Have you been paying your telephone bills on time? Do you consistently forget the due date for your insurance premiums? You better watch it! If you ever intend to apply for a loan in future all these aspects are going to count!
These are a few of the spruce up elements planned to be implemented in your current credit reports. What's more from next year (2010) there will be a system in place through which you can have access to your credit reports!
Such spruce ups have been made possible through a recent move of the RBI (Reserve Bank of India), which has granted an approval for the registration of CIBIL and a few other credit agencies namely, Equifax, Experian and Highmark under CIC Act (Credit Information Companies (Regulation) Act.
Why a credit report?
The concept of credit reports came into existence to ramp up the credit system and ensure banks have an evaluation system in place to decide if a prospective borrower is credit worthy enough to lend huge sums of money to, in the form of a home loan, car loan, personal loan, etc.
Once the RBI approval comes into effect formally, more credit information on individuals can be accessed, which includes telephone bill payments, insurance premiums etc. This should provide a well rounded study of how an individual manages finances, how they repay their debts, how timely they are with their bill payments, etc.
Access to credit reports - Advantages
There are several advantages to the enhancements set to happen with the existing credit information system. Here are a few of them.
Prevents Identity theft
If an individual's credit card or bank account is being misused, keeping track of one's credit report will help the individual take corrective action before it comes too late or before debts start mounting to unreasonable levels. It can help prevent identity theft and instances of fraudulent transactions to a large extent.
Creates discipline and improves money management skills
Often people opt for loans due to its ready availability without giving thought to their current lifestyle, other commitments and debt liabilities. Also, they fail to account for an emergency fund and a savings plan. All these could fall into perspective once a summary of a person's credit repayment is available in a single log with a score spanning 300-900 points providing a measure of an individual's creditworthiness.
More comprehensive credit reports
RBI's approval is the first step towards more comprehensive credit reports, where more periodic transactions involving money inflow and outflow can be tracked to analyze if an individual adopts a careful and methodical approach to his finances and eventually serve as a financial goal map for an individual who wishes to improve his credit score.
The proof of the pudding is in the eating
The very fact that individuals will soon have access to their credit reports can come as a sigh of relief to loan applicants.
If they have a very good repayment track record and an excellent credit score their chances for bargaining for a better interest rate on the basis of their credit report is a viable option. It would also help banks significantly decrease the percentage of defaults by opting to choose a better customer for a more competitive interest rate.
After all it makes better business sense for banks to have a higher percentage of customers who repay on time, every time, at lower interest rates compared to a higher percentage of defaulters with high interest rates.
More credit agency options
Now that they are more credit agencies to choose from, better systems that weed out errors and streamline the existing information systems will be given high priority.
Establishing a reputation for being the most accurate credit agency will provide the impetus for credit agencies to overcome the several bottlenecks that will emerge in setting up the infrastructure and the actual process.
Knowledge is Power
Access to credit reports is wonderful news for individuals who wish to apply for a loan but are unable to get one due to a faulty credit report or missing information.
Currently, rejected applicants who have been informed by their banks that CIBIL reports were the reason, would need to request for the control number of their credit report from their bank and approach CIBIL for a clarification. This can be a complicated process, especially if the bank does not provide a valid reason for the reject.
With direct access to their credit reports, individuals can directly contact CIBIL for a clarification or correction, even before they approach a bank for a loan. Verification and correction of credit scores can be far easier with such transparency.
The Flip Side
Such intensive credit tracking systems can also stir up a new set of problems to deal with. More often than not technology would play a key role in setting up systems that can source huge volumes of information of a large number of individuals.
Credit information is also very sensitive and personal to an individual, which in the wrong hands could prove dangerous. So credit information sourcing could be a new addition to the number of tracking systems that are slowly but surely evolving in all spheres of our lives.
In light of such developments could breach of privacy be one of they key issues we would need to battle in the future?