Expert Take
Mind Your Financial Moves, Credit Bureaus are Watching You
The banking industry today is abuzz with talks about frequent rate hikes and their impact on credit growth. Lending institutions are getting exceedingly selective and diligent in their lending decisions. Consumers, on their part, are also striving to improve their credit history and better understand their rights in the credit borrowing space.
As an increasing number of Indians use financial products, credit bureaus have attained acceptance and importance in India for their expertise. These bureaus no longer remain limited to offering credit reports. Their offerings have multiplied in the past year and they now play a more important role in lending decision making than ever before.
There has been significant innovation by bureaus in launching a suite of alerts products to assist banks with retention, cross-sell and collection efforts. Banks now take advantage of almost real-time monitoring of their customers' efforts in leveraging themselves. Collections groups are updated on the activities of customers who are categorised as 'high risk'.
Banks are frequently notified about certain behavioural changes of customers (such as missed payment with another bank, delinquent customers paying another bank, suit filed, settled accounts, etc), which will prompt collections groups to pursue unpaid debt. As consumers, it is now time to be aware that enquiries made by them are no longer secret. One should engage in them only if absolutely necessary.
Customer portfolio review services offer banks an opportunity to better understand details about their customers' portfolios across multiple lenders. The entire portfolio of customers can be reviewed regularly for changes made over time. Banks remain updated on existing customers by assessing and managing the associated risks across various parameters.
Credit bureaus have been innovative with different methods of determining credit scores from variables specific to customers. This score-based system summarises an individual's credit history in numeric terms.
It provides precise indications of a borrower's credit usage and repayment patterns. Consumers need to be very aware of behaviour that can impact credit scores. Bureaus are committed to superior data quality and are working to achieve high rates of data acceptance. In a short span, they have evolved to adopt advanced data cleansing, data enrichment and analytics tools to assist banks in improving their judgment from the available pool of data.
Lending decision is determined by multiple factors like credit reports, credit scores, complete portfolio analysis, frequency of actionable alerts, etc. The credit landscape in India is dynamic and will fast evolve to risk-based lending, where premiums are likely to be determined by credit scores.
The services of bureaus will extend from beyond banking to telecom, insurance, and other specified users. There is a likelihood of the emergence of performance-linked plans, where the premium will be dependent on the individual's credit scores. All the above factors demand from customers a conscious effort at exhibiting creditworthy behaviour. Some prudent practices need to be kept in mind:
DO NOT OPEN NEW ACCOUNTS RAPIDLY: Opening new accounts frequently attracts suspicion.
DO NOT FREQUENTLY CLOSE UNUSED ACCOUNTS: Longer lines of credit always positively impact creditworthiness.
RESPONSIBLY MAINTAIN CREDIT CARDS: Credit card payments must be made on time. Do not obtain additional credit cards to increase available credit. Do not make enquiries when unsure of borrowing.
PAY DOWN DEBT AND ON TIME: It is extremely important to pay down debt, and do so on time. Customers believe that moving balance equates to paying off debt. On the contrary, moving balances need to be settled in a timely fashion to maintain good credit behavior.
FREQUENTLY CHECK CREDIT REPORTS:
It is important to frequently check credit reports to remain informed about discrepancies.
Rebuilding credit history is a slow and patient process. Given the advanced practices adopted by banks in lending decision making, it is important, as a customer, to remain informed and consistently monitor credit. When ordering reports, especially for the very first time, it is advisable to order reports from multiple bureaus to look out for fraudulent activity or errors. Any incorrect information in the credit report should be logged as a "dispute" with the bureaus. The bureaus are obliged to help in dispute resolution with the lending institutions. Engaging in frequent financial health checkups will go a long way in ensuring good financial decisions.
Be alert, be aware.
Samir Bhatia
MD & CEO
Equifax Credit Information Services
MD & CEO
Equifax Credit Information Services
Disclaimer
Information, charts or examples contained in this mail is for illustration and educational purposes only. It should not be considered as advice or an endorsement to purchase or sell any security or its financial instrument until you are well conversant and confident about the movement.
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