Banks and other lending institutions take a lot of risk when they give a loan to a person that too without securing any collateral. Even the lenders need assurance that the amount they are lending to the borrowers will be repaid after a certain time period. To reduce such a risk, the lenders depend on the Credit Information Reports of independent agencies known as the Cibil Score Information Companies.
What is a Credit Information Company?
Credit Information Companies are the financial institutions that collect and maintain credit and loan related information of commercial institutions and individuals. On the basis of their financial records, they create a credit report and score, which helps the lender to decide whether they should accept or decline the application for a loan or credit card. It also helps the lenders to make an informed decision without putting much effort and wasting the time of both the parties.
In India, there are namely four Credit Information Companies, which are as follows:
- Experian: Experian is a commercial financial institution that is undertaken and operated jointly with a number of companies including Union Bank of India, Axis Bank Limited, Indian Bank, Federal Bank Limited, Punjab National Bank (PNB), Sundaram Finance Limited, Magna Fincorp Limited, and VIC Enterprises Private Limited. The Experian offers both detailed and comprehensive credit report. Credit score ranges between 330 to 830.
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- TransUnion CIBIL: Established in the year 2000, CIBIL is the first Credit Information Company of India that has a wide and strong member base of over 950 entities including both private and public sector banks, housing finance companies, and other financial institutions. It has credit information of over 700 million trades across three divisions – Commercial Bureau, Consumer Bureau, and Micro Finance Institution Bureau. CIBIL generates a CIBIL credit report using credit information collected across these three bureaus.
- Highmark: Highmark or High Mark Credit Information Services also maintains the record of every individual’s and organization’s credit information. Founded in the year 2005, this credit information company is based in Mumbai. It also offers a credit report and score to its members and individuals.
- Equifax: Equifax was founded in 1899 in Atlanta, USA. In 2010, it was registered as the Credit Information Company in India by the Reserve Bank of India. Equifax keeps credit information of individuals as well as big, medium, and small organizations. Equifax through its detailed credit report helps you with relevant consumer information while giving you meaningful insights.
How do Credit Information Companies work?
Member banks, credit card companies and other financial institutions send financial reports of the registered users to all Credit Information Companies on a monthly basis. These companies use the collected information to create a credit report. The credit report contains personal information of the user, payment history, number of accounts, defaults (if any), outstanding loan amount, credit transactions and other such financial information. On the basis of this credit report, a credit score is being assigned to an individual. The credit score generally ranges between 350 to 850. The higher your credit score, the easier it will be to get the loan approval.
When you apply for a loan or credit card, the lenders first contact the Credit Information Companies to check your credit report and assess your repayment capability. They will lend you money only if they are satisfied with your credit history and credit score. Therefore, your credit score plays an important role in the approval and rejection of your loan or credit card application.
Hence, these four Credit Card Companies play an important role in creating credit report and score of an individual, which further helps the lender to decide whether they should accept or decline the loan application or not.