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Your creditworthiness is represented by your CIBIL score, a numeric value that ranges from 300 to 900. This score is crucial for lenders when determining whether to approve your application for a credit card or loan. Understanding the rules and elements that affect your CIBIL score is vital for maintaining a robust financial profile.
Let’s explore its essential features and the latest regulations surrounding it. The Reserve Bank of India (RBI) has recently implemented a new credit reporting policy aimed at providing a more timely and precise representation of borrowers’ financial behaviors.
According to the RBI’s new directives, lenders must now update credit bureau information every 15 days, replacing the previous monthly updates, with these changes taking effect from January 1, 2025.
This shift is set to revolutionize the way credit scores are calculated and overseen by credit bureaus. Previously, scores were updated solely each month, which often resulted in delays in reflecting borrowers’ repayments, potentially harming their credit scores and hindering access to new loans or better credit options.
The RBI’s initiative seeks to eliminate such obstacles while enhancing the accuracy of borrowers’ credit scores. The biweekly reporting standard accelerates the credit score management process, making it more precise and responsive.
This will benefit both borrowers and lenders by providing a clearer, more current overview of how loan applicants manage their credit obligations. The former monthly reporting approach could take as long as 40 days to reflect missed payments or defaults, often causing lenders to act on outdated information, which could lead to incorrect assessments of borrowers’ creditworthiness. In contrast, the more rapid updates of payments on existing loans and credit cards will assist borrowers in accessing improved credit opportunities.
Advantages of the updated RBI guidelines on the 15-day credit reporting rule:
Quicker credit score updates: The new 15-day reporting cycle allows for more frequent observation and reporting of borrower actions, such as timely payments or defaults, leading to quicker updates in credit scores for borrowers.
Enhanced decision-making: Financial institutions can now make more informed personal loan decisions with access to up-to-date credit information.
Better monitoring of borrower behavior:
The 15-day rule facilitates smoother handling of multiple loan applications, especially for first-time borrowers who often apply for several loans simultaneously and may struggle with timely payments. Regular credit score updates enable lenders to closely monitor borrower behavior and assess repayment capabilities, helping to reduce loan defaults and their impact on bad loans in the retail sector. Curbing ‘Evergreening’: This policy also aims to prevent ‘evergreening’, where borrowers take out new loans to pay off existing ones, thus avoiding a perpetual debt cycle.
(Newsroom staff only edited this story for style from a syndicated feed)
