RBI's new 15-day credit reporting rule: What it means for your credit score

Earlier, updates were only done on credit score every month, which would delay the effect of loan repayment as it happens.

Reserve Bank of India (RBI) has mandated that all lenders must update credit bureau records every 15 days, effective January 1, 2025. This regulation aims to provide a more accurate and timely representation of borrowers' financial activities, ultimately transforming how credit scores are calculated and published.

 

Historically, credit bureaus received updates from lenders only once a month. This lag often resulted in delays in reflecting borrowers' repayment behavior, which could adversely affect their credit scores. For instance, if a borrower made timely payments or paid off a loan, the previous monthly update cycle meant that this positive financial behavior would not be captured promptly. As a result, consumers often faced difficulties in obtaining new loans or favorable interest rates, impacting their overall financial health.

 

 

The RBI's directive, first announced in August 2024, allows lenders and credit bureaus a transition period to upgrade their systems and processes. With these new bi-monthly updates, financial institutions will be able to report borrowers' activities much more frequently, which should help in providing a clearer picture of an individual's creditworthiness

 

Impact on Borrowers and Lenders

 

Quicker Updating of Credit Scores: Under the previous monthly reporting system, missed payments or defaults could take up to 40 days to appear on a borrower's credit report. This gap often left lenders relying on outdated information, which could lead to poor judgments regarding a borrower’s creditworthiness. The new 15-day reporting cycle means that timely payments or defaults will be reflected in the credit score much more rapidly, enabling lenders to make decisions based on current financial behavior.

 

Enhanced Assessment of Credit Risk: With access to more current credit information, lenders will be in a better position to assess credit risk. They can detect potential dangers sooner and reward borrowers with good repayment habits more swiftly. This shift not only encourages responsible borrowing but also enables lenders to make more informed personal loan decisions.

 

Benefits of the New Regulation

 

Timely Updates: The shift to a 15-day update cycle means that consumers' credit histories will be more current. For borrowers who manage their payments diligently, this could lead to a quicker improvement in their credit scores.

 

Enhanced Credit Access: More accurate credit scoring can facilitate quicker access to loans for consumers with good repayment habits, making it easier for them to secure credit when needed.

 

Consumer Empowerment: Borrowers will have a better understanding of their financial health, as changes in their credit scores will be reflected more swiftly. This transparency allows consumers to make informed financial decisions.

 

Risk Management for Lenders: Frequent updates can help lenders manage risk more effectively by providing a clearer view of a borrower’s financial behavior, potentially reducing default rates.