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The CIBIL report is now pretty much the biggest factor when it comes to Banks approving our car loans. It's great that we finally have a system like the US where credit worthiness is a scientific measure instead of being a derivative of how well you know the manager of the branch you bank with.
The flipside of course, is that India is not exactly as organized as the US or UK when it comes to finding or even keeping records. Which is why, that credit card you had 10 years ago or that personal loan you took ages ago and thought you'd closed or paid off might be the one that is single-handedly damaging your credit score. I should know, it happened to me:
When you apply for a loan, the rule of thumb that most banks apply is that a score of 650 and above out of a maximum of 900 is a good score to initiate discussions. Your current salary and the rest of it will only serve to increase your negotiating power once the discussions are initiated. But a score below 600 usually raises red flags with the underwriters at most banks so the chances of you even being called to the discussion table are next to zero.
In my case, a company that went bankrupt after they cashed my final loan payment, was taken over by Citi financial who in turn reported me for supposed non-payment of the final EMI to CIBIL and the loan was listed as “written off”, all of a sudden in 2012.
Add to that an old credit card I’d taken with HSBC in 2005 which I had settled a year later (long story short – card got stolen in the UK, someone used it, by the time I reported it the charges were already made, so HSBC insisted that I pay in full while I refused. Eventually they agreed to let me pay only for the outstanding portion prior to the card being stolen and the account was settled) and it had all the trappings of a nightmare waiting to bite me in the bum.
Normally, the CC settlement would not be such a big deal on my CIBIl report. But the settlement along with the sudden infusion of the Citifinancial reporting meant that, when I pulled my credit report (you should too, at least once or ideally twice a year),
I found that my credit score had tanked by over 200 points. From a healthy 821 (max of 900) in 2011, my score now stood at a pathetic 546. How?
Well, I’d say about 150 odd points was docked on the CC and loan disputes. The balance points, believe it or not were docked because I applied for loan options on policybazaar, and they forwarded my application to multiple banks and each bank pulled my file! That’s almost 25 points for each enquiry! Holy cow!
The impact of the updated report was devastating. I was declined for my car loan by every national and private bank. By the time I got the dispute resolution process started, it was too late for it to have any meaningful impact on my loan applications anywhere. (thankfully things worked out through a private finance co. and I still got my car, at an even lower interest rate!)
Which brought me to penning this article.
Here are some good things to know about CIBIL: - If you pull your own report, it does not impact your credit score. So I now make it a point to pull it every six months to make sure none of these banks are messing me up with their reporting
- At 470 rupees for the complete report, it’s comparatively cheap in terms of indirect benefits – a good report can be the reason that a 1% processing fee on that loan you’re planning to take, is waived. It pays for itself in that sense.
- The dispute resolution process is lengthy but fair. You raise a dispute online, submit a description of the issue, forward copies of documentation proving your side of the story if required, and they then initiate a verification of this with the banker. In my case, the loan company had issued me with a closure letter which lent credibility to my version of events. They promise to let you know how whether they will accept or reject your dispute in 45 days.
- CIBIL maintains data of closed accounts for no more than 7 years after closure. In my case, next year onwards, even if Citi stick to their ludicrous claims, CIBIL will no longer let that account affect my credit as it would have crossed the 7 year moratorium. (By closed account, I mean only inactive credit cards and written off or settled loans. So long as your loan is still active and the banker lists it as active or overdue, no matter how old the account or credit card, it will continue to be reported)
- It completely negates the need for “relationship based” loan applications.
- If you have open or unpaid debts, you can still improve your CIBIL report by closing those unpaid debts by asking the Institution or banker to send an updated status report to CIBIL. (I don’t yet know how quickly that will happen – will be pulling up my report again once the dispute is formally closed to see the result and it’s impact on my score)
- A 45 day turnaround time for dispute resolution is pretty lethargic by any standard. But when you consider the alternative of resolving this by legal or governmental channels, the 45 days looks like a luxury in comparison.
- Paying just your minimum balance on credit cards by their due date is considered as on time payment by CIBIL. So basically, no one knows you’re broke and unable to pay off your credit cards in full!
The downside are the same points noted above: The cost is high, the dispute resolution process takes too long, the data can be hugely false and misleading, my having a great relationship with my local branch manager is not going to get me any favors, unpaid debts to those scamming scoundrels (credit card cos) have to be settled no matter how badly they stiffed you over in the first place and finally, CIBIL does not give me a greater score just because I pay all of my bills, in full, on time.
Things I’ve learnt from my interactions with CIBIL:- Don’t apply with more than 1 or 2 institutions
- Don’t be even 2 hours late on a credit card payment. These reports are auto generated from the moment your due date is over.
- Don’t make the mistake of not pulling your CIBIL report on a regular basis. I’ve already had 6 wrong entries corrected.
- Validate your address, salary, contact nos on the website. If you have multiple addresses, contact nos listed etc listed, it’s a red flag so just update it to the most relevant/recent.
- If you find an error, don’t waste time in disputing it. The longer a wrong history builds on your account, the more severe it’s impact on your score.
- Remember to have all your card and loan details handy at the time of applying for your report. They will ask you for random verification questions like “A home loan was approved for you in __, ____. Or your last payment for card no. ending 0001 was Rs. X.” Filling in those blanks will be easy if you have the details in hand. If you feed the wrong answers though, you’re gonna be in all sorts of trouble!
My advice? At the end of the day, CIBIL is a necessary evil, so:
- If you haven’t cleaned up your financial records, do so now.
- If you have a clean record, verify it now.
- And if you don’t have a CIBIL presence, take a loan and start building your credit history now.
Improving your CIBiL score is a small price to pay for the day when you want to buy your dream car or dream home. Go to
www.cibil.com – it’s all there. You need to verify your identity, make an online payment and they email you the report instantly. (so long as you pass the verification test. Fail it, and you have to go through an arduous re-verification process involving sending them copies of your documents) Trust me, it’s not worth the hassle of being rejected today for something you may or may not have done years ago. I should know - I’ve spent the last 2 months trying to right the wrongs of my own report
*Mods, pls merge with any thread you may consider relevant or appropriate for this topic. I did go through the original CIBIL thread but it offers more complaints than advice and hence my starting a new thread!*