Credit Scores and Credit Information Companies: Understanding the Link

Strategic Insights -

Consumers applying for loans or credit cards must understand their credit scores, which are determined by credit information companies (CICs) that maintain data on borrowers' histories. The Reserve Bank of India (RBI) regulates these CICs, which include TransUnion CIBIL, Experian, Equifax, and CRIF High Mark. Banks rely on CICs to assess borrowers' creditworthiness and provide accurate information to customers about their credit ratings.

Key Takeaways:

  • Credit information companies (CICs) maintain credit histories of borrowers, including individuals, corporates, and small and medium enterprises (SMEs), which can be accessed by banks and other lending institutions.
  • CICs use a rating system of 300-900, with 900 being the highest rating, to assess borrowers' creditworthiness.
  • A score between 550 and 700 is deemed fair, while 549 and below is considered poor.
  • Credit scores can change with repayment behavior, with defaults causing a decrease in the score.
  • Borrowers can check their credit information report (CIR) once a year, but only after paying a fee.
  • The RBI has ruled that banks must inform customers of the reasons for rejecting their request for data correction.
  • CICs must have a board-approved policy for undertaking periodic reviews of their search and match logic algorithm and conduct a root cause analysis (RCA) of complaints.

Statistics:

  • The total credit outstanding in the banking system is Rs 158.29 lakh crore.
  • As of March 2023, there were 36,217 suit-filed accounts involving Rs 926,300 crore, according to TransUnion CIBIL data.
  • There were also 16,899 wilful defaulters, involving a cumulative Rs 353,905 crore, CIBIL data show.

Sources:

  • Reserve Bank of India (RBI)
  • TransUnion CIBIL
  • Experian
  • Equifax
  • CRIF High Mark
  • Contify.com
  • IE Online Media Services Pvt. Ltd