Variation In Credit Score – Approach The Credit Bureaus For Correction

In India, you must have heard people in Photocopy shops saying “Give me a Xerox of this document”. Even on the signboards outside the shop, you will find “Color/B&W Xerox facility available”. In other words, “photocopy” means “xerox”. Not many people are aware that Xerox is an American company pioneer in photocopy products. Similarly, In India, Credit Score means CIBIL Score :). Not many people know that CIBIL is one of the 4 Credit Bureaus operating in India. According to Wikipedia, Credit Bureaus are the collection agencies that gather information from creditors and provide that information to credit information company. In short, credit report captures your credit history.

The 4 Credit Bureaus operating in India are as follows but the 99% borrowers/loan seekers know only one i.e. CIBIL :)

1. CIBIL
2. Equifax
3. Experian
4. High Mark Credit Information Services

Recently, i received a query from Mr. Ramesh. He applied for consumer durable loan and it was rejected citing low CIBIL Score of 689 (Remember Credit Score means CIBIL Score). I suggested him to pull out his CIBIL Score. Surprisingly, his CIBIL Score was 762. There can be various reasons for the same. Finally, we zeroed down that the financial institution checked credit score from one of other three credit bureaus (I would not like to name). The unfortunate part is that financial institutions don’t share the details i.e. the score of a which credit bureau (CB) they are referring to. In nutshell, Credit Score means CIBIL Score and vice versa. But now i observed that more and more financial institutions are referring to credit score from a CB other than CIBIL.

Reasons for variation of Credit Score from different Credit Bureaus

There can be multiple reasons and very difficult to find. I am listing couple of most common reasons

1. Credit Bureaus assign differential weightage to various factors:

In my post, Credit Report – 5 Imp Factors That Decides Your Credit Score i shared critical factors that influence your credit score. Assuming credit bureaus assign weightage of 20%, 25%, 22.5% and 30% respectively to payment history. In this case, credit score from all the 4 credit bureaus will change. Moreover, you cannot expect all the 4 credit bureaus to report the same credit score. The million dollar question is which one predict credit behavior more accurately.

A minor variation is okay but major variation means something is wrong somewhere and require attention from borrowers end. To avoid this anomaly, reputed financial institutions pull out credit score from multiple credit bureaus and consider average score.

2. Reporting by Financial Institutions:

Ideally, the banks should report the same data/information to all the 4 credit bureaus to maintain uniformity of credit score. Unfortunately, we don’t live in the idealistic world. The human error bound to happen. In my case, i observed one of my credit cards was not reported to one of the credit bureaus by the bank. Other instances can be the wrong update of existing accounts.

In another instance, one of the readers of the blog found out that in past, one of the reputed banks linked her passport details to some other account. It is a very common case of mistaken identity i.e person with same name/similar details. Because of this reason her home loan was rejected by 3 banks. Finally, the deal was called off and her token money of 5L was forfeited by the seller. Therefore, personal details not reported correctly can also cause the problem/financial loss to the borrowers.

Variation In Credit Score – Approach The Credit Bureaus For Correction

Typically, the Indian psychology is to be reactive rather proactive. In the normal routine, it may be okay but if you are planning to avail loan or applying for a credit card the approach should always be proactive. In such cases, you are not aware bank or financial institution will refer to a credit score of which credit bureau :). Therefore, it is critical to reconcile the details reported to various credit bureaus.

Step 1: You should pull out credit report from all the 4 credit bureaus. Recently, RBI directed all the credit information companies to provide one full credit report for FREE, including credit score, once in a year. Therefore, it will be good opportunity to reconcile the details for Free.

Step 2: You should reconcile the following details

(a) Personal information including PAN, DOB, details of other documents linked etc.

(b) Contact Information including address, mobile no, email etc.

(c) Employment Information including occupation, income etc.

(d) Account Information including no of accounts, accounts closed, settlements, late payments/DPD etc.

(e) Enquiry Information

Step 3: The best part of this exercise is that you know the correct/incorrect information reported to the credit bureaus. In the case of any discrepancy/variation, you can immediately report it to the respective credit bureaus. You can also raise online disputes.

Step 4: After the credit report is corrected/updated/No Change, you will receive the revised credit report. If all the details are matching in all 4 reports from credit bureaus then it implies that your credit score is reported correctly. You should not worry about the minor variation of score say up to 5%. As i explained, it might be due to differential weightage assigned to various parameters. As a borrower, you should ensure genuineness and correctness of the information reported.

The difference of more than 5% can make a lot of difference and should be the reason for worry. For example, if CIBIL is reporting score of 756 and Equifax is reporting 725 then will my loan will be rejected if a bank check Equifax credit score? The reason for this fear is a deep routed psychology that min score of 750 is required for loan approval.

The answer is NO. Your loan will not be rejected on the basis of credit score. The banks and financial institutions assign a different threshold for a credit score from different credit bureaus based on their learning curve. Hypothetically the following threshold is assigned.

CB A = 750

CB B = 763

CB C: 775

CB D = 737

In this case credit score of 750 assigned by CB A is equivalent to a credit score of 737 reported by CB D. In other words if all your details are reported correctly then your credit score in 4 different credit bureaus may differ and should be the one as i shared in the table. Here i am assuming credit score of 750 by CB A as a reference score.

To conclude, you should be concerned about the correctness of the information, not Credit Score

Misconceptions about Credit Bureaus dispute resolution process

1. Credit Bureaus do not correct the details/records: As i mentioned Credit Bureaus are just the collection agencies. Therefore, in the case of dispute, the credit bureaus request the banks or financial institutions to re-validate the information reported and correct in case of any error. In short, bank or financial institution approval is a must for any changes in your credit report. All these requests are processed within 30 days from the date of the request. CB cannot make any changes unilaterally.

2. Banks or financial institutions will follow the report of their credit bureau: In one of the case, the reader of this blog Ms. Rachna’s loan was rejected by based on low credit score. The financial institution was utilizing the services of CB A. She checked her credit score with CB B,  CB C, and CB D. Her score was very good in rest 3 credit bureaus. The issue was her 2 credit cards were not reported to CB A by the banks. She requested financial institution to consider a credit score of either of rest 3 credit bureaus and approve her loan. The financial institution rejected her request.

Please note that bank/financial institution will only consider the credit score of credit bureau with which they have tied up. You cannot force the bank to consider credit report of other credit bureaus. In the case of Ms. Rachna, the best solution would have been to request CB A to update the details of 2 credit cards not reported to CB A by the banks. This would have resolved her problem but she took a different approach that didn’t work.

Hope you liked the post. For any query/clarification, you may post your queries in following comments section.

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