You plan to apply for a home loan and check your credit report to gauge the likelihood of bagging a good deal. Viola! Your score is an 800; getting through with your desired lender should be an easy task. But, it isn’t so, the lender says your application is rejected because of poor score of 530.
Now, that isn’t possible right? Over a matter of days, your score can’t fall. Well, the reason behind the two different scores is that your prospective lender was possibly referring to your credit report from a different Credit Information Company (CIC) or Credit Bureau than the one you did. It is not unusual for credit scores assigned by different CICs to vary a little —by as much as 5-10%, but anything above 10% should raise an alarm.
So, why do credit scores differ in the first place? There can be a number of reasons and it is difficult to pinpoint a single one. Let’s start with a little bit on credit reports and the different institutions that issue them.
Your credit report and credit information companies
Ever since credit information companies launched business in India, the whole process of loan approval has undergone a sea of change. You no longer want to restrict yourself to lender with whom you’ve had prior business relationship, and hence it becomes important for lenders to assess not only a your repayment capacity but also your credit history. Today it is highly unusual for a bank or credit institution to lend money without first verifying a prospective borrower’s credit report and score.
There are four RBI-licensed CICs in India – Equifax, Experian, CIBIL TransUnion and CRIF High Mark. All lenders must mandatorily tie up with at least one CIC and provide details of lending information of all their customers. When you approach a lender for a loan, they can approach any of these to review your credit history.
Of these four, CIBIL has been around the longest in India, since the year 2000, and it has the largest network of partner banks and credit institutions.
To prepare your credit score the credit bureau looks at five important aspects of your profile: your payment history, total borrowing, length of credit history, new borrowings (including credit cards) and demographics. Each bureau assigns different weightage to these factors, resulting in a slightly different score.
Variance in credit score among the different CICs
Some of the most common reasons why your credit score varies from one credit information companies to another are:
Incorrect reporting in personal or account related details
Verify if your name, credit account details including name and address, employer data are all captured correctly in your credit report. Sometimes it can be that a loan account that is closed is still reported as unclosed. A payment may have been reported late. In rare yet possible situations there could be a loan or credit card account in there which you don’t recollect. This could be a serious case of stolen identity. Someone may have used your identity to borrow money.
Different timing of viewing score
Sometimes it’s just that the two scores belong to two different time periods. Your credit score can change over months, even a single month. Change in credit card balance, loan enquiry by you, a new credit card or loan…any of these can move your credit score by significant number of points.
Different data with different agencies
Lenders are not required by law to report details with each and every CIC. They may be a member of just one CIC in which case the others may have a slightly different set of details to prepare your credit report and score. For instance if three of your credit reports reflect five of your borrowings, one report may reflect only four.
Different methods used to calculate score
Numerous inputs go into the calculation of your credit score. Each agency has its own scoring model, which may account for variation in your credit score.
Dealing with difference in credit score
A difference of over 50 points or 10% needs attention. You should go through all the credit accounts mentioned in the report. If you notice any discrepancies, bring the issue to light with the concerned credit bureau. If it appears to be a case of stolen identity, report it both to the lender and concerned credit bureau.
Don’t assume your lender or credit card issuer will initiate to rectify any discrepancy; the onus falls on you as they might not take things up with a bureau of which they are not a member. You need to access the dispute resolution section in your credit report to take up this issue with the credit bureau. The bureau would then take it up with your lender, getting relevant information corrected, based on supporting documents. The whole process should ideally be completed in 30-45 days once you raise a dispute.
Lenders too realise now that there is scope for discrepancies and therefore refer to more than one credit scores. However, they may not reveal which bureau’s score they will use for approval. So, if you intend to apply for a loan in the near future check your credit score with all four bureaus. You are eligible for one free credit score review every year, from each of them, use it well.