Credit Information Bureau (India) Limited (Cibil), the agency gathering data on credit histories of individuals, has now made credit scores available to individuals for a fee of Rs 450 per request. An individual’s credit score would be a three-digit numeric summary of his credit history for the last three years, and this would be rated on a scale of 300-900.
The higher an individual’s score, the better would be his chances of securing a loan. Banks have, for the last two years, used this data as an important factor in deciding on whether to approve or reject a loan.
In August 2009, Cibil had made credit information reports available to individuals for a fee of Rs 142. “The response was huge and these customers started requesting for their credit scores too. Hence, we decided to make the score available to them,” said Cibil Managing Director, Arun Thukral. The format of the report was revised this month and the reports would now also show whether nor nor the data provided by banks is accurate.
Through Cibil’s website, individuals can request for their credit scores online. They can also make the payments online, after which, they would have to send proofs of their identity to Cibil. The score, along with the report, would be delivered to them in seven-ten days. “We are working towards an online authentication system. Once this is done, it would help in delivering scores and reports online,” Thukral said.
Making credit scores available to borrowers can also be seen as a step towards risk-based pricing, a trend not practiced by retail borrowers in India. Risk-based pricing essentially means the interest rate on a loan is also determined by the lender’s estimate on whether or not the borrower would default on the loan.
“Banks might consider such an approach only in a scenario of intense competition. Presently, barring a few, not many banks are aggressive on retail loans. This may happen, but will take at least two years,” said Sanjay Agarwal, senior vice-president and group head (retail strategy and branding), ARCIL.
Credit scores give banks an estimate of an individual’s ability to repay a loan, since they are based on parameters like the loan amount, the nature of the loan, payment frequency and prior delinquency. Cibil research shows 58 per cent of individuals with credit scores of 800 or above were able to secure loans in 2010.