Bank Loans and Credit Scores: What You Need to Know
Before granting a loan, banks carefully review the credit score of the applicant. This score provides vital information about the individual’s repayment history and past loans. Based on this record, the bank determines whether to approve the loan.
New Regulations to Protect Consumer Credit Scores
In an effort to safeguard consumer credit score information, new rules will come into effect within six months. Under these regulations, banks are required to notify consumers whenever they need to check their credit records. The Reserve Bank of India has instructed credit information companies to notify customers via SMS or email each time their credit score information is accessed by banks or alternative finance companies. Additionally, individuals must be informed via message or email when submitting existing credit card details to a credit bureau.
Credit Information Companies (CICs)
Credit Information Companies (CICs) are responsible for evaluating the creditworthiness of individuals and companies in the country. They assess credit scores and rankings based on information provided by banks and NBFCs, examining past credit transaction history to determine creditworthiness.
Understanding Credit Scores and Loan Eligibility
A high credit score can lead to loan approval at an attractive rate, while a history of loan defaults can negatively impact credit scores, making it difficult to obtain bank loans or credit cards. However, credit score is not the sole determining factor for loan eligibility.
Leading credit information companies in India, such as TransUnion Private Limited, Equifax India, and CRIF High Mark, provide credit scores ranging between 300 and 850, with scores above 700 considered favorable.
Accessing and Correcting Credit Reports
Consumers can check their credit scores through the CIS website, with the ability to access their full credit report once per calendar year. The RBI has mandated that credit bureaus must provide a link to a Free Credit Report (FFCR) on their websites to facilitate access to full credit reports.
Furthermore, individuals have the opportunity to request corrections to their credit reports. In cases where such requests are rejected, banks and NBFCs are required to inform consumers of the reasons for the rejection. This transparency enables customers to understand and address any issues in their credit reports.
Additionally, the RBI has stipulated that credit information companies must disclose details of complaints registered against credit information on their websites.
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The first thing banks check before granting a loan is the applicant’s credit score. By checking your credit score, the bank can clearly know about your previous loans and how your repayments have been. The bank will grant a loan based on this record.
The new rules will take effect within six months to protect the security of consumers’ credit score information. The bank should also notify the consumer whenever they need to check the credit record. The Reserve Bank of India has instructed credit information companies to notify customers via SMS or email when banks and other alternative finance companies check a user’s credit score information. Also when the user submits the existing credit card details to CBC they have to send them a message or email.
Credit Information Companies (CICs)
CIC are companies that check the credit information of individuals and companies in the country. CIC checks the credit worthiness of consumers based on information provided by banks and NBFCs. CIC determines individuals’ credit scores and companies’ credit rankings and their creditworthiness by examining past credit transaction history.
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If the customer’s credit score is high, they can get the loan at an attractive rate. Defaulting on previous loans can lower your credit score. They may not get bank loans or credit cards. But credit score is not the only thing that is checked to understand whether the user can get a loan or not.
TransUnion Private Limited, Equifax India and CRIF High Mark are some of the leading credit information companies in India. Credit reference companies assign scores between the numbers 300 and 850. A score above 700 is considered a good score.
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Does the customer know the credit score?
You can check your credit score from the CIS website. Information about this has been provided to RBIS. A user can check a credit score once per calendar year. The central bank said the link to a Free Credit Report (FFCR) should be provided on the CIC website so that individuals can access their full credit report.
The customer also has the facility to apply to correct information in the credit report. In a circular issued on Thursday, the RBI said banks and NBFCs should inform customers of the reason for rejection of their request for correction of information. RBI also suggested that only then the customers can properly understand the problems in the credit score report.
The RBI also said that credit information companies should disclose details of complaints registered against credit information on their websites.
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