CIBIL -Credit Report - A growing Monster or saviour? - Part 1

My friend Ramesh showed me the new flat he was planning to purchase. I checked the vaastu for him and found that it was perfectly suitable for him. He was getting the flat at a good price as he had promised the builder quick settlement.  

The moment, the agents (of different banks) came to know that Ramesh had finalised a flat they started pestering  him through their telecallers with great offers on home loans.

Ramesh carefully scrutinised all offers and then applied for a loan through a nationalised bank and he being a government officer with good social standing, the bank was willing to fund upto 90% of the cost of the flat and accepted his papers. In the meantime, Ramesh paid the 10% due from him to the builder as advance.  However, to his utter shock and disbelief, the bank had rejected his loan application.  On enquiring from the bank, he came to know that the application was rejected due to low CIBIL score.  Now "what was that", he exclaimed.

 He came to me and we checked the Net with whatever details the bank provided him about CIBIL.  Then we discovered the Monster!!!  Here was a monstrous database of information about "You, Me and Everyone else" they could lay hands on and the astonishing fact is that, all the information is being collected without our knowledge.  They are collecting this information about us and then using it against us.  Doesnt that infringe on our human rights? How can they collect information about us without our consent?

Let us examine the reasons for rejection.  Ramesh is a well paid government officer.  A couple of years back, due to some unforeseen circumstances in his family, he was in a dire financial situation for a year or so.  During that period, a credit card company offered a settlement for 1.0 lakhs for his outstanding loan amount of 1.25 lakhs.  As he was getting benefited by 0.25 lakhs, he somehow raised the money and paid the amount.  Now this 0.25 lakhs was what which caused the problem. In adidtion there were a couple of discrepancies where fully paid up loans were shown as outstanding by one bank.

Ramesh had by then, paid 3.5 lakhs to the builder expecting the balance in quick time as promised by the bank.  Once the first bank had refused the loan he went to several banks in vain.  The builder too refused to return the money immediately as he had spent the money and insisted on Ramesh making the balance payment in the stipulated period.  Ramesh's state was miserable in that one month with him knocking on the doors of every bank with the same result.  He finally could not get the loan to buy his dream flat and in addition it took the builder one year to return his money back, that too after deducting 10% for administrative expenses. So, Ramesh had effectively lost 0.35 lakhs plus interest on 3.5 lakhs for one year for saving a sum of 0.25 lakhs in addition to the hardship of running around banks and the mental agony of not being able to buy a flat.  Was Ramesh informed of all these issues before the Credit card company made an offer to him to pay only 1.0 lakhs against 1.25 lakhs?

An enquiry with CIBIL had stated that they are not responsible for refusing the loan as that decision is the bank's and not theirs.  That surprised us even further as the bank told us we were denied because of CIBIL.  Detailed probing revealed that CIBIL provides a credit score- something like marks to you - which the banks use to pass or fail your application.

Now, What is Credit Score. 

It is a marking system by which CIBIL gives you marks between 300 and 900.  The higher your score the better it is.  Normally marks of above 700 should qualify you for a loan.

As already mentioned, Ramesh's report,  of which we could only get a sneak peak in the bank, showed some discrepancies (i.e fully paid up loans were shown outstanding) which damaged his credit rating further.  Ramesh wrote to CIBIL about the discrepancies which simply washed their hands by saying that they only reflect what is reported by the banks and therefore he should take up the case with the concerned bank (where there were discrepancies). So, Ramesh asked CIBIL for a copy of his credit report for taking up the issue with the bank. CIBIL had very arrogantly responded that they dont give credit reports to individuals and he can only see it from the bank which had requested his credit report i.e the bank processing the case for the home loan.  So, Ramesh and me went to the bank and requested them for a copy and to our surprise they told us that they cant give a copy as it is against company policy.  When we started to argue with them, the bank cleverly out manoeuvred us by saying that they refused loan to Ramesh due to bank policies and not due to CIBIL reports.

So, there we were - neither CIBIL gave us the report nor the bank. We found ourselves going nowhere. Ramesh then wrote to the RBI complaining of this discriminatory practice.  

Apparently RBI received several such complaints and therefore came out with a ruling that CIBIL must provide credit information to individuals.  They were still very reluctant to provide at that time but now it appears that they are willing to provide it online also.  The complete CIBIL page on Credit score can  be accessed here.
https://www.cibil.com/online/credit-score-check.do


But why this CIBIL, why do we need it? Can they pronounce us guilty without any reproach? can they deny your personal info to you? how did they come into existence and how do they operate in other countries? 

pse read part 2......
http://recklessmusings.blogspot.in/2012/09/cibil-credit-report-growing-monster-or.html