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Credit scores are used to judge creditworthiness of borrowers. HT
Credit scores are used to judge creditworthiness of borrowers. HT

Credit bureaus cut scores

It is common for credit bureaus to alter credit scores in case of defaults or delays as reported by lenders

Borrowers are seeing their credit scores slashed after availing of the moratorium on loan repayments, despite the Reserve Bank of India’s instructions to credit information companies not to take such steps.

Businessman Annuj Nigam said his score had been slashed by over 100 points since March after he availed of the moratorium till 31 August from all his lenders. Kanpur-based Nigam said he had taken the moratorium from April till August.

Nigam, 40, is among dozens of such aggrieved borrowers who have complained on Twitter.

Credit scores are used to judge the creditworthiness of borrowers and are essential for getting loans, with some lenders offering lower interest rates to customers with higher scores.

“I figured out that while banks have not reported my repayment as ‘delayed’ to credit information firms, non-bank lenders have done so in April," Nigam said over the phone.

Another borrower, a 35-year-old from Mangaluru, said his loan and credit card dues were under moratorium till 31 August, but like many others, his credit score has been slashed.

“I have mailed the lenders for an explanation, but I am quite confused about how this could happen despite clear instructions from RBI. I was told I will have to pay interest due to the deferment, but the lowering of credit score is simply unjust," the borrower said on condition of anonymity.

To be sure, it is normal practice for credit bureaus to alter credit scores in case of defaults or delays as reported by lenders.

However, RBI had specifically said on 27 March that rescheduling of repayments, including interest, will not qualify as a default for the purposes of supervisory reporting and reporting to credit information companies (CICs) by the lending institutions.

“CICs shall ensure that the actions taken by lending institutions pursuant to the above announcements do not adversely impact the credit history of the beneficiaries," the central bank said.

Experts believe credit scores are not entirely based on delays reported by lenders —credit information bureaus also take into account extraneous factors.

According to Mrutyunjay Mahapatra, a former chief executive, Syndicate Bank, credit scores are generally based on multiple factors. While obtaining a moratorium will not lead to a default rating, it could be altered depending on the new assessment of creditworthiness.

Emails sent to credit bureau Experian and to RBI remained unanswered, while Crif High Mark and Equifax declined to comment.

“We would... like to confirm that there has been no change/modification in the reporting formats or reporting by credit institutions which will put the consumers who have availed moratorium in a disadvantageous position. We have been engaging extensively with lending institutions to ensure timely and accurate data reporting," TransUnion Cibil said in an emailed statement.

It added that consumers who have opted for a moratorium are free to raise a dispute on its website if they find inaccuracies in their credit reports.

“There are multiple reasons why a credit score can fall. It gets impacted even if there is an increase in the number of new loan enquiries made by a borrower—this could mean a potential increase in future debt and consequent increase in future liabilities," said Anil Gupta, vice-president and sector head (financial sector ratings), Icra.

A lower credit score is bound to impact any future loans taken out by borrowers. “It is not like I can click refresh to update my score," said Nigam

TransUnion Cibil’s website advises customers to have a healthy mix of secured loans (home or auto) and unsecured loans (personal, credit cards).

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