Before we begin to understand how a credit information company works, let’s take a look at what exactly a credit information company is. They are usually independent organisations or firms that collect public information, identity information, statutory data, payment histories and credit transactions of individual organisations and customers. The information obtained from various sources is stored with these companies, and they do not make any changes or alterations to the data. Credit information companies also ensure that they do not provide any opinions on the information they possess. Neither do they make any decisions for the lenders that use their reports and services when determining the eligibility of an individual for credit.
Credit information companies only offer the information they possess regarding individual borrowers to lenders who are required to assess the individual’s eligibility based on a variety of factors including the information derived from credit information companies. However, there are instances when two different lenders can make two separate decisions after using the same information availed from credit information companies. The main reason for this is that the lenders usually apply their own credit policies before considering applications for credit.
Role of Credit Information Companies
Credit information companies have a set of roles and responsibilities that must be followed to ensure effective operation.
- To ensure that information regarding a potential borrower’s credit history is easily accessible by lenders.
- To offer accurate data to lenders.
- To make it easier for potential borrowers to gain easy access to credit.
- To help lenders make proper, responsible, profitable and consistent lending decisions.
- To ensure that customers are protected against over indebtedness by offering all relevant information of credit exposure, thus helping lenders determine the borrower’s ability to repay the loan.
- To ensure that lenders are safeguarded against fraud – a serious and growing problem.
- To ensure that customers are educated on the significance of credit information companies.
- To facilitate responsible borrowing and responsible lending.
The Importance of Credit Information Companies
Credit information companies are not only important for individual lenders and borrowers, but is also instrumental to a nation’s overall economic development. The International Finance Corporation has stated that credit information companies are essential in the bigger picture as they offer advantages to all parts of the credit economy.
The Reserve Bank of India as well as the Government of India rely on credit information companies to promote east access to credit, therefore encouraging sensible customer expenditure on goods and services that will in turn benefit the overall economy.
Lenders rely on credit information companies to determine risk and allot credit based on informed decision and in a more efficient manner.
Customers and businesses require credit information companies to find an easy means to access credit quickly and easily so that there is no need to rely on personal relations with lenders.
The Experian credit report
What information is recorded in my credit report?
A. The following information will be presented to you in your credit report:
- Your personal details including name, PAN number, passport number, contact details and address.
- Your Experian credit score
- Summary of active, closed and settled credit accounts.
- Details of various credit products owned by you at the moment with payment details about amounts paid, amounts due and amounts overdue
- Information on any credit cards that you may be using
- Payment history of payments towards loans indication if payments were made on time of delayed.
- Information on enquiries made by credit organisations
- Information on enquiries made by non-credit organisations
How do I know my credit score?
A. The report will display the credit score on the first page just under your personal details.
What is the rating system used by Experian?
A. Based on the payment behaviour of a person, each individual is assigned a credit score in numerical values between 300 and 900. A score of 300 is at the lowest end of the scale and means that the person needs improvement while a score of 900 reflects a healthy financial situation indicative of stability.
What factors are used to determine my credit score?
A. As is the case with credit reports, irregular or late payments are the biggest factors that determine your credit score. The other factors that can be used will cover things like applications made for credits, one time repayments and any defaults on payments, past or present.
Is there a black list for those with a bad Experian credit score?
A. No. There is no black list of those with a low credit score.
I see the names of some banks that I don’t recognise on my report. Why is that?
A. These names can appear if banks have requested Experian for your credit report.
How to I fix my credit score if it’s low?
A. There is only one magic formula to fix a low score and that is to ensure that all the payments you make, from this point on, are made on time and that you don’t default on a single payment.
I see green circles with a 0 in them. What does this mean?
A. What you are looking at is the payment history. Each individual credit product has a calendar associated with it which marks the repayment history. If the circle is green and shows a 0 in it, it means that the payments were made on time for those months. However if there is a number greater than 0 in the circle then it indicates the number of days by which the payment was delayed.
What is DPD?
A. DPD stands for Days Past Due and refers to the number of days by which a payment was delayed.
Some of the DPD tables say S. What is that?
A. In cases of loans there are certain letters that Experian can associate with that particular loan. Each letter represents the situation of the account and are explained below:
- S: This stands for Standard and indicates an account where no payment has been delayed by more than 90 days.
- M: This stands for Special Mention and indicates that while the account is standard, some transactions may have been delayed and the account may need monitoring.
- B: This stands for Substandard and indicates that payments in this account have been overdue for 9 to 12 months.
- D: This stands for Doubtful and indicates that the account has been overdue for over 90 days past the 12 month limit.
- L: This stands for Loss and indicates that account is in loss but the amount due have not been waived off.
What are these letters based on?
A. All these letters assigned to the credit report are based on guidelines provided by the RBI.
What are credit enquiries?
A. The section talking about credit enquiries is basically meant to provide information on credit institutions that have asked for you credit reports.
What are non-credit enquiries?
A. This section will give details about any enquiries made about your credit report by organisations that were not related to any application for credit. It will also show your name in it, should you ask for your credit report.
How long are details of credit enquiries kept?
A. Non-credit enquiries will be shown for a period of 1 year preceding the date on the report. Post that the enquiry will be removed for that section.
There is information about my credit history that is not shown on my credit report. Why is that?
A. A possible reason for that could be that the bank/company that gave you the credit has not shared the information with Experian. Once they do, it will show on your credit report.
Is the information in my credit report permanent?
A. No. If there is a problem with the information you can challenge it and the appropriate corrections, if any, will be made.
I don’t understand the symbols and abbreviations used in the report. What can I do?
A. The credit report will provide a legend at the end that will help you understand all the sections and symbols and abbreviations used within it.