Kalpana Pandey , the CEO of CRIF High Mark , an RBI approved credit bureau, is a technocrat and an expert who understands the business of credit score way better than most.
In an exclusive conversation with Sairaj Iyer from Sify.com , she ditches technical language for colloquial vocabulary, lucidly explaining the tricks to build a good score.
With four credit bureaus in India, how different is CRIF from competitors such as CIBIL?
Kalpana Pandey: We track borrowers in three categories – individuals, corporate and microfinance group loans. In all, there are four RBI licensed credit bureaus in India, and CRIF High Mark is the only ones to operate across all these three segments.
Credit Bureau business is around information – quality, recency, reliability etc. It is quite difficult for the end-consumers to feel the difference in credit score and report provided by different credit bureaus. A consumer can just feel the difference on the ease of access such as from our website and the level of support available in case the consumer has a query.
Moreover, the consumer also does not get to know which credit bureau the lender verified his score from - was it a CRIF High Mark score or from another credit bureau.
But, most bankers, who use our services, can understand the technicalities and differences in quality of products in addition to the quality of service.
When it comes to credit, what are the top five myths?
Kalpana Pandey: The biggest myth obviously is no credit will result in good credit score. Many people also think that affluence will result in a perfect score. But, just because someone is rich does not necessarily mean he/she will have a good score. Unless one has availed a credit (loan or credit card) and the credit is active between last 6 to 36 months, one may not have a credit score irrespective of one’s income.
Customers also end up confusing rating and score. Both are quite different. For instance Credit rating is done by companies such as CRISIL, ICRA for companies only and is based on parameters such as financial performance, economic situation, management quality etc. Whereas a credit score is done by credit bureaus such as ours for individuals or for businesses and companies, primarily based on past performance on the loans and banking credit they have taken.
Third, readers many a times also think that their credit score is similar to that of the school-tests. They assume that if they have repaid all their loans, and liabilities, they are bound to get a perfect credit score. Credit Score is in a way akin to school tests that a good score makes you eligible. However, the credit-score is more of a statistical number, and hence it is quite impossible to get a perfect 900.
At CRIF High Mark, we have actually seen high scores of 850-860, which in itself is quite a rare feat.
Fourth, many people also think that it is okay to not fret about scores. But, believe us, you should continually keep track of your scores. Credit score takes time to improve and hence from this year on wards, every individual is entitled to get one credit report free every calendar year.
Fifth, there is also a belief that credit scores remain fixed, but in reality, this number is subject to change as time passes by. For e.g. your credit score will improve as you pay up on your loans and reduce the outstanding liability.
Does a customer’s credit score differ from bureau to bureau or does it remain same?
Kalpana Pandey: The RBI has directed that a credit score should be in the range of 300-900, with 300 being the worst and 900 being the best. All credit bureaus follow this guideline. But having said that, the score received by an individual from each of the bureau is likely to be different.
Credit scores do differ from bureau to bureau. The way the same data from lenders is compiled, analysed and processed is different. Further, bureaus utilise different methodologies to create a score. A score is based on many factors such as repayment history, type of loans, sanctioned limits, secured or unsecured loans etc. how these factors play with each other is different across the credit bureaus.
How frequently does this score change?
Kalpana Pandey: The score can get updated any moment as the data in credit bureau database is getting updated with some information or other every second. Every lender shares data of its all customers at least once a month, so one can expect some change in score at least once every month. We recommend the readers to review credit score preferably once every quarter, and at least once in six months.
It is free once in a calendar year and you can have a look at the score free of cost from our website.
Does the ideal score for a credit card or a loan differ from bank to bank?
Kalpana Pandey: The score technically gives an idea of likelihood of the customer to default on the loan over next few months. Every Bank will have its own internal risk policies, which would differ from other banks. In addition to the credit score, the bank or the lender will also look at other parameters such as the type of customer, income profile of customer, type of loan product (secured or unsecured) etc and accordingly fine-tune the policies. Most organisations would offer loans to people with credit score of 700 or more. But then there are quite a few lenders who offer loans to people even with a score between 600 and 700.
Lenders on many occasions target specific type of customers as part of their strategy, perhaps because there is more opportunity in that customer segment. For instance, look at State Bank of India offering credit cards to people with just about Rs 20,000 average monthly balance. The approach and policies for such program will have to be different from those for other loans provided by the Bank.
How should customers who doubt their scores, go about getting a credit card?
Kalpana Pandey: Customers should look at cards that can match their score. There are online aggregators who assist in such services.
The choice of the bank is also important. The bank where salary gets deposited is the best one to approach for a card. In all likelihood, this bank will understand the customer better and hence is more likely to offer a product.
Also, people tend to apply for a credit card from the top lenders only. Some of the top lenders such as American Express may be very particular about the type of its customers.
Besides, customers should also opt for the right product. Most banks offer variety of credit cards - platinum, titanium, gold, and classic credit cards – some quite premium. A customer should review eligibility criteria of these variants especially in terms of the income criteria and the expectations on annual spend before applying for a credit card. A good credit score is also important to get approval on more premium credit card.
For people who have a low credit score, how helpful can opening a fixed deposit for a card scheme be?
Kalpana Pandey: A person with low credit score is unlikely to get any loan or credit card. It is advisable for her to apply for a secured credit card i.e. a credit card against a fixed deposit. A good utilization of such a secured credit card followed by a timely repayment can help improve the credit score. But it can’t work in isolation. One still should evaluate why the score dipped? Did the user skip any payments or loans? Were there any arrears?
Once that reason is identified, the next step is to work on those deficiencies. Many agencies including NGOs offer assistance to needy with poor credit score.
One should first settle and fix arrears. But doing so still does not guarantee an instant improvement in your scores. It is here, that the credit card you obtained by opening a Fixed Deposit, would start helping in the score. One should use the card judiciously and make timely payments too to demonstrate improved financial capability.
Most lenders may not offer you a higher loan or a loan at all when you have a low credit score, and hence this is an assured way to re-enter the system.
Are there any other ideas to improve the credit score?
Kalpana Pandey: As a first rule, clear off the dues and settlement. Clearing off arrears takes time to reflect in scores. You should still subscribe to getting your report, because you would only then know whether the bank has indeed reported about the settlement.