A credit bureau is required to collate historical data pertaining to an individual or entity. This large database is then run through complex analytical algorithms (calculations) so that the data is available for users in a comprehensive yet usable format. This data repository presents the historical data in a simple and easy to understand format to the users. It also analyzes data pertaining to an individual based on various parameters and hundreds of thousands of other individuals’ data available with them.
The lending institutions submit updated data every month to all the credit bureaus. This not only helps in keeping the status of the credit accounts updated with the bureaus, but also facilitates accurate analysis of the credit risk posed by an applicant. This analysis helps the lending institutions to take informed underwriting decisions pertaining to a person’s Credit Character.
India’s first credit bureau, CIBIL (Credit Information Bureau of India) was established in August 2000. However, it was not until 2005 that the Credit Information Companies Act was passed as a law by an Act of Parliament. While the Act is explained in detail in an annexure, it is important to know that today we have several credit bureaus in India. The four retail credit bureaus in India are:
Today, it is estimated that credit bureaus in India store data for over 30 crore individuals.
Every credit bureau in India uses its own scoring logic to generate credit scores. Equifax, CIBIL, Experian and Highmark all have their own credit scorecards
A Credit Score is a three digit number that denotes an individual’s creditworthiness. In other words, the credit score is a numerical measure of an individual’s Credit Character. In India, the credit score is colloquially referred to as the “CIBIL score”. The term “CIBIL score” has almost become synonymous with credit scores. Even so, it must be noted that credit scores from any of the bureaus are a valid expression of an individual’s Credit Character.
The credit score is the outcome of a complex process based on statistical modules. These modules, developed and refined over decades, process the thousands of data points which are present in the credit file of an individual.
There are constant changes in the data pertaining to consumers. In order to be accurate, the scorecard (statistical model that calculates the credit score) takes all these changes into account. Built to be dynamic, the score is able to assess risk based on the changes that occur inevitably over time, in every person’s credit profile.
Credit scores can vary for the same individual from one credit bureau to another. This has been a major source of confusion for underwriters and applicants alike ?? In 2015, based on a committee set up by the Reserve Bank of India, all credit scores in India were required to be in the same range (300–900) ??
These differences in scores from one bureau to another occur because different bureaus use different algorithms to score individuals. While the broad factors used to score would be the same, the weightages used by the bureaus are likely to differ resulting in different scores.Thus, individual credit bureau scores can vary from one bureau to another (depending upon the scoring logic). However, these have to range between 300 and 900 irrespective of the credit bureau.