Credit Character involves assessing a person’s performance on credit facilities and how one approaches his responsibilities towards debtors during good and bad times. Till about 2006, due to the inadequate presence of credit bureaus in India, lending institutions were relying upon information collected through informal sources such as verification agencies. The information furnished by these agencies was subjective since the verifiers would draw inferences from what they saw or heard (from neighbors and friends among others).
A Credit Bureau is a data repository that receives and maintains data of individuals and entities. It not only collects the data from lending institutions but also enhances its quality by presenting historical credit behavior and analytics for the purpose of taking prudent and informed lending decisions. The information and analytics that is made available to underwriters from the credit bureaus is high on quantity (since it captures details on all the loan accounts of an individual) and on quality (given the regular updation of the current status of every credit account by lending institutions). This helps underwriters to assess the risk associated with an applicant.
Being a data warehouse on credit information, a credit bureau collects data on the credit habits of hundreds of thousands of consumers and analyzes their data to assess the risk profile associated with a borrower. The working of a bureau can be segregated into the following categories:
A credit report is a comprehensive chronicle of an individual’s credit history. Credit Reports are generated by credit bureaus. Credit bureaus use the large amounts of data (on various credit facilities) available with them to generate these reports. A credit report has two primary objectives: ?? To capture and collate all details pertaining to an individual’s credit accounts ?? To generate a score based on the account details
People often ask how permanent the data on a credit report is. The answer is that various data sets stay on the credit report for different lengths of time.
Information pertaining to age, location, income etc are hardc coded and remain on the credit report forever.
Every loan or credit card is associated with a flag such as ‘STANDARD’, ‘WRITE-OFF’, ‘SETTLED’, ‘SUIT FILED’ etc. These flags are also permanent unless the borrower makes efforts to repay the lender which will change the ‘FLAG’
DPD refers to days past due. A ‘000’ indicates that there are no missed payments and a * would indicate that the lending institution has not reported the account in that month. Any number greater than “000” indicates that the payments have been missed by those number of days. The DPD history is available on a credit report for the last 24 months only and gets removed after that
An inquiry is a request by any lender for credit history of a consumer as recorded on a credit bureau. Inquiries are avaikable on a credit report for the 6 months and get removed after that
It is to be noted that errors on the credit report (irrespective of demographics, FLAGS, account information, DPD or inquiries) can be disputed and removed from a credit report
In the United States, delayed payments and other negative information has to be removed from your credit report after seven years from the date of the delinquency.