Credit scores are becoming more and more important. Your credit score reflects your credit worthiness. A good credit score can not only improve the odds of approval of your loan application but can also lower your loan interest rate. Not just that, but a good credit score can be helpful in other aspects of life too. For instance, your prospective employer may ask for your credit report as part of your application.
Needless to say, it is important to maintain a good credit score.
Who Provides and Maintains Credit Scores and Credit Reports?
Credit bureaus (also called Credit Information Companies or CICs). Currently, we have following credit bureaus in India: TransUnion CIBIL, Experian, Equifax, and CRIF High Mark.
The banks/lenders (Credit Institutions or CI) provide data about your loan/credit card facilities and defaults to these credit bureaus on a regular basis. And the CICs use a proprietary algorithm to calculate your credit score. They also maintain a record of your credit facilities across the industry.
For more on this topic, refer to this post.
But the Credit Bureaus Are Not Always Right
It is possible the banks furnish incorrect information about you to credit bureaus. If the information is adverse, it can also impact your credit score negatively. Note that credit bureaus (or CICs) rely on data received from banks/lenders to run their algorithms on. And the credit score is calculated based on such data received from the banks/lenders.
In case you find any discrepancy in your credit report, you can raise the dispute with the credit bureau (or even the bank). Note that the credit bureau cannot change data based on your feedback. It can only forward your request to the bank for revision. Credit bureau can revise data only based on the response from the bank.
While I have no experience in raising a dispute in credit report with a bank or the credit bureau (fortunately), given the way things work, I am reasonably sure that process is such that it is difficult to hold anyone accountable for the delay. The bank and the credit bureau can keep playing ping pong while the customer suffers.
Through 2 circulars, the Reserve Bank has sought to increase transparency and accountability in the dispute resolution process. The directions in these circulars come into effect from April 26, 2024 (six months from the date of the two circulars October 26, 2023).
Alerts and SMSes from Banks and Credit Bureaus
The first RBI circular dated October 26, 2023 (Strengthening of customer service by Credit Information Companies and Credit Institutions) brings transparency through mandatory communication from banks and credit bureaus.
- RBI has directed credit bureaus (credit information companies) to send alerts through an SMS/email if any lender accesses your credit information report (CIR). This is a good move. Helps customers know who has accessed their credit data.
- More importantly, the banks/lenders must send alerts through an SMS/email to customers while submitting information to Credit Bureaus about defaults/Date past. In other words, if a bank is submitting an adverse credit development about your card/loan, it must also tell you about such reporting. This is very useful. The problem with your credit report/credit score is usually due to incorrect reporting from the banks. Now, the bank may have either made a mistake in reporting or a fraudster may have forged documents to take a loan in your name. If the bank is reporting incorrect data by mistake, you can straight away point it out to the bank. Or hopefully, the matter will get resolved soon. In absence of such email/SMS from the bank, you will find out about the incorrect reporting only when you check your credit report next. This may be months later and getting the error corrected may require much greater effort. About the other reason (fraudster taking a loan in your name), I am not sure if this new regulation will help. Because a fraudster is unlikely to use your email and mobile number while applying for the loan.
- Banks/lenders must inform their customers about the reason for cancellation of their data correction request. This requirement was not there earlier.
Compensation in Case of Delay in Addressing Request
RBI has brought in more accountability by introducing penalties for delay in resolution.
As per RBI circular dated October 26, 2023 (Framework for compensation to customers for delayed updation/rectification of credit information), you are entitled to a compensation of Rs 100 per day if your complaint (about updating/rectifying credit information) is not resolved within 30 days of filing complaint with the bank/lender or the credit bureau. Please note that the rejection of your request/complaint is also a resolution.
The compensation must be credited to customer’s account within 5 days of the date of resolution of the complaint. But who will pay the compensation?
A customer request for updating/rectifying credit information must be resolved within 30 days. Now, there are two parties involved here.
Banks/lenders (Credit institution or CI) and Credit Bureau (Credit Information company or CIC).
As per CIC rules, 2006, a bank/lender has 21 days to send updated information to the Credit bureau. 21 days are counted from the date when the bank receives the request from either the customer or the credit bureau.
This means the credit bureaus has 9 days remaining to update the data. Note that a CIC may have 2 legs to complete. First to convey the complaint to the bank/lender. And the second to update the lender’s response in the credit report. To avoid paying penalty/compensation, it must complete both the legs within 9 days.
RBI has provided many lucid illustrations in this document. I am reproducing a few. You can check out the remaining in the document.
As you can see, in this case, the bank is not at fault. It provided resolution within 21 days.
The delay was on part of CIC. It took 12 days (11 days to convey the request to the bank and 1 day to update the credit information report). Took 3 more days. Hence, a penalty of Rs 300 on the Credit Bureau (CIC).
In the following example, both the banks and CIC are at fault. Hence, the two must share the penalty.
Point to Note: No compensation shall be paid if the complaint is resolved within 30 days. This applies even if the bank (CI) or the Credit bureau breached their individual thresholds of 21 days and 9 days respectively. For instance, the bank takes 15 days, and the credit bureau takes 13 days. Total of 30 days. Even though the CIC has not finished work within its timeline of 9 days, the total response time threshold of 30 days is not breached. Hence, no compensation to the customer.
Easy Access to Free Credit Report
As per RBI rules, you are entitled to 1 free credit report per Credit Bureau per calendar year. So, if there are 4 credit bureaus, you can download one free full credit report (FFCR) from each bureau from its website in a calendar year. Hence, a total of 4 free credit reports in a calendar year.
However, the links to download such free reports are not always displayed prominently on their websites. RBI has directed the credit bureaus (CICs) to furnish such a link prominently on the home page of their website.