Published on Dec 24, 2020Updated on Nov 28, 2023
Credit Bureaus in India and all over the world - have a primary purpose - which is to analyse the financial transactions specifically loans due and their payments for people as well as businesses. The bureaus then give Credit ratings or scores based on this study. These Credit scores /ratings are an integral part of the loan process and are heavily relied upon by lending institutions such banks, NBFCs and so on.
Lenders check the credit score of each applicant before giving loans. Let’s understand what Credit Bureau and Credit rating means.
Credit Bureau is an agency which collects and analyses data related to a person or a business entity’s transactions which are made on credit. These include loans taken, credit cards used, overdraft facilities, etc. and their repayments. This analysis may also include the data regarding income taxes, timely payment of utility bills and so on. The information is collected from lending companies, data collection agencies, money collection agencies and various others. The purpose of collecting and analysing such information is to create a profile of the creditworthiness of the person which includes repayment behaviour, default history, and overall financial behaviour (debt to income ratio).
The Credit bureaus in India collect financial information about a person / entity which is analysed after which, a credit score is given to the person / entity. This credit score is a number that may be between 300 to 900. The score can be analysed as follows:
Credit bureaus are indispensable to the Indian financial system by helping lenders make informed decisions about processing loan requests and preventing fraudulent transactions. They use different calculation methods to generate holistic reports and derive accurate credit scores.
CIBIL is a comprehensive credit bureau which was established in 2000 with a license to operate in 2010. CIBIL covers the analysis for individuals as well as organisations. It gives a credit score rating that varies between 300 to 850 – where 720 and above is an excellent score. For companies and other entities it gives a score called PERFORM score.
Equifax started off as a credit giving company in 1899 and in 2010 became a licensed credit rating agency. The credit score rating from Equifax lies between 1 to 999. Equifax also provides risk scores and portfolio scores in addition to credit scores for individuals. For companies they also provide credit fraud reports, portfolio management, risk management reports, industry diagnosis, and other reports may be obtained.
Experian has been a licensed credit rating agency since 2010 in India. It was established in 2006 and it conducts analysis of credit reports on individuals and companies. The reports take about 20 days but are not very expensive. The credit scores rating range from 300 to 900.
CRIF High Mark was established in 2007 and obtained a license in 2010. The distinguishing factor of this is that the CRIF High Mark is the only one approved to operate in India by the Reserve Bank of India. CRIF conducts credit rating analysis for individuals and corporations. The credit score rating falls between 300-850.
Incorporated in 1987, CRISIL is a full-service credit rating agency. It evaluates the creditworthiness and assigns credit ratings to commercial entities such as banks, companies, and organisations. Their list of services includes: ● Independent Credit Evaluation ● Corporate and Financial Sector ratings ● Fund Ratings, Recovery Risk Ratings, among others.
CRISIL's ratings range from AAA (highest) to D (lowest).
Established in 1991, ICRA is known for offering information and guidance to investors and creditors. It rates debt instruments issued by different organisations.
They specialise in providing mutual fund ratings, corporate governance ratings, structured finance ratings, and more.
CARE, set up in 1993, rates various market sectors, including infrastructure, manufacturing, and financial services.
They offer gradings for bank debt, capital market instruments, corporate bonds, and debt securities. CARE Ratings Ltd. manages its subsidiaries, including CARE Advisory, CARE Risk Solutions Pvt Ltd, and Research & Training Ltd.
The former SMERA Ratings Limited is now Acuite Ratings & Research Ltd. It is an RBI and SEBI-accredited credit rating agency.
They provide assessments for structured finance, corporate, and financial sectors. Their services include Economic Analysis and Bond and bank Loan Ratings. Acuite primarily serves small-sized private corporations and public sector organisations.
Brickwork Ratings is a renowned Credit Rating Agency accredited by SEBI and RBI. They help determine ratings for financial instruments like NCDs, bank loans, and fixed deposits.
Their clients include banks, insurance companies, lending institutions, large corporations, and local and state governments.
Here is a breakdown of the working process of credit bureaus in India:
Step 1 - Lending institutions convey their information about borrowers to credit bureaus.
Step 2 - Credit bureaus collect and store this information in their databases. They also procure information about borrowers from different public and private records.
Step 3 - Credit bureaus extrapolate this information to generate a comprehensive credit report and credit scores.
Step 4 - The report is sent back to the lenders/ financial institutions, who then use the credit reports to proceed with the borrower's loan application.
Apart from this, credit bureaus are legally bound to protect the confidentiality of consumer data. They also play an essential role in educating consumers about improving their credit scores and making better financial decisions.
Credit bureaus gather information relevant to generating a comprehensive consumer database. This information bank is usually built of:
Credit bureaus' primary purpose is to provide reliable information about borrowers to lending institutions. Their clientele can include NBFCs, banks, credit card companies, mortgage lenders, and individuals.
Today, acquiring a loan is incomplete without a thorough assessment of the borrower’s financial credibility. Considering the risks involved, lenders need to feel confident of the borrower’s repayment ability. This is where a credit bureau comes in handy.
Credit bureaus are specialists in analysing an individual's or a company’s financial profile. They gather information from different sources, such as collection agencies, debtors, public records, etc. This data generates a credit score, which lenders use to determine the interest rate and set the repayment schedule.
However, it should be kept in mind that credit bureaus merely provide information and have no say in who should receive a loan and who shouldn’t.
Though the terms sound similar, credit agencies and credit bureaus serve different clientele.
Credit agencies evaluate the creditworthiness of governments and corporations, such as banks, NBFCs, infrastructure, manufacturing units, etc., to help potential investors. The investors make informed decisions based on their assessment of the financials and industry data. Interestingly, the rated companies ask and pay these agencies for the same.
On the other hand, credit bureaus collect information on individuals to determine their financial reliability. This helps them generate credit reports and assign a credit score to consumers based on the financial translations, such as credit card payments and loans. Credit bureaus assist lenders to make informed decisions while disbursing a loan.
The top credit bureaus in India include - Credit Information Bureau (India) Limited (CIBIL), Equifax, CRIF Highmark, and Experian.
Credit bureaus are essential to the financial ecosystem, as they serve a variety of functions:
Credit bureaus gather consumer information from NBFCs, banks, credit card companies, and other lending institutions. The data includes details of previous payments, loans, defaults, etc. Based on these inputs, the credit bureau prepares a comprehensive credit report.
After collecting information, the data assigns a credit score to the individual or the organisation. This score can be between 300-900, the latter being the best predictor of creditworthiness.
The credit report includes detailed documentation of a consumer’s credit history, inquiries, default history, payments, bankruptcies, and credit score. This is useful in determining the quantum of risk associated with the borrower.
The credit report is essential for lenders to determine the interest rates and other terms and conditions of the loan. It helps the lenders minimize risks by preferring only creditworthy borrowers.
By accessing the credit report, bureaus are prompt in identifying inconsistencies in credit activities, preventing identity theft and fraud.
Credit bureaus are essential in the financial world. They provide authentic information to lenders, help reduce the incidence of fraud and bad loans, and promote financial inclusion.
You can take small, simple measures like adhering to repayment schedules and avoiding defaults to manage your credit score effectively. Additionally, you must review your credit scores regularly for inaccuracies and have them corrected as soon as possible. To reduce the chances of hard inquiries, it’s best to space out your loan applications to cover any potential payment delays.
Credit bureaus are governed by the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI). These bureaus follow the rules and regulations specified under the Credit Information Companies (Regulation) Act of 2005.
Credit bureaus receive information from multiple sources, such as credit card companies, banks, financial institutions, and public records of financial transactions or cases.
Several factors can influence your credit scores, including:
A credit report usually displays the following information:
No, only the names of customers who have borrowed or are planning to borrow from lending institutions have their names reported to CIBIL or other credit bureaus.
Credit bureaus are not authorised to make any changes to your credit reports or delete them. However, they can rectify things if there are any errors or inaccuracies in the description.
Credit bureaus evaluate an individual or organisation’s creditworthiness by studying their credit history. This includes details of all loans and other credit-based transactions and public records. A credit score is generated using this data, which assigns a quantifiable value to the loan repayment capacity.
It usually takes 3-5 business days to receive a credit report by post. You can receive online reports within 24 hours of requesting them.
With the data and credit reports from the credit bureaus, lending institutions can assess risk and approve loans at an appropriate interest rate.
The Reserve Bank of India (RBI) has elaborated on rules and regulations to ensure the fair practices of credit bureaus in India. The Credit Information Companies (Regulation) Act of 2005 regulates credit bureaus' use, collection, and disclosure of credit information.
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