Praphul kumar was in for the shock of his life. While casually checking his credit score one day, he saw it at a low 650, instead of his usual score of 870. That set alarm bells ringing. “I dug in and read through the credit report, and found there are loans running [in my name]. I never applied for these loans. They were given without my consent and knowledge. My personal details such as date of birth and address were also not valid,” says the 33-year-old Pune-based businessman, adding that his PAN card details were used to obtain the loan. The amounts were small—Rs 5,000 and Rs 56,000— but they hit his credit score, and impacted his credit profile.
Kumar isn’t alone. Bollywood actors Rajkumar Rao and Sunny Leone also tweeted that their PAN details were used by a third party to take loans of small amounts up to Rs 2,500.
These incidents of identity theft indicate why it’s necessary to keep a close tab on one’s financial health. An easy way of doing it is by checking your credit score regularly. But what is a credit score? How do credit bureaus have so much sensitive data on you? And what is there in your credit score report? Let’s take a look.
The Magic Number
A credit score is a three-digit number assigned to an individual on a scale of 300-900 points. It is based on the unique algorithm of each bureau, with a score of 750 or above considered good. Credit bureaus score you primarily on six factors (see 6 Factors that Decide Your Credit Score).
Your credit score is also directly linked to the interest rate. If you have a good score, you can get the best rates in the market. But if your score is poor, you may not be able to get a loan despite meeting other eligibility criteria. “Your credit score reflects your financial health and creditworthiness. It is the first thing that credit institutions check when you apply for a loan or a credit card,” says Radhika Binani, Chief Product Officer, Paisabazaar.com, a marketplace for loans and credit cards. She adds that a credit score is not something one can build or improve in a few days, but takes several months. And even if one has a good credit score, one needs to handle credit responsibly to maintain it. “A consistently good credit score goes a long way towards making you credit fit for future financial requirements such as getting a home loan or availing credit at a reasonable interest rate in case of an emergency,” she says.
Your credit score becomes more important in light of the growing popularity of Buy Now, Pay Later schemes. Given the availability of easy money, many tend to opt for these loans without realising that a default will impact their credit score.
Dealing with Data
If you’ve ever taken a loan or applied for one, then the lending institution shares your repayment history with the credit bureaus. Given that credit information bureaus are entities under the ambit of the Reserve Bank of India (RBI), they are considered safe repositories of information.
A credit score has many advantages for borrowers as well. For example, it helps banks decide on a borrower’s creditworthiness. With credit bureaus collating the data under one umbrella, it helps in tracking the financial profile of the person and, in turn, gives borrowers better access to credit.
Is a credit score sensitive data? Can its misuse and appropriation harm customers? “In India, it is a regulated activity as the four bureaus have a licence [each] from the RBI. When you say licence, it means the RBI has oversight on them. So, whatever function they are performing like storing and using data, it all comes under the regulatory ambit. India is one of the most advanced markets, almost comparable to the US or the UK… [which] have extremely high standards,” says Anurag Sinha, Co-founder and CEO of OneScore, an app to check and monitor credit scores.
Experts say the data is not used to establish the identity of an individual but to create a credit profile to provide services. The report is triggered only when the individual asks for it. “Though the data is collated by bureaus, it is shared only when the borrower applies for a loan. That way it is always generated on the demand of the customer,” he adds.
However, a Supreme Court ruling in 2017 said that the right to privacy is a universal human right. Hence, to combine privacy protection with credit reporting, the RBI has come out with the account aggregator framework that gives users greater control over their financial data. Under the framework, by accessing authorised apps, users can pull together financial data such as tax returns, spending patterns and GST tax filings to prove their creditworthiness. Given that the framework went live only in September 2021, it has the potential to expand the credit market for Indians with new levels of data security and consumer control, as users will be able to decide what to share, with whom, and for how long. The only challenge is that people should understand the concept of consent before allowing apps access to their financial data.
The Personal Data Protection Bill will further define storing and processing of personal data by entities without the explicit consent of an individual.
Understand Your Score
But how do you get your credit score? You can download it from one of the credit bureaus—CIBIL, Experian, Equifax or CRIF Highmark. “If you have a loan running or use revolving credit, it is wise to check your score every quarter, if not every month,” says Adhil Shetty, CEO, BankBazaar.com, an online marketplace for loans and credit cards.
Shetty adds that fintechs like his help customers access credit reports as many times as they wish free of cost. The catch is if you download your credit report from fintech companies, you share the data with them. Else, you can download the report directly from the website of any credit bureau. The hitch is that the credit bureaus give only one report free in a year.
Each bureau has a slightly different way of organising the information; your credit score may also differ from bureau to bureau since each has its unique algorithm. But all credit reports broadly have three heads:
Personal details: This section has your PAN, contact number, addresses, and any other personal detail you may have furnished. Check for typos and incorrect identity information when you read the report.
Credit account information: This is the most important section. It has details of all your loans and credit card accounts; and details such as the type of account, status, date of account opening, current balance, payment history and overdue amount. It also contains the details of current and closed loan accounts; account opening and closing dates, and lenders’ details, among others. “Check for any errors or discrepancies in this section very carefully. Pay special attention to ensure there is no mismatch between your records and the report regarding payment history, payment due date and payment status, and that the account number and account name are all correct,” says Shetty.
Binani adds, “The payment history is captured for each month along with the ‘days past due’. If you have made all your payments on time, the ‘days past due’ should be zero and, if not, it shows the number of days past the due date for which your payment was overdue.”
Credit enquiries: Make sure to check credit enquiries, as this section has details of any hard enquiry on your profile carried out by a credit institution in response to a loan or credit application sent by you. If you don’t recognise any entry, it could be an attempt at identity theft. “If you find an account that you did not create or a credit enquiry that you did not initiate, you must dispute the same with the concerned bureau,” says Binani.
Set the Score Straight
If you find any discrepancy while reviewing your report, rectify it immediately. You can raise a complaint online directly with the bureau, and it usually takes 30 days to correct the reported error. However, when the process involves multiple players such as the lender and the payment partner, the rectification may take more time.
“In case your score has got impacted by identity theft, then the only way is to reach out to the lender and lodge a complaint. In parallel, you should reach out to all four credit bureaus and request the removal of the account from your report. Credit bureaus then coordinate with the lender and remove these accounts after confirmation from the lender. Once removed permanently, it will correct your credit score. If not corrected, this will have long-term implications as future lenders will continue to see this as an actual default, impacting your future borrowing capabilities,” says Sinha of OneScore.
Prevention is better than cure. This is also true for financial health. So, regularly check your credit score and stay healthy financially.
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