04-Feb-2016 written by : FSI-Team
With lenders jostling with each other to get more and more customers onto their books, almost every individual around us is a credit user. People all around you may have taken home loans, vehicle loans or are seen brandishing two or credit cards in the very least. But ask these people about how many of them access their CIBIL scores in a year, and most of them are likely to draw a blank! Even if they do know about CIBIL, they are likely to tell you that they are not ready to “pay to access their own CIBIL score”? Is this logic justifiable? Or is this just another sign of irrational consumer behavior? Let’s take a closer look.
We have just about begun a new year and India as a nation is hopeful to make this a year of incredible change. Almost everywhere there are signs that we are at the brink of stupendous growth that is being led primarily by consumerism. 65% of the Indian population is under the age of 35 and power of technology is being harnessed in India like never before. The Government on its part, is making attempts with campaigns such as Make in India, fast-tracking approvals for businesses and enabling start-ups. In an overall enabling environment like this, the aspirations of Indians are on the rise and so is the use of credit.
Compared to the previous generation, the current generation is far more aspirational and is not afraid to use credit to fund its dreams. The easy availability of credit and intense competition among lenders has also fueled consumerism, and given the proverbial wings to the aspirations of the young and socially mobile. However, the pace of adoption and usage of credit is not equivalent to the knowledge about credit usage or the need to improve CIBIL score. This is more than relevant in today’s date, as The Reserve Bank of India has made it mandatory for all banks to check the CIBIL score of an individual mandatorily as a part of their credit assessment process.
This essentially means that if you do not have a CIBIL score of 750 (out of 900) it may not be possible for you to avail of credit when you need it the most. However, most people are using credit without ever having checked their CIBIL score. Even with information and advertisements about CIBIL score doing the rounds in the media, most individuals remain unaware about the need to improve CIBIL score.
That credit awareness and awareness about CIBIL or the need to increase CIBIL score is abysmally low was proved by a shocking study about the awareness about CIBIL and credit information reports among customers of commercial banks, that was published in February 2014 in the International Journal of Research Aspects of Engineering and Management. This study that was based upon a survey of 60 customers belonging to two leading commercial banks of India revealed that despite being India’s premiere credit bureau, awareness about Cibil remains critically low.
Only 33% of surveyed individuals were aware of the existence of Cibil. Also, only a negligible 8% of customers were aware of the presence of Cibil reports and 3% knew about their Cibil score. Further this study revealed that despite having availed of credit from the largest banks in the nation, only 19% paid their EMIs on time and only 14% of the customers knew the consequences of credit impairment and were blissfully unaware of need to increase CIBIL score. Further, shockingly enough, none of these customers knew anything about reading a CIBIL report.
If the results of this study are anything to go by, the need of the day therefore is not only to make customers aware of the existence of CIBIL and educating them about the need to enhance their credit score, the onus is also on CIBIL, as the first credit bureau of the nation to make credit scores of individuals, far more easily accessible to them. For instance, currently CIBIL charges a sum of Rs 450 for an individual to access his own score.
While on the one hand, it is being widely advocated by customer education articles that an individual should access his CIBIL score at least once or twice in a year, to pay a sum of Rs 450 each time he accesses his score, goes against this logic. With banks and the regulator alike concerned about credit quality alike, there is an immediate need for India to follow the example of developed nations like the US, where every individual having a credit history is entitled to access a free credit report from every credit agency once in a year.
With TransUnion, one of the biggest credit bureaus worldwide having a tie up with CIBIL in India, there is no reason why Indian credit users should not get access to their CIBIL report at least once annually free of cost by email, in order to keep the costs low. If this initiative is implemented, it will go a long way in increasing awareness about credit usage and the need for every individual to make an attempt to enhance his credit score.
Currently, there are a handful of investor protection activists who have forwarded the case for the need for free CIBIL reports to RBI and are hoping that The apex bank will intervene to see the fruition of their request. If RBI does indeed see the reason behind this it will go a step further to enable the credit user and encourage him to ensure that his financial health is in order.