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Business News/ Opinion / How the others interpret your credit score report

How the others interpret your credit score report

Credit report contains personal identification details, followed by information on type of credit

Shyamal Banerjee/MintPremium
Shyamal Banerjee/Mint

While one may think that a credit report is relevant only to lending institutions, it is actually available to other service providers as well such as cellular companies and employers, and can even be used for background verification. A credit report can be interpreted by different stakeholders in the system.

A credit report contains personal identification details, followed by information on the kind of credit you have—whether it is a mortgaged loan or an unsecured one; amount of loan; how much you still owe; what is the status of the account (open, inactive, closed, paid, any issues); how well you’ve paid the account; if you have been a guarantor or a co-borrower, and many other such details. After this, the enquiry details are listed, which have information on the types and amounts of credit that you have sought in the past.

When decoded, a credit report has many stories to tell. We have had to do debt counselling (and even marital counselling) for a few of our clients after seeing their credit reports. Many people tend to be in denial, and a good look at their own credit reports can be an eye opener. How you see your credit report is, of course, important. But do remember that this information can be viewed by others as well—each stakeholder in the ecosystem views a credit report differently and interprets to suit its needs. For example, the way a lender sees it will be different from how an employer sees it. That’s because the purpose of going through the report itself is different. Here’s a look at how the report is seen by others.

For mobile phone connection: Telecom operators are allowed to be members of a credit rating agency just the way other financial institutions are. Most telecom operators have online access to credit reports by Credit Information Bureau (India) Ltd (Cibil) the way banks and non-banking financial companies (NBFCs) have. However, telecom payment behaviour doesn’t form part of credit history in the report. This means that defaults or non-payment of bills is still not a part of your credit report. Telecom operators are accessing credit reports, but not submitting data yet.

The credit report usage is currently limited to postpaid connections. The purpose behind seeing credit reports is to know their users better. Depending on the scores, the credit limits are set. So, a better credit history or score ensures faster activation for new connections. Generally, for new activation, a customer has to provide valid proof of identity and address. This is then followed by field (physical) verification. If a customer has a good credit score, the physical verification may be waived. This reduces the activation turnaround time significantly. Like credit cards, there is a credit limit allocation for every postpaid connection. Operators change customers’ credit limits from time to time on the basis of usage and payment behaviour. With a better credit score, a customer will be given higher credit limit for a new connection and the credit limit may be enhanced for an existing connection.

For employment: In India, using credit reports before hiring is still not common, though the trend is picking up. At some places, a candidate has to mandatorily submit the document, though bigger companies tend to do this more than others. It is a part of compliance, but, unfortunately, most human resource professionals don’t have good understanding of it or interpretation skills. A credit report may be one of the most authentic and readily available documents that can establish an individual’s history. It is a good idea to know about a person’s financial prudence before on-boarding her. This is highly recommended for professionals in jobs such as purchase and sales, which are client-facing, and even for other sensitive roles in the organization.

Usage by insurance companies: The Credit Information Companies Regulation Act, 2005, permits institutions such as banks, insurance companies, telecom companies, broking firms and asset reconstruction companies to access credit information from companies’ database. Insurance companies use Cibil score to determine premiums. Like banks, they want to know whether you are disciplined enough to make your payments on time. The ability to pay is verified through your financial records. If the credit report shows serial late payments or defaults, it could affect acceptance and premiums for insurance.

The insurance industry is going through tough times and there is a strain on asset quality. Hence, more information on new customers is sought. Credit information companies say that even general insurers have started accessing their credit history databases. The usage is currently restricted to contacting policyholders who may have shifted residences for follow-ups or premium reminders.

I believe the days are not far when our credit histories will be checked before we can even rent apartments or buy health insurance policies. Hence, it is important that quality data is available with banks and other lenders or service providers. Periodically check for accuracy of credit information, especially those who move places or change jobs often. It is crucial that all loose ends are tied before you move. Banks and lenders submit data about our borrowings, and the credit bureaus collate and present it. It is in our benefit to contact and coordinate with our lenders and ensure that correct data is submitted. If you discover any errors or are facing issues due to incorrect data, it is best to discuss with a credit adviser.

Aparna Ramachandra is founder director,

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Published: 17 May 2015, 07:27 PM IST
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