Just as marks and grades determine academic value in school or college, scores will now assess an individual’s credit worthiness. Credit Information Bureau India Limited (CIBIL) and TransUnion, a US-based analytics firm, have created a generic credit score for the Indian borrower. While this score is currently used only by lenders, borrowers may also soon be able to use this to bargain for better rates, once the Credit Information Act is passed.
Mr S. Santhanakrishnan, Chairman, CIBIL, said the score will be available to its 143 members. The members currently include banks, housing finance companies and non- banking finance companies. credit card companies, financial institutions and state finance corporations.
A credit score takes a ‘snapshot’ of a consumer’s payment history, outstanding debt and credit account history and turns this into a 3-digit number. The score, which ranges from 300 up to 900, represents the amount of risk a consumer brings to a particular transaction. It will indicate the chances of the borrower becoming a defaulter in more than 91 days within the next year. This score will reflect information from several lenders and across various loans such as home loans, credit cards and personal loans.
TransUnion is one of the three large credit bureaus in the US and serves 50,000 businesses. Mr Larry K Howell, President, Asia and Europe, TransUnion, said that a good credit score provides‘reputational collateral’.
“The score will lead to greater access to credit for the Indian consumer while allowing financial institutions to better manage their risk,” he said
RBI norms soon
Currently, individuals do not have access to their credit history. Mr Santhanakrishnan said that RBI is expected to come out with guidelines that will allows individuals to access their own credit scores. The central bank’s guidelines may also allow co-operative banks the use of CIBIL’s services.
With the passing of the Credit Information Act, entities like insurance companies and telecom operators may also be able to access CIBIL.
In the next six months, CIBIL will come out with scores for individual products such as home loans and credit cards.
They also plan to introduce ‘fraud alerts’. It will also introduce products that will inform lenders if multiple loans have been issued for against a single property.
Source :The Hindu Business Line