Vivina Vishwanathan: livemint: 8th Oct 2012
Those already with a score may find it lowered but
that’s because of a change in the calculation method.
If you have borrowed first time in the last six months, you would now have a credit score. Earlier, the credit score for all first-time borrowers with less than six months credit history was zero. Last week, Credit Information Bureau (India) Ltd, the country’s largest credit information company, launched a new version of credit score—Cibil TransUnion Score 2.0—which will replace the earlier Cibil credit score and take under its wings even those with a credit history of less than six months.
As of now, you won’t have access to this score; the earlier version was available to customers by paying a fee. The new version will be provided only to credit institutions for now.
The change
Borrowers who have taken credit for the first time in the last six months will be graded on a scale of one to five, where one would mean highest risk and five would mean lowest risk of default. The risk index has three categories: a score of one or two means high risk, a score of three means medium risk and a score of four or five means low risk.
For those already with a score, the range will remain 300-900 as earlier. However, your score may be lowered a bit, but there’s nothing to panic as this is only because the calculation method has been modified. For instance, if your score in the old version was about 750, it will come down to about 700 in the new version. Accordingly, the credit institutions will also adjust. So earlier if 750 was the eligibility level, it will be lowered to 700 now.
The parameters for calculation remain the same; they will include delinquency, credit seeking activity, type of credit and demographics.
Why has the change been brought about?
According to Cibil, there has been a change in borrowing behaviour of consumers. Says Arun Thukral, managing director, Cibil, “There has been a shift in the borrowing trend. Earlier, the focus was on credit cards and personal loans; now it is shifting to home and auto loans. To cater to this changing development and the change in the ratio of secured and unsecured loans, we have introduced the new version.”
Says Rajesh Kumar, executive vice-president and head-debt management, risk intelligence and business analytics, HDFC Bank Ltd, “Credit score is of great help for banks when it comes to loan acquisition and account management. The earlier version of Cibil score was five years old and was due for recalibration. This is because a lot has changed in the database and also in customer behaviour. The new version is built on more recent data and can help differentiate between good and bad customers. Banks normally encourage first-time borrowers and people with less credit history. Hence, the new feature of risk index will be very useful.”
Says M. Narendra, managing director, Indian Overseas Bank, “Credit information companies have in-depth commercial and retail data, which is of great help for banks. Such data also helps in retail pool analysis and in policy decision-making.”
What it means for you
New borrowers: They will obviously benefit. Says Adhil Shetty, CEO, Bankbazaar.com, “This move will be beneficial for recent borrowers. Earlier, there was no differentiation between a person who paid his dues on time and the one who defaulted on his payments. But now there will be a demarcation between the two. This makes credit more accessible.”
This, however, also means that you will have to be a little careful when you enquire about loans. If you call 4-5 banks at a time, Cibil will be informed about the calls and it can work against your score.
Borrowers with existing credit history: For those with a credit history of more than six months, the credit score will come down by a few points. But there is nothing to panic about; it is just that the figure has been readjusted.
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