Credit information companies are now performing an invaluable role by collecting individual’s data about their debt repayment and its history and providing these inputs to financial institutions.
Whenever an individual approaches a bank/financial institution to avail loans, the bank will be concerned about the repayment capacity of the individual. The repayment capacity can be traced from the loan repayment history of the individual.
Credit information companies (CIC) provide such credit information about individuals and assigns ranks to them based on their past repayment track record. Banks and other financial intuitions can get use this data while offering their financial services to an individual.
At present, four credit information companies are given certificate of registration by the RBI. These companies are Credit Information Bureau (India) Limited (CIBIL), Equifax Credit Information Services Private Limited, Experian Credit Information Company of India Private Limited and CRIF High Mark Credit Information Services Private Limited.
How credit information is obtained by the companies and provided to banks?
For the regulation of credit information activities, there is the Credit Information Companies (Regulation) Act, 2005 (CICRA) which is binding for the Credit information companies as well as for financial institutions. The CICRA was enacted to regulate the businesses of the CICs.
There are several instructions in the Act for collecting information about individuals from banks by CICs and supply of this information about their creditworthiness to banks.
As per Section 15 of the CICRA, every Credit Institution (like banks) should be a member of at least one CIC. Besides, CICRA also stipulates that a CIC may seek and obtain information from its members only.
Here, if a bank seeks information from a CIC, it will get the information given by other institutions (to CIC) only.
How credit information about an individual is classified?
Credit history about an individual is classified by a CIC into two categories: Negative data and Positive data.
The negative reporting are those related to unfulfilled financial obligations such as
- amounts in arrears,
- court judgments, and
- other adverse information.
Usually, this information creates a black list for the concerned customer.
On the other hand, the positive data includes open and closed accounts by the customer and his repayment history.
CIBIL, which is an important CIC in the country, has a rank called CIBIL Score that indicate the creditworthiness of an individual. It is a 3-digit figure ranging from 300 to 900 points which denotes a person’s credit worthiness.