New Delhi: The Reserve Bank of India recently announced the inclusion of Credit Information Companies (CICs) under the aegis of the RBI Integrated Ombudsman Scheme. It could penalise such firms for delays in updating credit information while limiting lenders’ indiscriminate use of customer data. There is a compensation mechanism for delayed updation and rectification of credit information.
RBI further informed that there would also be a provision for SMS and e-mail alerts to customers when CICs access their credit information. The rules are in place after the increase in customer complaints regarding credit information reporting and the functioning of CICs.
Protecting your credit rating is important because it can impact your financial opportunities and quality of life. Maintaining a good credit rating can increase your chances of accessing credit, getting approved for housing, and securing better interest rates and insurance premiums. Protecting the CIBIL rating is crucial for economic dignity now.
There are four authorised Credit Information Companies (CICs) in India by the Reserve Bank of India (RBI) under the Credit Information Companies (Regulation) Act, 2005. The credit bureaus collect, maintain, and disseminate credit information of individuals and businesses to help lenders and credit institutions assess the creditworthiness of borrowers.
The four authorised Credit Information Companies in India are:
Credit Information Bureau (India) Limited (CIBIL)
Equifax Credit Information Services Private Limited
Experian Credit Information Company of India Private Limited
CRIF High Mark Credit Information Services Private Limited
These credit bureaus collect information on loans and credit cards, payment histories, defaults, and other credit-related data from various sources such as banks, credit card companies, NBFCs, and other lenders. Based on this information, they generate credit reports and credit scores, which lenders and credit institutions use to evaluate the creditworthiness of borrowers before granting loans or credit facilities. Their sources of information are :
1. Data submissions: Credit institutions must regularly submit credit-related data to the credit bureaus. This data includes information on loans, credit card facilities extended to individuals and businesses, repayment histories and defaults.
2. Public records: Credit bureaus also collect data from public records, such as court records, bankruptcy filings, and tax liens.
3. Self-reported data: Individuals can also self-report their credit-related information to credit bureaus. The provision is helpful for individuals who have limited or no credit history.
4. Data sharing agreements: Credit bureaus may also contract with other organisations, such as telecom companies and utility providers, to collect data on customers’ payment histories.
Credit Rating has become the most valuable identity these days. Protecting it is essential for the following reasons:
1. Access to credit: Credit rating is one of the primary factors lenders use to determine the creditworthiness of an entity. A good credit rating indicates that you are a responsible borrower and are more likely to repay your debts on time. The provision helps secure better interest rates and terms on loans, credit cards, and other types of credit.
2. Employment opportunities: Employers may check your credit history as part of the hiring process, mainly if the job involves handling finances. A poor credit rating could potentially harm your chances of getting hired, as it may suggest to employers that you must be more responsible and trustworthy.
3. Housing: Landlords and property managers may also check your credit history when you apply to rent an apartment or house. A good credit rating can improve your chances of getting approved for a rental and help you negotiate better lease terms.
4. Insurance rates: Your credit rating can also affect your insurance rates. Many insurance companies use credit scores when determining rates for auto, home, and other types of insurance. A poor credit rating may result in higher insurance premiums.
5. Utility accounts: Some utility companies may also check your credit history before providing electricity, gas, or water services. A poor credit rating could result in higher security deposits or even denial of service.
CIBIL credit rating is a crucial factor in availing credit facilities from financial institutions. Here are some tips to protect your CIBIL credit rating:
1. Pay your bills on time: Timely payment is one of the essential factors determining your credit score. Ensure you pay your credit card bills, loan EMIs, and other bills on or before the due date.
2. Keep credit utilisation low: Credit utilisation is the amount of credit you have used compared to the credit limit available. Keeping your credit utilisation below 30% of your credit limit is recommended.
3. Maintain a good credit history: Build a good credit history over time. Ensure you do not default on your credit card or loan payments, which can negatively impact your credit rating.
4. Avoid too many loan applications: Applying for too many loans or credit cards quickly can negatively impact your credit score. It is recommended to space out your loan applications and only apply for credit when needed.
5. Check your credit report periodically: It is essential to check it periodically to ensure that there are no errors or discrepancies that can negatively impact your credit score. You can get one free credit report annually from each credit bureau.
About the author
Mr Hargovind Sachdev superannuated as a General Manager of the State Bank of India. Has over 39 years of experience across State Bank of Travancore, State Bank of India, State Bank of Patiala, UCO Bank and United Bank of India.
Headed the Central European Credit Desk of the State Bank of India in Frankfurt, Germany, from 2006 to 2011, covering 15 countries and was the CVO of UCO Bank & United Bank of India till 2016.
Has undergone International Banking Training from the Asian Institute of Management, Manila, The Phillippines, in 2003 and Multi-currency lending technique training at the Euromoney Institute, London, in 2009. Has specialisation in Foreign Exchange, Corporate Credit, Vigilance & Climate Risk Mitigation in Banks.
He is an accomplished speaker, having conducted multiple seminars for institutions like ONGC, National Housing Bank, Hindustan Aeronautics Limited, Bank of Baroda, Canara Bank, Union Bank of India, Bandhan Bank, Gita Rattan Management School & NIIT University.
Mr Hargovind Sachdev is an Independent Director at HPL Electric & Power Limited & ISF Limited. He is also a Director at S.K.Singhi & Co (Consultants) Private Limited, Advisor to SK Singhi & Partners and Director of Climate Risk & Finance Council, USA.
