TO MAINTAIN a healthy credit history, please pay your bill before the due date. This SMS from a leading telecom operator has been doing the rounds of cell phone users since the past few days. It is quite likely that the information has startled many who may have assumed that credit history was confined to one's repayment track record alone. If you are one of them, it is time to wake up to the new reality. All your utility bill payments and health insurance claims, too, could come under the scanner, going forward, when a bank decides to run a check while evaluating your loan application. Though credit information companies, which gather data related to borrowers from banks, are still in the process of tying up with telecom companies, industry players feel the proposed arrangement is bound to fructify. We are yet to use the data from telecom companies as the credit information companies haven't started disseminating the same. Once they start incorporating the information in their report, we will be in a position to peruse it before sanctioning loans. It is just a matter of time.
Widening The Base:
The Credit Information Companies (Regulation) Act 2005 allows insurance, cellular as well as phone services companies to be counted amongst specified users of credit information companies, therefore, making them eligible to use the database. We are in talks with telecom companies. However, at the moment, though the Act allows telecom companies to use our data, the Telecom Regulatory Authority of India doesn't allow us to secure data from telecom companies. Vodafone and some other telecom companies have been keeping track of their users' credit history on their own. Arun Thukral, MD, Credit Information Bureau : "We are in talks with leading telecom players and the regulatory authority and we are hopeful that they are able to share the credit information with us, going forward."
How Will It Help?:
Primarily, it is for the benefit of the banks and telecom companies. An individual who pays his/her bills regularly could be deemed as a credit-worthy customer by banks, and likewise, cellular companies would be keener on welcoming those with a favourable credit history into their fold. And, if you have been dithering on your bill payments, a bank may not look upon your loan request with a friendly eye. Such a payment behaviour will require more scrutiny of the customer's loan application. The outcome of the scrutiny will lead to the credit decision.
Therefore, it would certainly be in your interest to not take this routine activity lightly, even if the data-sharing between telecom companies and banks is yet to take off. "Our systems are capable of handling past payment records as well. If the telecom companies are able to give us the past payment records, we will upload them in the system.
Credit information firms, however, are quick to dispel the notion that credit reports are tools for denying credit to borrowers. Rather, they often argue, it is meant to help lending institutions expedite the entire process and make it easier for those with impeccable records to access credit, and in future, perhaps even at attractive terms, as is the case abroad. In India, at present, banks do not distinguish between 'reliable' and 'doubtful' borrowers when it comes to levying interest rates, except in case of personal loans. Let's take the case of two home loan-seekers – one who has always repaid her loans and paid bills before the due date and the other, who does not boast of such a clean slate. Now, if a bank that is charging an interest rate of 9% per annum decides to extend housing loans to both (as credit history is just one of the many factors determining the success of a loan application), the 'good' borrower will not have an upper hand over the other. This anomaly could be rectified going forward, as the activity in the credit information space picks up. If you have been a model customer, your negotiation power could be strengthened and you could reap the benefits in the form of lower interest rates, convenient repayment terms and so on.
One Among Many Factors:
Conversely, you need to remember that merely paying your bills and EMIs (equated monthly instalments) as per the schedule will not automatically
get you the loan. As mentioned earlier, banks consider several factors before disbursing the loan. In some countries, even if rent is not paid on time, the bank takes this aspect into account while giving a loan. This apart, the parameters traditionally considered – like income, profession and repayment capacity – will continue to feature in the priority list for lenders. Credit information companies too have started beefing up their databases to incorporate as many details about the prospective borrower as possible. The bureau we have partnered with is in the process of providing some new data fields in their existing reports like loan instalments, credit card limit, email ID, rate of interest, loan tenure, occupation type, income details, which were earlier not available in their credit reports. This will help in faster processing of loan applications. Also, data from utilities (telecom/electricity) will help in assessing credit capacity of a borrower.
CALL ALERT
• Apart from banks, credit information firms are also allowed to offer services to telecom and insurance companies
• Credit bureaus are now in talks with telecom companies to gain access to their customer payment data bank
• Even banks are keen to include phone and other utility payment information in their database to evaluate the credit-worthiness of borrowers
• Credit information companies may soon add electricity and other utility bill payment track records to their database
• Any failure to pay phone bills on time will be reflected in your credit report, and may impact your loan application
• While such payment patterns will not be the sole criterion for your loan eligibility, they form a key part of banks' due diligence process
• Paying bills regularly may not only earn you higher marks in your credit assessment, it could help you in negotiating a better interest rate, going forward
