but surely evolving in all spheres of our lives. In light of such developments could breach of privacy be one of they key issues we would need to battle in the future?
Want to know can we improve our credit score over a preiod of time & How?
Wow! That's wonderful news!
Rating is good , but what about rating the agencies themeslves .How will they be regulated ? In India, particularly large scale misuse of data happens all thetime. So long as they develop mechansims and processes to assess across all stages of the economic cycle, it makes sense. For instance, recession time, for many, credit scores will suffer and during boeditom periods , reverse may prevail.
Or for that matter, credit scores over a sgort duration of yeras may ( or the reent trend ) may have to be moderated with the long term ones or small payments like telephone or insyrance , how will they be weigted compared to big ticket loans like durables like car/house .
What about the privacy issues.For, the overzealous agents ( loan offering and recovery both), who lack finesse , misuse the private data . A case in point is the privacy being thrown to the winds and the incessant (bordeing on nuisance , contacts being made thru' phones and emails.). Most of them
lack the courtesy and make rude remarks and by and large seem to be short term poriented and not really long -term. Most importantly , the trust and confidentiality that exits between the lender and loanee will move from the ppersonal to the public domain.
The interpretaion of the credit score for thsoe users m is yet another thing- bbetween risk averse lenders and the high risk category
In our country wher the regulatory aspects are a laugh, at best one can hope that large scale misuse does not happen.
The act under which CIBIL was formed is flawed and so is our regulatory framework ( the Finance Ministry & Reserve Bank being the prime culprit ) and heavily biased in favour of the lender.
1. The borrower cannot access his own report as on date.
2. If the error is on the part of the bank…try asking them to rectify…it starts with the right person being unreachable… specially in the case of private banks ( very similar to the relation between the Russian people and their emperor the Czar – It is said about pre 1918 Russia – " It is far away to the Gods…It is further to the Czar )
3. India's politicians and regulatory chiefs " report" to the Bank top brass and not to the Indian People .) Our representation in the system is almost non existent. So how does the system get its feedback…and if it does it is after the damage has been done
Only divine intervention can save us …As one highly reputed international economist once said…It was only after going to India did I believe in God…because the government doesn't seem to work and yet the country survives …….
Regards
Shivnath Kandi
Maharashtra, India
This is true.
making the tracking of the credit score possible is a great step forward but it has a number negatives attached to the procedure which can cause the misuse of the personal information of large number of individuals intern leading to large scams. But if proper precautionary measures are taken then it will always be a boom.