CIC Act- How it empowers borrowers

15-Nov-2016 written by : FSI-Team

In the year 2005, the Credit Information Companies (CIC) Act was formulated to provide the basic structure for the functioning of credit information companies and to streamline records of credit distribution that had thus far been the domain of banks alone. The primary objective of this Act was to help financial institutions make a correct assessment of the creditworthiness of prospective borrowers. The Act came at a time when lending institutions were looking alternative credit assessment methods and was thus considered a timely move.

With CIC Act laying down clear guidelines regarding the functioning of credit bureaus, several credit bureaus of global repute have set up shop in India, thus bringing in greater transparency in the lending business. However, it is a fallacy to think that the CIC Act is only for the benefits of lenders. The Act empowers borrowers in more ways than one. Let’s find out how.

A little above a decade since the CIC Act has come into being, the usage of credit has become quite common. Any individual around you is likely to be servicing a credit line or two at any given time. However, just opting for credit is not enough. An individual must also know the importance of maintaining a high CIBIL score. With RBI, the central banking authority having made it mandatory for lenders to look at an individual’s credit score as a part of the credit assessment process, it is mandatory for everyone to maintain a good score and make a continual effort at improving CIBIL score.

Borrowers, who are new to world of credit may ask why is it necessary for a credit bureau to keep score, as one would logically be inclined to thinking that one’s income or financial standing in life should be able to provide the required information a lender needs to assess one’s creditworthiness. But evidently, that is not enough. The primary reason why financial institutions run into trouble is because bad loans, that is caused by defaulters. Thus, it is very important for the lender to assess the risk associated with a probable customer before approving any line of credit. This is where one’s CIBIL score comes handy, as it is fair assessment of one’s credit behaviour.

To prevent chances of a default to the maximum possible extent and the Credit Information Companies Act came about in 2005. Under the aegis of the CIC Act, credit information companies or credit bureaus have the power to

  • Collect, collate and process information related to its member institutions and borrowers
  • Provide information to its members and borrowers
  • Carry out research on credit utilisation and other economic trends
  • Carry out special tasks as permitted or assigned by RBI

As the basic guidelines enumerate, borrowers too are empowered by the CIC Act.

Gives you access to easy credit

The first and foremost way in which you the borrower are empowered by the CIC ACT is that your credit service record is preserved in more than one credit bureau. If you maintain an impeccable record of servicing credit, you will automatically enhance your credit score. A good credit score will open doors when you need credit. You will get timely access to credit at competitive rates.

Chance of self-assessment

Under the CIC Act, a credit information company is obligated to share records of your past credit usage as many times as you wish in a year, subject to the payment of a small fee charged by such companies. Being on top of your credit records gives you the chance to assess your credit health. Like you go for periodical medical check-ups to see whether your physical health is in order, a periodical check-up of your credit records.

A ticket to your dream job

Most global companies who have set shop in India have made it a practice to check the credit records of prospective candidates. If you have a good credit score and have maintained a good credit record, chances of you being selected for the post you have applied for are boosted vis-a-vis an individual whose credit records are not so flattering. This is because, a prospective employer equates a high credit score as you being a responsible and trustworthy individual.

Right to privacy

Lastly and most importantly, the CIC Act is empowering because the data pertaining to your credit is safe and private. Only you and credit institutions to whom you apply for a loan have the right to access this data and no arbitrary individual can access your records. Any institution that flouts this basic privacy provision can be liable to pay a hefty fine of up to ₹ 1 crore and may even face imprisonment.

Thus, as is evident, the CIC Act is not just beneficial for lending institutions; it can be an immensely useful resource for borrowers as well. As a borrower, the onus lies on you to follow the basic principles of servicing credit and thus maintain a healthy credit score.



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