written by | November 3, 2022

Role of Top Credit Information Companies | Process and Benefits

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Table of Content


An organization that gathers and analyses credit and loan-related information and history about people and businesses to determine the credit standing and capability to pay back is known as a Credit Information Company (CIC). CICs receive this information from their member banks and other financial organizations. 

Money lending is a risky business. Top information organisation are those which gather and analyse credit and loan information about people and businesses for creating goods and services. Whenever a person applies to a bank or other financial institution for a loan, the bank will is concerned about the person's ability to repay the loan

Did you know? Before extending any loan or credit card offer, the customer's creditworthiness is carefully assessed to prevent such situations. 

What is a Credit Information Company?

Credit Information Company, or CIC, is an independent third-party institution that gathers financial information about people, including loans, credit cards, and more, and makes it available to its members. Customers of credit information companies are typically banks and non-banking financial entities. The credit card company gathers these people's financial information and then builds a credit report based on their past economic behavior. This credit report is crucial since it aids banks and other financial institutions to assess borrowers' creditworthiness before granting them a loan or credit card application. 

A Credit Information Company (CIC) helps the banks assess the creditworthiness of the clients who ask for a loan or a credit card, aiding in this review process. The data provided by CICs aid in compiling a credit report on each consumer. The credit report summarises the customer's financial history, which banks and other financial institutions can use to assess their clients and make decisions about their requests.

Also Read: How to Maintain a Good CIBIL Score? | Significance, Advantages, Ideal CIBIL Score

How do Credit Information Companies Work? 

Credit Information Companies gather the entire credit history of the borrower from lenders, banks, and other financial institutions. They use the data they've collected to generate a detailed credit report, which is used to determine the borrower's credit history. The comprehensive credit report combines the borrower's credit history, late payments, rejected loan or credit applications, credit utilization ratio usage, number of hard inquiries, and other facts. The agencies also consider the borrower's age, banking account status, total credit limit, and other factors while compiling a full credit report. 

Credit information companies must produce a thorough credit report for debtors. The agencies are not allowed to give the credit report to anyone on the borrower's behalf who wants it because it contains private, sensitive financial, and confidential information about the borrower. Companies that provide credit information adhere to public data, credit transactions, and payment histories of people and businesses. The information is gathered from numerous reliable sources, and the companies create credit reports using the information they have gathered. 

Relevant Areas For Operations of CIC's 

The CICs also produce a score based on an individual's or an organization's credit report. A Credit Information Company operates in one or more of the relevant areas:

  1. To gather, process, and compile data on the trade, credit, and financial position of the borrowers of the credit institution that is a member of the credit information firm;
  2. To give credit information to its designated users, to the specified users of any other credit information company, or to any other credit information company that is a member of it; 
  3. To carry out research. 
  4. To provide credit scoring to its specified users of any other credit information company or its members;
  5. To participate in any other type of business that the Reserve Bank may identify by rules as one that a credit information company may lawfully do.

What is the Process of Credit Analysis?

A borrower's loan application is evaluated as part of the credit analysis process to ascertain the entity's financial stability and ability to produce enough cash flow to pay off the debt. Simply put, a lender will run a credit analysis on potential borrowers to assess their creditworthiness and the degree of credit risk involved in granting credit to them. Credit analysis involves examining a borrower's loan application to see if the firm has sufficient cash flow to pay off its debts. 

Accessing data from the borrower, analysing the data obtained, and deciding whether or not to authorise the loan are all steps in the credit analysis process. To assess the borrower's creditworthiness, a credit analyst employs various methods, including ratio analysis, trend analysis, cash flow analysis, and predictions.

Also Read : What are the Factors Affecting Your CIBIL Score?

What are the 5 C's of credit?

The lender evaluates the loan application using the five Cs: capacity, capital, collateral, conditions, and character.  

  • Character

Always pay your bills on time, and work to keep your credit utilization (the amount of credit you currently use) low.

  • Capacity

Only request the amount of credit you require. Lenders may be more convinced that you can afford a new loan payment if you have a low borrowing history.

  • Capital

Having funds on hand may make getting a loan easier because it shows potential lenders that you are a severe borrower.

  • Collateral

When applying for some loans and credit cards, you might need to submit collateral. You can keep your collateral if you consistently make your payments on time and adhere to the loan's requirements.

  • Conditions

Some circumstances that affect your credit application may be beyond your control. However, being conscious of them will help you determine whether you would be eligible for credit.

The five C's of credit may be useful to bear in mind while establishing credit and striving toward your financial objectives. You may have a higher chance of obtaining the financing you require if you demonstrate a history of prudent credit use that reflects the five C's of credit.

What are the Advantages of Credit Information?

A high credit score might make it simple to obtain many types of credit, including loans and credit cards. Pre-approved loans, cheaper interest rates, increased credit limits, extended loan terms, waivers of processing fees, and other advantages are available. Good credit is an excellent sign of careful money management. It enables you to obtain the most favourable loan and credit card rates. In the long term, it can help you save money. 

Credit information or Credit report provided by CICs can be used for limited purposes, which are listed below-

  • To make relevant credit decisions
  • To discourage repeat defaulters and concurrent borrowers
  • To study and assess the risk posed by its customers to minimise undesirable customer selection
  • To successfully carry out their statutory and regulatory obligations
  • To successfully carry out the duties of a credit rating agency
  • To minimise unfavourable consumer choices
  • Reviewing and assessing the risk to its customers
  • To successfully carry out their statutory and regulatory obligations
  • To successfully carry out the duties of a credit rating agency

This information is primarily used to make credit decisions or determine creditworthiness if a borrower is a customer, as the case may be.

Also Read: What are the Factors that Determine CIBIL Score Calculation?

Conclusion:

The Credit Information company keeps records of all borrowing and credit-related activities of individuals and businesses. It includes all transactions on loans, credit cards, and borrowed money, because it is a credit rating agency. With the help of the agency's substantial data, lenders may better comprehend an individual's or corporation's report and make educated selections when assessing potential loan providers

It is important to note that a Credit Information Company can only provide factual credit information. It doesn't provide any opinion or indication regarding granting or not granting the loan. It is in the best interest of any individual to keep a good credit score and maintain a good credit history to get faster and more competitive financial assistance in their time of need. Any defaults or lag in payment could hamper their chances of getting financial help when needed.
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FAQs

Q: What is the credit process?

Ans:

The credit process is the process of assessing whether or not to lend to a particular entity. It involves studying the mindset of the potential borrower, underwriting the risk, the pricing of the instrument, and the fit with the lender's portfolio.

Q: What is a loan?

Ans:

A loan is a sum of money that a lender borrows from a bank or other financial organization for a specific amount of time. A loan is a debt that must be repaid to the lender over time, along with interest.

Q: What is a credit report used for?

Ans:

Lenders may use information from your credit report to determine whether you qualify for a loan and the conditions of that loan. Insurance providers may use the data to establish your eligibility for coverage and calculate your premium.

Q: What is credit?

Ans:

Credit is your financial power. It helps you to get a loan for anything you need, with the promise to repay it within a stipulated time. Credit allows people to purchase anything without having to pay immediately.

Q: What is the primary function of a credit information company?

Ans:

A company is characterized as a credit information company if it collects and studies information regarding credit and loans for consumers and businesses to produce its products and services (CIC).

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.
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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.