The consequences of an error on a credit report can be distressing and can adversely impact our financial plans. Regular reviews help us to identify errors at an early stage and take corrective action. Any delay in identifying and rectifying errors can negatively impact our credit score. A large number of credit reports have errors. Hence, a regular check would not only ensure that your information is getting updated correctly but also help you to detect fraudulent activities or identity theft issues at an early stage. An error can lead an underwriter to reject a loan application on the basis of a faulty credit report. It may result, at times, in higher interest rates getting charged. It is, therefore, important to have such errors corrected as soon as possible. Timely correction of errors helps to ensure access to credit at the time when it is needed the most.
Credit Scoring Errors
Imagine a situation where you sign up for a blood test and the report is wrong. The implications of such an error could be very damaging and even fatal, at times. Similarly, an error on a credit report has the potential to impact your financial wellbeing quite adversely. Underwriting decisions are based on the information available on a credit report. The approval of loans, the interest rate to be charged, and the loan amount sanctioned are all based on the underwriter’s assessment of an individual’s credit worthiness which, in turn, is based on the assumption of an accurate and updated credit report. How do credit report errors occur? A credit report error may be defined as the inclusion of incorrect information or exclusion of correct information on a credit report. A credit report may have errors due to the following reasons:
- Erroneous reporting by lending institutions : In India, we have over 1000 lending institutions comprising large private sector banks, public sector banks, cooperative banks, Gramin banks, NBFCs and other private lending institutions. All these institutions are required to report data in a prescribed format. Notwithstanding this, the quality of data that is submitted to bureaus is often non- standardized and is not updated with recent changes. The frequency of reporting (while mandated to be at least once in 30 days) also leads to situations where there is a lag between reporting and the actual changes in an individual’s account status.
- Algorithmic constraints : Credit bureaus function by collecting account level information about the borrowers from lending institutions. A credit report is generated based on this information using an algorithm. This algorithm involves using a person’s name and other unique identifiers such as PAN number and Aadhar number to match and identify all the accounts that are available with the credit bureau. But problems arise when the algorithm mistakenly matches one person’s overdue account to another person with a similar name. This is further compounded by the lack of unique identifiers in India (such as Social Security Numbers- SSN in the USA)
- Identity Fraud : Identity Fraud happens when someone illegally uses another individual’s identity and credentials to obtain a loan. In such cases, the report itself may be depicting information as reported by the lending institution. The onus is on the person with the wrong credit report to prove that he is the victim of identity fraud. In the meantime, the account continues to get reported on the credit bureau. This type of “error” is very serious since the victim of identity fraud can be clueless about this unless he checks on his credit report regularly. Globally, the error rates on credit reports are high. According to a study in the USA, one fourth of all consumers identified an error on their credit bureau reports*. In India the error rates are even higher. According to a consumer credit survey conducted in India, one out of three reports has errors. Of the 28 crore individuals’ data stored on any of India’s credit bureaus, it is unnerving to even imagine that there could be errors on about 9 crore consumers’ data.
Classification of Errors
Errors on a credit report can be classified into two categories: Minor errors and Major errors.
A minor error comprises errors in address, name (including spelling), mobile number or email id. These errors do not impact the credit score. However, a major error, pertaining to one’s identification numbers, account information, credit history, loan amounts and credit inquiries can impact the credit score in a significant manner. The same survey which indicated that one out of three reports has errors also went on to state that over 70% of these errors are of a major nature. With such high occurrences of errors in general (and major errors in particular), it becomes imperative for everyone to watch out for errors in their credit report and get these corrected. One more very good reason to review your credit regularly!
Credit Bureau Errors in India
This is what you should do when you identify errors on your credit report:
- Call up the customer care of the concerned lending institution and lodge a complaint. Do ask for a service request/complaint number.
- Send out a mail referencing the service request/complaint number (in the subject line) detailing the issue being addressed to the grievance redressal officer (details of each lending institution’s grievance redressal officer are available on their website).
- The mail sent to the grievance redressal officer should also be copied to the concerned credit bureau.
- As per the Credit Information Act, you should get a response within 30 days of your communication to the grievance redressal officer.
- Once the response on the correct update is received, the same should be sent across to the credit bureau for rectification.
- In the event of not receiving a response or in the event of not receiving a satisfactory resolution from the lending institution, the issue may be escalated to the Banking Ombudsman (BO). The Banking Ombudsman is a senior official appointed by the Reserve Bank of India. The role of the Ombudsman is to act on customer complaints pertaining to deficiency in banking services.
- In the event of not being satisfied with the resolution provided by the Banking Ombudsman, the borrower can make an appeal to the Deputy Governor of the RBI. He can reject the appeal, modify the order of the BO or send it back to the BO for review.
- A borrower has the right to move the matter to a consumer court in case he is not satisfied even after the intervention of the RBI.