While talking about loans, we often hear the term credit bureau. They provide credit ratings based on your financial behaviour. These credit ratings are issued by top credit bureaus in India - Credit Information Bureau (India) Limited (CIBIL), Equifax, HighMark and Experian. In India, the CIBIL score is the most popular since it is the oldest bureau. However, many lending institutions also use Experian and Equifax to make lending decisions. Here is everything you must know about credit bureaus in India. Read on!
What are Credit Bureaus?
Credit bureaus are agencies that collect data from various lending institutions, including debtors, creditors, and collection agencies. And maintain individual credit information. The credit bureaus then provide these data to the creditors, lenders, and consumers through a credit report.
Top 4 Credit Rating Agencies in India
Here’s a list of the top 4 credit bureaus in India:
1. Experian
Experian was the first credit bureau accredited under the New Credit Information Companies (Regulatory) Act of 2005 (CICRA) and provides credit reports and credit scores in India. They also offer marketing services and analytics tools to help individuals and businesses make informed credit decisions.
2. TransUnion CIBIL
Established in 2000, TransUnion CIBIL is India's first and most popular credit bureau. The credit bureau collects and maintains credit information of more than 1000 million individuals and commercial entities. The credit information is collected from 3 bureaus: Commercial Bureau, Consumer Bureau, and Micro Finance Institution Bureau. TransUnion generates Credit Information Reports (CIR) and CIBIL scores for CIBIL individuals. It also generates CIBIL rank and CIBIL commercial reports for commercial enterprises. All major banks, housing finance companies, financial institutions and NBFCs are CIBIL members.
3. CRIF Highmark
CRIF Highmark is headquartered in Mumbai. It claims to be the first full-service credit bureau in India, providing comprehensive credit information to all lending departments in India, including MSMEs, commercial and micro-lenders and retail customers. In addition to providing credit reports and credit scores, Highmark also provides data management, insights, analytics, and related software solutions to banks, NBFCs, MFIs, insurance companies, housing finance companies, telecom service providers, etc.
Also Read:- CRIF Vs CIBIL: Explore the Major Difference
4. Equifax
Registered as a credit information company in India since 2010, Equifax is headquartered in Mumbai. It is a joint venture between Equifax Inc. USA and 7 top financial institutions in India. Credit bureaus compile the credit information of individuals and commercial entities and present it through CIR and credit scores. It has a separate section that caters to the financing and regulatory needs of microfinance institutions.
How Do Credit Bureaus Work?
The primary purpose of a credit bureau is to help ensure that lenders have accurate credit information about potential borrowers. That said, the credit bureaus are not responsible for deciding whether the individual deserves credit. They collect credit information of the individual and provide it to the lenders. Their customers are banks, credit card issuers, mortgage lenders and other personal finance lenders. Consumers are also customers of credit bureaus because they may receive credit information from them.
Features of Credit Bureaus
- The Reserve Bank of India (RBI) give licenses to all the credit bureaus.
- Each credit bureau has its unique algorithm for calculating a credit score.
- Credit scores of the two credit bureaus may vary. However, they will be accepted as valid.
- Banks and non-banking finance companies (NBFCs) regularly send credit information to all credit bureaus.
Although the credit score calculation algorithm differs for different credit bureaus, they generally consider five factors when calculating a credit score. These include the type of credit, payment history, credit exposure, age of credit, and credit inquiries.
Function and Significance of the Credit Bureaus in India
Here are 4 key functions of credit bureaus in India:
1. Gathering the Credit Information: Credit bureaus collect credit history from various financial institutions and keep a record of financial behaviour.
2. Maintaining the Credit Report: Credit bureaus keep a record of your credit history. This report includes – personal information, payment history, outstanding debts and public records.
3. Generating Credit Score: Credit bureaus generate credit scores using credit reports, which are the numerical representation of your creditworthiness.
4. Providing Credit Monitoring Services: Many credit report agencies provide credit monitoring services that follow changes to your credit report and notify you of any probable fraud or identity theft.
Impact of Credit Bureaus on Your Financial Life
A credit score provided by the credit bureau is a numerical representation of an individual’s credit health. The credit score typically ranges from 300 to 900. Credit bureaus play a significant role in shaping an individual’s financial life:
- Credit Scores: Credit bureaus calculate credit scores based on your credit history. Higher scores grant better loan terms, while lower scores may lead to higher interest rates or loan denials.
- Loan Approval: Lenders use credit reports from bureaus to assess your creditworthiness. A positive credit history increases the chances of quick loan approval.
- Interest Rates: Your credit score influences the interest rates on loans and credit cards. Higher scores generally qualify for lower rates, which saves money on interest payments.
Also Read: How Credit Utilisation Affects Your Credit Score?
How to Check FREE CIBIL Online?
Check your CIBIL score for free with just 4 easy steps:
Step 1: Go to the Poonawalla Fincorp official website.
Step 2: Click on ‘Get Your CIBIL’ and select employment type & gender within the CIBIL Check form.
Step 3: Provide your name, contact details, PAN card, and address proof.
Step 4: Read the terms and conditions carefully. Select ‘Agree’ and click on the submit button.
Post verification, you will get your CIBIL score within a short time and be able to download the CIBIL report.
To Conclude
A credit bureau helps in collecting and storing your financial data, which can be used for determining your creditworthiness. The credit report prepared by these bureaus helps the lenders to make an informed lending decision so that it reduces the chances of default in future. Keep a track of your credit report so that you can apply for a loan or credit any time or take the required steps to improve your credit score.
Frequently Asked Questions
- Which is the most used credit bureau in India?
TransUnion CIBIL is the most used credit bureau in India, along with Equifax, Experian and CRIF Highmark.
- What are the 4 credit bureaus?
India has four credit bureaus: TransUnion CIBIL, Equifax, Experian, and CRIF Highmark.
- Who regulates credit bureaus in India?
Credit bureaus are regulated by RBI (Reserve Bank of India) in India.
- Which credit bureau is most used in India?
TransUnion CIBIL is the most used credit bureau in India.
- What do you understand about CIBIL? Is it India's only credit bureau?
CIBIL is the most popular of the four credit bureaus licensed by the Reserve Bank of India. CIBIL provides a credit report and credit score for individuals and credit rank for companies. Along with CIBIL, there are three other credit bureaus - Highmark, Equifax, and Experian.