These scores and checks by credit bureaus can help in weeding out violations of KYC or anti-money laundering norms
Nupur Anand | Mumbai July 14, 2015 Last Updated at 00:48 IST | Business Standard
If you fill in the wrong date of birth in a loan application form or have not filled the correct address, there is a chance now that your application may be rejected or take longer to process. For, apart from checking your credit history, banks and financial institutions have also started checking your identity score as a part of their Know Your Customer (KYC) procedure.
The move comes in the backdrop of rising frauds at banks and as a result, lenders have become more cautious. Retail loans have held up at a time when corporate demand is muted but banks are ensuring they are not caught off guard in their endeavour to push these loans.
“The KYC procedure was always being followed but it is now getting integrated with credit score checks as well. Banks and other institutions are opting to go via credit bureaus because it helps in solving logistical issues for the lenders. Moreover, credit bureaus are coming up as a one-stop shop to do credit and identity checks,” said Nimilita Chatterjee, a senior vice-president — products, analytics and data operations at Equifax, a credit bureau.
Mohan Jayaraman, managing director (MD) of credit bureau Experian, says lenders are taking the help of credit bureaus to ascertain identity parameters. “As part of this, we will check if the address you have provided is correct or not. In addition, suppose in the same house there are other people who have defaulted on loans or don’t have a sound credit history, it can raise a red alert for banks,” he explained.
Also, if you change your house very often, that might ring warning bells for lenders, explains Kalpana Pandey, chief executive officer & MD, CRIF High Mark Credit Information Services.
“The idea is to also verify the address stability. Suppose you have a home loan in another address and for your personal loan you have given another address, then it may be a concern for banks. Or if there are times when in one form a customer has mentioned a different birth date than the actual one, even that can lower the KYC score,” she added.
Experts explain these scores and checks by credit bureaus can help weed out violations of KYC or anti-money laundering (AML) norms. In April, the Reserve Bank of India (RBI) slapped a penalty of Rs 1.5 crore each on three public sector banks — Bank of Maharashtra, Dena Bank and Oriental Bank of Commerce — for violating KYC-AML rules, while asking several others to ensure strict compliance with these.
RBI had pointed out that instances of banks opening fixed deposits and granting overdrafts without due-diligence were detected. The credit bureaus say such instances can be reduced by such identity scores.
“We have a solution to authenticate the identity of the applicant, which is now being used by banks and credit institutions. This is a unique solution that allows banks and credit institutions to authenticate a customer in real time by leveraging CIBIL’s vast credit information database, thereby helping drive process efficiency for faster and smoother on boarding of customers,” said Harshala Chandorkar, senior vice-president — consumer services and communication, CIBIL.
Experian’s Jayaraman also said part from identity checks and location, even the tenure of one’s previous loans will affect these background check scores. He explains if the tenure of a loan a customer has been repaying from a particular address is longer, then it will help in affirming the veracity of his address.
Credit bureaus said that not only banks but even Non Banking Financial Companies, Insurance players and even telecom companies are using these background checks. However, considering that these services are limited the number of players using the score is still limited.
“KYC procedure was always being followed by banks but now it is getting integrated with the credit score checks as well. Banks and other institutions are opting to go via credit bureaus like Equifax because it helps in solving logistical issues for the lenders and more over now credit bureaus are coming up as a one-stop shop to do credit and identity checks,” said Nimilita Chatterjee, Senior VP – Products, Analytics and Data Operations at Equifax.
Rajiv Raj, Director & Co-Founder of CreditVidya. | 07-01-15 | Morning Star
In the world of finance, credit plays an important role in meeting our wishes. Be it the dream of owning a car or a house of one’s own or simply making improvements in your house. You name it and it gets realised with the help of credit from various financial institutions. Even owning an expensive smart phone has been possible for most due to availability to cheap and easy credit. But getting loans easily is not true anymore. Lenders no more look at your earning capacity alone but also factor in your past repayment track record in the form of a credit score before making any kind of decision. In such a scenario associating one’s name with a bad credit score may prove to be disastrous.
How do banks and lenders decide on whether or not to sanction a loan?
Credit score takes into account the credit history of the individual and predicts his willingness to repay the loan on time. Banks and lenders evaluate customers based on their ability and willingness to pay. Ability is your pay cheque, while willingness is your credit report and score. A higher score implies better chances of getting credit from the lenders.
Having said that, it is up to individual lenders to decide their acceptable level of risk. Depending on their risk appetite, they decide their credit score cut-off for accepting a customer’s loan application. Also, what may be considered as a bad credit by one lender may be perfectly acceptable to another. So a loan approval by one lender might require the minimum score to be 750, another might settle for 700 or even lower. So if one lender does not accept your application on the basis of your credit score, don’t give up. Approach others. But bear in mind that lenders offering loans at lower credit scores generally offer loans at a higher rate of interest. Hence a lower credit score may still get you a loan but it could work out to be a costly affair.
How many credit bureaus are there?
When it comes to credit score, the CIBIL score is what comes to mind. In reality, there are other three credit bureaus in the country. Apart from Credit Information Bureau of India Ltd., or CIBIL, there is Equifax, Experian and Crif High Mark. As of now, almost all of them provide scores ranging from 300 to 900. But the fee to access the credit scores differs across bureaus. For instance, to access a CIBIL report and score, you will have to dish out Rs 470, but only Rs 400 for the same from Equifax. The latter also provides an option of accessing its credit report four times a year for a payment of Rs 1,000. Experian, on the other hand, makes the credit report available at just Rs 138. The payment options range from demand draft to NEFT, which is the online bank payment.
Does an individual need the score from more than one bureau?
At present, the lenders report the credit history of their customers to all the four credit bureaus but access only the CIBIL report to make the decision. That’s because the bureau was launched in 2004 and has credit data on individuals from then on. The others started operations only in 2010. This could change in the future as lenders start accessing credit scores from more than two credit bureaus to make their decision regarding loan approval. Therefore, it is important to access your credit score from multiple bureaus. If your credit score is high across different bureaus, it will act as a double confirmation that you are a disciplined and a good customer and, therefore, worthy of a loan at an attractive rate of interest.
In case you do come across any discrepancies in the reports generated by the credit bureaus, you can raise a dispute resolution with them.
As the new year begins, get hold of your credit score from all credit bureaus. It will help you in the long run and prevent you from dealing with end moment rejection from lenders.
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