15-Apr-2017 written by : FSI-Team
In an effort to promote good credit behaviour the Reserve Bank of India has announced that individuals will get a free credit report every year. From 1st January 2017 every Credit Information Company is mandated to give a free credit report every year to individuals whose credit history is available. This report will be available in digital format. It will help them check their credit standing and motivate them to improve credit score. It will also help them verify whether the information in their report is free from errors.
For those who are not aware CIBIL, Experian, Equifax and CRIF High Mark are the credit reporting agencies in India. They receive information regarding your current loans and credit cards from the member banks and financial institutions, and summarise your loan repayment behaviour in the form of the credit report. This report serves as a basis for the calculation of a credit score. Credit score is a numerical value between the range of 300 to 900 that gives a quick glimpse of your loan repayment behaviour. Most banks and financial institutions check the CIBIL score and report of the applicant to analyse their credit worthiness before extending credit. An impressive credit report leads to a high score and provides easy access to funds. On the other hand a credit report with delayed or missed payment entries reduces one’s score and cuts off future access to credit.
The announcement of RBI has come as a piece of good news for people who want to check their credit standing before applying for loan. Until last year they had to pay Rs 550/- to access their report from CIBIL. But now this service is absolutely free. To obtain the report one needs to go to the website of the specific bureau and request the report. Since there are 4 different credit bureaus in India, an individual can actually have access to 4 credit reports each year- one from each bureau.
Even though CIBIL score and report form an important part of one’s financial life, a large percentage of people are not even aware that their debt repayment patterns are monitored and affect their future borrowing ability. Many people are unaware of their score or never bother to keep a check on their report. They never come to know if there are any discrepancies in their report. In fact, not everyone is ready to pay Rs. 500 to check on their report. This new initiative by the RBI will motivate people to keep track of their credit standing and be better prepared whenever they plan to take up a new loan in future. It will motivate them to improve credit score and take measures to remove the black marks in their credit report. They will be encouraged to improve their financial health my making timely payments and keeping credit utilizations low.
A free credit report will also uncover any identity theft or fraudulent transactions that might be hampering one’s credit score. Often times people face a situation where their loan application gets rejected by the lender due to a bad credit score. It often comes as a surprise to people who have always made their EMI payments on time and carry no balances on their credit cards. This often occurs due to discrepancies in the credit report or identity theft cases which affect the credit score negatively. With the free credit report people can catch the mistakes in time and file a dispute if they find any erroneous information that is pulling their credit score down.
Whenever one thinks of opening up new lines of credit, the credit score and report are the deciding factors. A regular check on the credit report is therefore very important to ensure that one maintains a good credit standing. If the report is not very positive it gives a boost to one’s motivation to work on improving credit score. The RBI decision of a free credit report will certainly spread credit awareness among people and encourage them to maintain good financial behaviour. It will make people realize that their repayment patterns on current debts will affect their future prospects of getting loans.