Will two scores help borrowers?
13 Dec 2011
Edition: All editions - Pag 16
Equifax Credit Information Services Ltd became the second
credit bureau of India to offer a credit score. It was launched on
Thursday and is called “risk score”. Earlier, Credit Information
Bureau (India) Ltd (Cibil) was the only bureau which provided credit
scores which it started in April. Experian Credit Information Co. of
India Pvt. Ltd, another credit bureau, offers a credit report but not
a credit score yet. A credit report is the record of an individual’s
past and current borrowing and payment history and a credit score is
based on the credit report which represents the credit report in a
numerical format. “The risk score is designed to predict the
likelihood of a customer defaulting over the next 12-month period. An
account is said to be a default when it crosses the 90 days mark of no
payments. The score will help banks monitor their loan portfolios,”
says Samir Bhatia, managing director and chief executive officer, Equifax.
Equifax’s risk score
What makes the score: The risk score assigned to customers will
be based on more than 600 variables such as past credit payment
history, current credit activity, number of credit cards, number of
secured and unsecured loans and demographic variables such as address,
income and the like. The score will vary between 1 and 999. Higher the
score, more credit worthy the customer is and vice versa. Who can get
the score: The risk score is not only available for the existing
borrowers who have a credit history, but also for those who have never
borrowed. So, even if you’ve never borrowed, you can get a score based
on enquiry parameters such as demographic attributes. Banks can use
the risk score to validate a new borrower’s repayment ability. Cost: A
single report along with the score will cost Rs 400. However, if you
would like to monitor it throughout the year, the bureau will give it
to you four times a year for an annual fee of Rs 1,000. The report
would reach you in around 10 business days. You can get more
information on the report at www.equifax.in.
Cibil’s credit score
The Cibil score is a threedigit number ranging between 300 and
900. Like the risk score, it helps in estimating the likelihood of
loan repayments. A score closer to 900 indicates that a borrower is
least likely to default. The credit report along with the score costs
Rs 450. If you chose to access it online, you would get it in two
days, while offline mode would take around 10-12 days.
What two scores mean
The fact that there is more than one score works in your
favour. Says V.K. Kulkarni of Abhay Credit Counselling, “If scores
from both the bureaus are high, it will work for consumers. If you
have a high score, banks will want you as a borrower and processing
time of the loan will be lower.” In fact, some banks have an internal
policy wherein they do not consider loan for individuals below certain
credit scores. If you have a high score with both bureaus, it will
certainly help. It may be possible that you are a good borrower and
still have a poor score from one rater due to reasons beyond your
control. In such a case, a second score will help.
Says Bhatia, “when banks will pull out a second score and see a
strong one, the consumer may benefit from it.” “Generally banks would
take a mean of both the scores and decide upon your credit worthiness.
Some banks would take the lower score while other bank will take into
account the higher score. It would vary from bank to bank,” adds
Bhatia. Also, having two good scores can help you bargain with the
lender in the future. In many developed countries, a high score can be
used to bargain for a lower rate from banks. A low score will indicate
a poor credit report which will help you detect any fraudulent
activity that may have been carried out in your name. If you have not
defaulted but receive a low score, you can get in touch with the
credit bureau and/or the institution from where the loan was availed
for further assistance.
Hence, having another rater works in your favour. Also keep in mind,
no lender can request to see your credit report without your consent.
Usually consent to check your credit report is part of your loan
application form. If you haven’t applied for a loan and the report
shows that a lender has made an enquiry, there is a good possibility
that you may have been exposed to some kind of an identity theft
attempt. In such a case, get in touch with the bank immediately. The
concept of monitoring credit score hasn’t caught up in India but is
common in developed nations. Says Rusi Thavadia, a resident of
Detroit, US, “US doesn’t have a savings culture. Everyone borrows,
hence credit score becomes important when borrowing.
Here, many financially sound individuals monitor their own credit
history frequently.” Internationally, there are multiple credit scores
available from various credit bureaus. Says Mohan Jayaraman, managing
director, Experian Credit Information, “we will in a short time
provide credit score as an overall consumer proposition.” Even as the
Indian market mature to the multiple score system, it will be a
win–win situation for both lenders as well as borrowers.