written by | June 7, 2022

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All You Need To Know About Credit Bureau in India

A credit bureau keeps track of borrowers' credit histories in order to compile credit reports and scores. Financial institutions purchase this data to assist them to assess their customers' credit risk and deciding whether or not to give credit to them. Fair Issac Corp. (FICO), Experian, Equifax, and TransUnion.

Basic information on prospective borrowers, such as location, employment history, and pay history, is also collected by credit bureaus. However, credit ratings are not affected by this information.

Did you know?

Suppose a corporation gives false information to a credit bureau and corrects it as a result of a consumer's dispute. In that case, the company is required to correct everyone to whom the incorrect information was supplied.

Also Read: Steps To Correct Credit Information Report (CIR) Mistakes

What is a Credit Bureau?

A credit bureau, also known as a financial credit reporting agency, collects and evaluates credit information of before selling it to creditors for a fee so that they too can make decisions on lending.

Points to be noted-

  • A credit bureau collects and analyses individual credit information, which it then sells to debtors for a fee in order for them to make decisions about lending.
  • The major three credit reporting agencies are Experian, Equifax, and TransUnion, but there are several more.
  • Credit organisations offer credit scores to people depending on their credit records.
  • Credit scores are important in deciding not just whether you will be accepted for credit and under what conditions.
  • Credit bureaus do not make credit decisions for you. Instead, they collect and organise information about creditworthiness available to lenders.

Understanding the Working of a Credit Bureau

Credit bureaus aid a wide range of borrowers and credit issuers in making loan selections. Their main purpose is to guarantee that creditors have all of the data they require to make lending decisions. 

Credit bureau clients include banks, lenders, credit card companies, and other individual economic lending institutions.

Multiple credit bureaus exist, each with a set of rules. However, information from Equifax, TransUnion, and Experian, the third biggest credit reporting agencies, is used to make the bulk of key loan decisions.

Credit bureaus do not make credit judgments; instead, they collect and synthesise information on a person's credit rating and provide it to lending organisations. Consumers who receive credit might also be customers of credit agencies.

Credit bureaus gather a variety of data that is essential for their operation.

Necessary Data That Credit Bureau Gathers

1. Information About Borrower

Personal information helps credit reporting agencies identify and differentiate you from other creditors. Name, address, SSN, and birth date are typically given.

previous employment experience, previous mailing addresses

2. Public Documents

Bankruptcy is the sole public information that displays on credit reports as of spring 2020. By April 2018, credit reporting companies had purged all unpaid taxes and civil decisions, including defaults, evictions, and wage escheatment, in order to conform with the National Consumer Protection Plan's stricter reporting regulations.

3. Queries

Every moment anyone inquires about your loan, the credit reporting agencies keep note. For around 2 years, these queries will display on your credit report. They may temporarily lower your credit score, although this normally usually lasts a year.

4. Trade Routes

Tradelines are histories of your borrowing, and they are likely the most important information gathered by credit reporting agencies.

They go over one of the most important aspects of every loan. Depending on the credit reporting company, they go by different names, but basically, all have the same attributes:

  • The loan type
  • Name of creditor
  • Date of first activity and Date of last activity
  • Loan amount
  • Maximum equilibrium
  • Comments on account status
  • Your account's liabilities Amount past due
  • The minimum payment is required

From Where All this Information Comes?

Credit bureaus obtain information from data furnishers, including banks, mortgage companies, and other companies that have formed relationships with credit rating agencies. When data furnishers report their payment experiences with consumers to the agencies, they are legally bound to provide accurate information. These details are combined with data gathered by the bureaus.

Also Read: What is the Significance of DPD on Your Credit Report?

Credit Ratings

Credit bureaus obtain information from a variety of sources, including creditors, debtors, debt recovery agencies, merchants, and public records companies ( records of courts, for example, are publicly available). 

The bulk of credit bureaus focus on available credit, but some have access to more detailed information, such as payment history on telephone bills, power bills, rent, and other expenses. Credit bureaus use a number of algorithms to calculate a user's credit score based on their credit history.

FICO scores were created by the Fair Isaac Corporation in 1989 and are the most extensively utilised borrowing scores.

Each of the 19 commonly used credit scores are created differently for different categories of clients, allowing credit lenders to choose credit scores that perfectly suit their inquiries.

Credit bureaus then merge a credit score with the details they've acquired to formulate a better credit report, which provides information to credit issuers to help them decide whether or not to sanction applications for credit and what bond yields to charge them. A person with a stronger credit score will almost certainly have a lower interest rate on loan.

Regulation Of Credit Bureaus

Credit bureaus are powerful financial institutions that can significantly impact an individual's financial future, even though they do not make loan decisions. Credit bureaus and their use and interpretation of customer data are governed by the Fair Credit Reporting Act (FCRA), which was passed in 1970. Its primary purpose is to protect consumers from inaccurate or intentionally false information in their credit reports.

The Fair and Accurate Credit Transactions Act (FACTA) of 2003 revised the Fair Credit Reporting Act, giving customers the right to receive one free credit report from credit agencies every 12 months. It also gave customers the option of purchasing a credit score and details on how it was created.

Major Credit Reporting Agencies-

Although there are more credit bureaus in India

The three top credit bureaus in India are Experian, Equifax, and TransUnion.

In addition to FICO scores, these major bureaus have merged their creditworthiness, the VantageScore.

Both scores are in a range of 300- 850, with the VantageScore initially using a 501 to 990 limit and some company FICO scores using a scale of 250 – 900. 

FICO and VantageScore, on the other hand, use various methods to assess the importance of different topics, so their results are often diverse. For example, a good Credit score is somewhere between 670 as well as 719, while a good means a variety is between 661 to 780.

VantageScores create a single score based on data from all 3 bureaus that can be utilised with any credit history. 

FICO, on the other hand, solely utilises data through one bureau to calculate its score. You may, for example, have three FICO ratings, each one of the 3 main credit bureaus.

Free Copy Of Your Credit Report

The Fair and Accurate Credit Transactions (FACT) Act gives you the right to one free credit report each year from each of the three main credit bureaus. 

By clicking "Get your free credit score" on their myEquifax dashboard, you can register in Experian Core CreditTM for a monthly free Equifax credit history and a monthly free VantageScore® 3.0 credit record based on Equifax data.

A VantageScore is one of many credit scores available.

In the following situations, credit bureaus are required to give an additional free credit report:-

  • You've been denied loans or a benefit in the recent 60 days due to evidence on your credit history. 
  • You've been laid off and are looking for a job. 
  • You receive government assistance. 
  • Your personal information has been compromised. Do the three major credit bureaus in the United States make lending decisions?

The three national credit agencies (Equifax, Experian, and TransUnion) are frequently misunderstood as making lending decisions. 

Credit bureaus provide some of the information that lenders use to make important lending decisions. While credit agencies collect credit information and make it available to certain third-party companies, the lender or borrower has the final decision on whether or not to give credit. The requirements of every borrower and creditor may differ.

Conclusion

A credit bureau is a business that gathers information about people's credit histories and sells it to borrowers so that they would make much better loan decisions. 

Credit bureaus are companies that work with a variety of debtors to assist them in making lending choices. Credit unions and banks, for instance, operate on the principle of receiving cash and repaying them with interest. 

Credit bureaus obtain credit information from other creditors, debtors, debt collection agencies, credit card issuers, and other entities that have publicly available credit data. 

Credit reporting agencies sell credit card data to for-profit lending firms and individuals that want to know about their own credit histories.

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FAQs

Q: Is it true that the country only has one credit bureau?

Ans:

The 3 other credit bureaus in India, besides CIBIL, are Experian Credit Rating Co. of India Private. Ltd, Equifax Credit Reporting Services Pvt. Private limited and CRIF High-Grade Financial Data Services Pvt. Ltd. Since all three have various selection patterns, and your score may differ. If you have a good CIBIL score, however, you will receive positive feedback from others.

Q: What is the definition of a credit score in relation to the Credit bureau?

Ans:

A credit score is a 3 digit numeric figure varying from 300 to 900 that indicates an individual's or firm's ability to borrow money. It basically shows a consumer's 'default probability’ based on their recent 12-month performance. A person's or organisation's credit score affects their ability to obtain loans through banks and lending institutions.

Payment history, credit usage, credit history length, and other factors all go into determining a credit score. A CIBIL TransUnion Score is the credit score provided by CIBIL, and it is completely owned by CIBIL, including its partner organisations having no involvement in scoring.

Q: What do you understand by CIBIL? Is it India's only credit bureau?

Ans:

CIBIL (Credit Information Bureau India Limited) was the very first credit information company (CIC) in India to create a centralised database of individual and corporate credit histories.

It maintains a track of just how much money individuals and corporations have repaid on credit cards and loans. CIBIL collects repayment records from financial institutions every month. This information is then used by CIBIL to create (CIR) credit information reports for firms and credit ratings for individuals. These ratings are used by lending institutions such as banks to assess and sanction loans to people and enterprises.

Experian, High Mark and Equifax are the CIBIL, and the other three credit agencies in India. Under the CICR Act 2005, all of these institutions are required to report relevant data to at least a few of these four bureaus.

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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.