Recently, a customer in Chennai was refused loan by a bank despite having a good repayment track record, due to an error in his credit score.
Here is all you need to know about credit scores:
Why are credit scores important?
A credit score determines how creditworthy a person is and helps banks and financial institutions decide on loans. A person with a high credit score enjoys access to credit facilities without hassles.
Who issues credit scores?
In India, the scores are issued by credit reporting agencies such as CIBIL, Equifax, Experian and the like. These agencies are regulated by the RBI and collect data from banks on their loans and come up with credit scores through use of algorithms. The data is updated frequently. Credit scores in India range from 300-900.
Is credit report available for free?
A credit report may be obtained for free once a year from every credit reporting agency. However, what is free is a matter of debate. More frequent reports cost ₹300-₹400 apiece.
Can errors creep in?
Arun Ramamurthy, founder, Credit Sudhaar, a credit advisory, points out that data in the credit bureau is critical to lending and pricing decisions made by banks and errors in them affect credit scores. The errors include:
Reporting error: sometimes, banks report wrong client data to the bureau which can, in turn, lead to errors in the credit report.
Algorithmic error: the bureau uses a matching algorithm to generate a credit report based on multiple data sets (pertaining to each bank) submitted by banks. Often, due to the lack of unique identifiers, the matching logic can go wrong which can lead to errors
Identity theft error: this happens when someone impersonates another person (who has a good credit record) to take a loan and then defaults on the loan.
How does a customer ensure data accuracy?
Mr. Ramamurthy suggests customers monitor credit reports at least once in two months and protect them from identity fraud by using good firewall protection on their devices.
If an error is spotted, a customer should write to the bureau concerned for a resolution on the link provided on the respective bureau website.
