Keeping Close Score

The next time you think of delaying paying this month's credit card bill, think again. Not paying on time could lower your credit score, and make lenders think more carefully before giving you your next loan.

The Credit Information Bureau of India (Cibil) has launched a personal credit rating product that keeps track of individuals' credit histories and creates personal credit reports. The scores, 300-900, reflect a consumer's repayment capacity and creditworthiness.

Loans taken, installments paid and defaults on either (including on credit cards) over the past three years will be considered. Higher the score, the better the chances of getting a faster, or even a cheaper, loan. Habitual defaulters or late-payers need to be careful now.

Cibil says banks, ING Vysya for one, and other lending institutions give considerable weightage to these scores. Now, you can pay Rs 450 online and get the report as well as the score delivered home (but only after submitting hard copies of identity and address proofs). "Consumers will also be in a better position to negotiate the terms of loans, including the interest rates," says Balwant Jain, chief financial officer of Apnapaisa, a price and features comparison service for loans and insurance products.

Will banks and other lenders bite? It could lower their appraisal costs for retail lending, and also help in risk management. With the boom in housing and home loans, for instance, Cibil's product could work. The proof of the pudding, however, is in the eating.

(This story was published in Businessworld Issue Dated 02-05-2011)