How will you feel if your loan application is rejected for not paying a debt that you never availed of? Worse, what if the loan in question is mentioned in your credit report as well?
But how can a loan you have not taken find its way into your credit report? Whose fault is it- banks, which send customers' details to credit bureaus, or credit bureaus, which prepare these reports? More important, what steps can you take to get such wrong entries removed from the report?
Before we seek answers, let's see the kind of mistakes that can creep into your credit report, which has become your financial 'character certificate'.
NATURE OF ERRORS
The errors can be as mundane as wrong name, address, identity number (PAN, Aadhar), even gender or date of birth. These are, however, not significant as they do not necessarily ruin your credit record.
The serious errors are inclusion of someone else's loan in your report or amount overdue that is much higher than the loan taken.
Then there are mistakes in date of payment, account status (paid, defaulted, settled, disputed), date of loan closure, etc. These mistakes, if not corrected, can impact your credit score, resulting in rejection of loan applications or blacklisting by banks.
It is, therefore, important to keep your slate (read credit report) clean. To be able to do so, you need to look at your credit score and history regularly and not only at the time of applying for a loan.
"In the current process, credit bureaus do not verify with customers the data received from banks. It is, therefore, advisable to access your credit report regularly and see if the data there are correct," says Sanjay Patel, managing director and chief executive officer, Equifax, a credit bureau.WHOSE FAULT IS IT?
Credit bureaus receive customers' details from lenders. They draft credit reports by collating these details, which they cannot change. They can only do 'logical' checks and reject some data if three-four mandatory fields such as PAN, address, etc, are not filled.
Errors can happen at both data submission and aggregation stages. At the submission stage, it is the lender that may be at fault. Details such as names and addresses, which are manually entered, may be wrong due to typographical errors at the lender's end. Also, data about credit behaviour, latest status of settlement, latest balance, etc, may not be accurate or according to the customer's understanding of his current status.
"Data submitted by banks are a result of multiple entries by many people. Despite adequate controls, a data entry mistake could result in an error, though these are far and few," says A Meenakshi, head, operations, ING Vysya Bank.
While sometimes there are genuine errors, there could also be discrepancies in the report because of the time lag between data collection and submission or data submission and updating of account status.
"The data come to bureaus generally with a one-month lag and, hence, the status of the account may not be up to date. This may appear as an error to the customer," says Patel of Equifax.
Imagine you made a payment on the 10th of the month and the report goes to the bureau on the 15th. In such a case, the lender has sent one-month-old data and, hence, your payment may not be captured in the report.
There are other data processing time lags too. For example, banks outsource loan collection to third-party agencies, which may have collected the cheque but not informed the bank on time. The processing of cheques itself takes time (outstation ones may take 48-72 hours to be cleared).
Then there are delays at the end of call centres. You may have called up the bank for converting a credit card payment into equated monthly instalments. The process may take time and the bank, in the meantime, may report the amount as an overdue.
At the aggregation stage, bureaus use computer algorithms to put the data in sequence. However, due to various commonalties (in name, address, date of birth, etc), complex or incomplete addresses and insufficient information, it is possible that a loan is assigned to someone else's name.
Due to varying levels of quality of data such as names and addresses and unavailability of latest and complete data with lenders, the aggregation of holdings across lenders may not be complete.
"There are chances that there are over-combines on the report due to lack of data or similarity of multiple factors like name, address, date of birth, etc, which may cause errors to creep into the report," says Patel of Equifax.THE RECOURSE
"There is recourse, but half the time people struggle because they had not seen their credit report earlier. It is at the time of loan application, when the lender informs them about the default entry, that they realise their mistake, which now needs to be corrected immediately. However, a resolution may not be possible in such a case," says Mohan Jayaraman, MD, Experian. He says one must get his or her credit report once a year so that errors, if any, can be corrected.
If one finds that a loan has been incorrectly (wrong amount overdue, wrong date of closure, etc) reported, one can take up the issue with the lender. The lender will verify the details and then submit the corrected data to the bureau, which will then change the credit report accordingly.
If a loan shown in the report has not been taken by the person, he can approach the bureau directly and register a complaint.
All bureaus have dispute resolution forms on their websites that aggrieved customers can download and send with relevant identification documents.
If the error is due to data submitted by the bank/lender, the bureau will take up the issue with the lender. According to the law, banks have to come up with formal resolution of a dispute within 45 days of the issue being raised.DISPUTE RESOLUTION
Not all disputes arising out of such errors are easily resolved. Usually, errors at the data aggregation (bureau) level such as wrong details and loan account can be corrected easily. However, disputes related to wrong reporting of a loan (by banks) such as wrong overdue amount, status of the loan account, date of closure and date of payment can take time to get resolved.
Ankur Singla, founder and CEO, Akosha, a consumer grievance redressal company, says they generally receive complaints related to score/credit history not updated in bureau records despite clearance of the outstanding amount and those related to updating of credit scores in the wrong account.
"These cases are at times difficult to resolve because of lack of documents that can be shown as proof. Besides, most banks have outsourced collection to third parties, due to which it becomes difficult to connect to the right person and follow up with him on a regular basis," says Singla.
If you are not satisfied with the resolution of your complaint, you can approach the bank or the bureau again, specifying what you want. If you are still not satisfied, you can knock at the banking ombudsman's door or move a consumer court.