The very thought of obtaining a loan crosses one’s mind on two occasions:
- When it is absolutely necessary and the size of the installment is well within the repayment capacity.
- When a tele-caller or a few of them from a few financial (lending) institutions/banks prod the customer to take loan as she’s got a pre-approved loan or a top-up loan on a car loan, etc.
Of the above, a consumer is also tempted heavily when there is a call from a bank offering her a credit card. After completing all the formalities and giving the all details, the customer may get an email or a postal letter suggesting that the credit card request has been rejected for one of those reasons listed in the bank’ template.
Well, it is quite disheartening for any customer when she is told that she is not eligible for the loan and that her has been rejected. Such a ‘regret’ message pushes the spirits of aspiring borrower’s to their nadir, leaving her hopes shattered.
Post rejection, the first thing that the customer’s mind wanders to is her credit score. The Credit Information Bureau of India Ltd – or TransUnion CIBIL (earlier known as CIBIL, but renamed after TransUnion acquired an 82% of stake) is the oldest and largest in the country, while there are three other credit information companies.
While issues with credit scores and borrowings are several and each one has her own challenges, one typical case is examined below without specific names.
A specific case study
A borrower, upon facing a rejection as explained above, would instinctively go and register herself with a credit bureau and start checking the scores. In fact, there are several agencies which offer the credit score checking process free of cost. However, the actual reasons for credit scores suffering a setback can be understood in the report.
There could be umpteen reasons. Scores suffer largely if the customer misses a pay-by date on his loan/credit cards or regularly misses on payments, even if the amounts due are cleared before the due date of the next EMI/total or minimum amounts due to the financial institution.
In case of a consumer, car or personal loan, if for any reasons the customer could not pay the amount on time, or made the payment, but followed an erratic schedule flouting the schedule prescribed by the financial institution, the lender would change the creditworthiness of the customer into red. This information naturally is communicated to all credit bureaus.
The customer may go for a one-time settlement of his loan by paying a resolution amount, which in most cases is surely greater than the principal due to lender, but the financial institution might have taken a compassionate view of the customer’s explanation/condition and reduced, after due consideration, the interest component due to be paid.
Making a one-time settlement is when the borrower needs to be extremely proactive and ensure that the same has been informed to the credit bureaus. For any further loan or future requirements creditworthiness is very important. As credit scores are a phenomenon that have evolved in the past 15 years, one-time settlements and other resolved/written-off loans or amounts due to lenders would reflect in the credit score for this period.
Disputes over credit scores
It is always better to check credit scores at regular intervals and any dispute must be escalated to the credit bureau. The credit bureaus provide individual information of any member. So, join a credit bureau by paying the prescribed fee.
Check your dashboard, view the report that contains your personal information, contact information, employment information, account information and enquiry information. You can also raise a dispute with regard to any of these parameters (mostly it would be about your personal or account information) that consists of various loans/credit cards you have used/are using/or have cleared. It gives the status of the dispute and also it provides how to understand credit ratings and the various issues at the consumer end.
But that is it. Credit bureaus are actually toothless tigers. They don’t have a mechanism, nor are they empowered to direct the lender/financial institution in case of a dispute. They simply refer the dispute to the lender if it is not within their purview and perennially await a response. They keep informing the customer that the dispute is still pending resolution with the financial institution.
One possible solution could be the credit bureau directly referring the matter to the banking ombudsman suo motu after three consecutive reminders.
Another ideal way out that can mount pressure on financial institutions to quickly respond to the dispute is that after four reminders, the dispute escalated by the consumer should be treated as genuine and resolved in her favour and the necessary change must be made in the credit rating of the individual. Moreover, shall there be no more discussion encouraged on the issue by the financial institution concerned.
At least, this could be limited to disputes less than Rs 1 crore that encompass a large number of consumers.