Credit BureauOn Credit Bureaus and how they work
15 Oct 2007
Credit Bureaus maintain credit record of borrowers
and make them available to banks and financial institutions in its network to assess a customer's credit history. The information maintained by
a credit bureau includes a borrower's repayment history of all loans and credit cards, including credit card
Credit bureaus get this information from its members, who are banks and other financial institutions. Credit bureaus enable banks to process a loan applications quickly by faster decisions on the borrower's creditworthiness.
The concept of the credit bureau is relatively new in India. The first and the foremost credit bureau in India is Credit Information Bureau of India Ltd. (CIBIL). CIBIL is promoted by State Bank of India (SBI), Housing Development Finance Corporation Limited (HDFC), Dun & Bradstreet Information Services India Private Limited and Trans Union International. It now has about 16 banks and financial institutions as its share holders. Its membership is not limited to shareholders and has nearly all major banks, financial institutions, non-banking finance companies operating in India as its members.
How does a Credit Bureau work?
A credit bureau has close relationship with its member banks and financial institutions. It collates credit information of banking customers (it could be an individual customer or a commercial establishment) from its member banks and puts it into a centralized database. So, the more members (banks and financial institutions) a credit bureau has, the more effective is its report about a consumer. When a consumer applies for a loan or credit card, the lending bank will seek a credit report on the consumer from the credit bureau. This report forms a crucial tool in the bank's analysis of credit worthiness of that consumer.
For example, X has taken a personal loan with one bank and paid his equated monthly installments (EMIs) promptly. He has, however, defaulted on a home loan taken from another bank. The credit bureau will collate both these information in X's credit report. When X applies for another loan or credit card, all this information is available to the prospective lender to view and take a decision on his credit worthiness.
Credit bureaus merely supply reports generated from their databases to banks and do not offer any opinion about the credit worthiness of a consumer. When a bank informs a consumer that his/her credit bureau report says he/she is a defaulter, it represents the member bank's interpretation of the consumer's credit report.
What all information about a borrower does a credit bureau have?
Banks and financial institutions supply the basic identification data (e.g. name, PAN number and address) and the relevant data on loans and credit cards taken by a borrower (e.g. type of credit facilities, repayment history which includes defaults or delay in payment, if any and total credit outstanding).
The credit bureau consolidates this data given by various member banks and presents a single report for a consumer. So a bank accessing this report will be able to see the full credit information about the customer's accounts across many banks.
Credit bureaus store past information even after a loan is repaid. CIBIL, for instance, keeps consumer credit information for seven years on its records.
The Credit Information Report (CIR) provided by CIBIL to its members includes information such as:
- In case of individuals: Identification numbers, Passport ID, Voters ID, Date of birth
- In case of establishments: D-U-N-S Number, Registration Number, Legal Constitution
- Records of all the credit facilities availed by the borrower
- Past payment history
- Amount overdue
- Number of inquiries made on that borrower, by different Members
- Suit-filed status
Can the consumer access his/her credit report?
Whenever a bank or finance company uses credit information report to process a loan application, the borrower can request the lender for a copy of the credit report. This report will enable you to take requisite action if there is any error in the report.
Specific measures have been provided in the Credit Information Companies (Regulation) Act 2004 (CICRA) for the consumer to raise a dispute in the event of any wrong reporting. It comes with a built-in time-bound dispute resolution mechanism also. CICRA thus empowers the borrower to request the credit bureau to update its records if the information is found to be wrong.