In April 2019, I had applied for a credit card and, to my utter surprise and dismay, it was rejected. I made some enquires and I was told, rejection was due to low credit score. I was in a state of shock because the last time, I checked my credit score, in 2018, it was 800 plus, which is classified as excellent credit score. I have 100% record of making timely payments of all bills, credit card and loan dues since beginning of my career, spanning almost 25 years. I have no outstanding loans, delays or defaults. I have cleared all my loans before time. I checked with friends in the credit industry and nobody could point out the exact reason for lowered credit score.
As you know, your credit score, a 3-digit number generated by credit information companies (CICs), in the range of 300 to 900, with 900 being the best, is supposed to decide whether you will get a loan and at what interest rate.
Everything like a credit card or a home loan is dependent on your credit score and, hence, it is imperative that the scores are calculated and reported correctly.
I tried to download my free annual credit report and I could find no link on TransUnion CIBIL Ltd (CIBIL)’s website to do so. A circular issued by the Reserve Bank of India (RBI) with number DBR.CID.BC.No.11/20.16.042/2016-17
dated 1 September 2016 mandates CICs like CIBIL to give one credit report annually to individuals annually in the same manner it is given to lenders. The lenders get downloadable copy of credit information report, however, CIBIL consistently refuses to give the report in downloadable format, the way it is available to lenders!
(When you try to download free credit report, CIBIL directs you to this page for paid reports)
When I logged on CIBIL's portal, it came as rude shock to me to see my credit score has gone down to 662. On checking various credit card accounts (my only outstanding credits), I could see no delay or default in payment reported by any creditor.
I tried writing to CIBIL regarding my credit score (it is quite a task to write to CIBIL, a technology-intensive company) and I was told that Axis Bank has reported a delay in payment due to which my credit score has been downgraded.
However, the data submitted by Axis Bank card to CIBIL does not show any delay or default. When I challenged the response of CIBIL, I saw that my score has improved dramatically in few days!
The moot question is: Can just one instance of delay lead to such a dramatic drop in credit score? One can have temporary liquidity issues and lenders do not miss a chance to profit from such opportunities by charging late fees or interest. Delay does not constitute default.
While credit scoring models are proprietary, RBI has given some pointers on data to be used to generate credit score. One-off delay is certainly not a reason for change in credit score.
Axis Bank categorically denied reporting any delay or default to CIBIL. They even provided ‘glance report’ which indicates no delay or default on my part.
However, CIBIL is not willing to disclose how and what Axis Bank had reported as delayed payment . CIBIL was consistent in its response that your score will improve with timely payments. I have a 25-year history of timely payments. It is clear that CIBIL has goofed up the scoring and data collected methodology. There is a flaw in its system.
Moneylife made multiple attempts to get an explanation from CIBIL about how the credit score could drop to 662 for no reason and jump back around 800 immediately after raising dispute. But despite holding back this article for more than a week, we have not heard from CIBIL.
When I took report of another credit information company, my score was 890 out of 900, which is as close to a perfect score one can get. While, there can be some marginal differences in scores, there cannot be wide variation in scores given by CICs, using the same data provided by lenders.
I decided to check the patterns in credit score to see if the model used by CIBIL gives same result for different category of consumers and the results were inconsistent:
(a) My wife, has similar, timely repayment history over long period of time and her score is below 800.
(b) My mother has very nominal credit utilisation on single credit card and a very brief history of credit usage, has a score, which is in high 800s.
(c) A friend, who has very high credit utilisation and timely payment history on multiple credit cards & other loans, has a score similar to my mother’s score.
(d) Another friend has his CIBIL score in lower range, due to default reported on credit, which he closed in 2009.
CIBIL does not give credence to any mismatch in data reported by individuals.
The data reported by credit institutions is taken as gospel truth. Maybe we need a change in regulation. My experience of past two months with CIBIL is:
- Keep checking your credit score and immediately report any deviations to CIBIL/other credit information companies.
- CIBIL credit score model is far from perfect. Maybe true for other CICs also. RBI should mandate audit of algorithms used for credit score of all CICs.
- There are several websites offering credit reports. Do not buy credit reports. The CICs are mandated to give one report free every calendar year. Persist with CIBIL and other agencies.
- Always maintain financial discipline. Your future financial health is dependent on what you do today.
(Mumbai-based Girish Mittal is a Right to Information (RTI) activist. He was one of the petitioners in the Supreme Court against RBI for making public inspection reports of banks under the RTI Act.)
Editor's Note: CIBIL has responded to our emails and reminders on 3 September 2019 at 10.37pm. Here is their response...
"With reference to the consumer grievance cited, the CIBIL Score change in this particular instance was a result of an issue with the consumer's credit data, which we identified and corrected immediately. There was no issue in the score computation methodology and change in the score was the result of the data correction. As the issue pertained to the consumer's personal credit information, we contacted the consumer and responded to his queries directly. The quality, accuracy and security of the data we collect and maintain is paramount to us and we continue to enhance our processes, systems and technology to provide reliable solutions and services to our members and consumers.
CIBIL score is calculated based on the individuals credit history of past 24 months and is dependent on a combination of factors like credit utilization; type, amount and duration on credit facilities availed; month-on-month credit payment behavior; delinquencies and defaults; written-off/ settlements on credit facilities and also the credit history on loans guaranteed or co-owned by the consumer. The score is dynamic and will change based on the individual's month-on-month credit activity and payment behavior."