Keep a tab on your credit report

Credit information—a record of the loan repayments made by a borrower that is collected by credit information companies (CICs)— is a critical barometer to gauge an individual’s financial health and helps address the problem of asymmetric information between borrowers and lenders. Financial institutions check the credit history or financial behaviour of an individual before taking decisions relating to credit and loan agreements. CICs also offer value-added products like credit scores.

CICs are governed by the Reserve Bank of India (RBI) and provisions of the Credit Information Companies (Regulation) Act, 2005, CIC Rules, 2006, and CIC Regulation, 2006. Currently, there are four CICs in India—Trans Union CIBIL, Experian, Equifax and CRIF High Mark. Specified users, such as insurance companies, stock brokers, credit rating agencies, and resolution professionals, besides individual borrowers, can obtain credit information reports from these CICs.

Of late, there has been a surge in customer complaints related to the accuracy of credit reports. Many individuals have found errors in their detailed credit history that have affected their scores. Some have also complained about their credit history being accessed without being informed. So, It becomes necessary for individuals to thoroughly check the statements provided by CICs.

A few borrowers had, after noticing these errors, approached the CICs for correction. However, CICs directed them back to the respective banks for necessary rectifications in their credit history. This was overall a cumbersome process. However, RBI has streamlined the grievance redress mechanism by placing CICs under the ambit of integrated ombudsman scheme in August 2022. Further, RBI guidelines state that CICs and banks have to collectively rectify any incorrect score within a period of 30 days, post which the customer can escalate it to the RBI ombudsman. Customers should clearly specify the error in the credit report by mentioning each transaction that have not been approved by them. The regulator has also mandated financial institutions to send SMS alerts to customers when their credit score is accessed. CICs have to report the number of complaints received and resolved. Recently, RBI clamped down on four CICs for non-compliance and not maintaining accurate credit information of individuals.

Yet, it is necessary for people to be vigilant about their credit information report. RBI has directed CICs to furnish one free full credit report (FFCR) in a calendar year. Individuals should obtain this report and review it diligently. This report has five sections containing(1) personal information (such as name, address, date of birth, and bank accounts); (2) account information (type of loan, credit limit, etc.); (3) days past dues information (DPD); (4) enquiry information; and (5) credit score information.

The credit information report mainly informs about the financial discipline being maintained by the customer throughout the tenure of the loan. One of the critical metrics to be checked is the DPD information on a customer’s creditworthiness in making EMI (equated monthly installment) payments and credit card dues, if any, on time. Any undue delay reflected in this metric must be duly checked by the customer. This is to avoid any misreporting by financial institutions. In this context, it is important to understand that credit card customers should try to pay the full amount that is due instead of the ‘minimum amount due’ as it is one of the factors that adversely affects the credit worthiness reflected in this metric. Apart from DPD matrix, customers should also check ‘enquiry information’ segment of this report to ensure that no one has access to their credit score without their due consent. Overall, it calls for understanding the nuances behind credit reporting and becoming a vigilant consumer to avoid financial misreporting and financial frauds.

Kuldeep Thareja, Mitu Bhardwaj and Rasmeet Kohli are with the National Institute of Securities Markets. The views expressed in this column are personal.