A silent revolution is taking place in our lives and most people are still unawares of it. Our bill payment habits are being tracked and the entire results are already available online at the click of a button. The organisation that does this tracking is called a credit bureau.

So what are credit bureaus? How do they get information on our bill payment habits? What do they do with this information?

Credit bureaus are independent companies which collect the bill payment records of all the customers of various lending organisations like banks, credit card companies, housing finance companies as well as consumers of telecom companies (or consumers of any services which involve credit and/or periodic payments) and even keep track of any bankruptcy proceedings or alimony payments ordered by the courts.

All these records are stored in a common database and individual wise files are prepared, based on some common identifier between all records. Normally there is an overriding common identifier (such as social security number in the US), but in India the common identifier is still a permutation and combination of various numbers and data such as income tax returns, PAN no, passport no, voter ID no, name and date of birth, phone number, etc.

Whenever any authorised organisation (currently only banks can access these records from the bureau), asks for the records of a specific individual the possible matched records are provided.

A sample report provided by the credit bureau is given as Table A. As is evident from it, the bank will be able to see all the past borrowings that you might have over the last few years and the track record in terms of original loan amount, loan amount outstanding, amounts due and paid (on time or after a delay) and the amount overdue in respect of each loan that you might have taken.

A report lists all the addresses that you have provided to each of the earlier lenders. This information is very valuable for the bank as it is able to obtain your existing debt and repayment history at the click of a button. It is also good for you (if you are among the 90% plus population who pay their bills on time) since you will be able to get a quick decision on your loan request and get a good interest rate as well.

The Act

Currently the only functioning credit bureau (Credit Information Bureau of India Limited or CIBIL) is being run as a joint venture between the banks without any statutory backing. The Parliament has already passed the Credit Information Companies (Regulation) Act, 2005, and the rules required to make the Act effective are currently in the process of being finalised by RBI and are expected soon.

Once the Act takes effect, telecom companies, insurance companies, etc, will also be able to access your repayment track record. In fact the credit bureau will also be required to provide you with a copy of your own credit report. After sometime we may see rules that will allow the credit bureaus to collect information on bill payment habits from any service provider (telecom companies, insurance companies, landlords, professional services, etc).

Most credit bureaus are likely to categorise your credit (as A, B, C or D much like credit rating agencies do for corporate borrowers), depending on the period for which you have had a credit history, your repayment track record, absence of any adverse judgments, period over which the repayments have to be made, etc. This will enable you to get more favourable terms if your repayment track record is good.

Thus the objective third party credit information available from credit bureaus will enable people with good repayment track records, stop subsidising the consumers with no or bad credit track record, who will have to pay a higher price for their past sins. So what does all this have to do with your marriage?

Like in advanced economies the influence of an effectively functioning credit bureau pervades all aspects of your life. Want to take a house on rent? The landlord will want to check out your credit report to judge whether you pay your bills on time.

Want a job involving sensitive or valuable information? The employer will want to check your credit report. In fact the day will soon come when prospective in-laws would want to see your credit report to ascertain whether your lifestyle is being fuelled by your income or by loans as also whether you pay your bills on time. It is needless to add that some fancy explanations will be required if you are a habitual late payer of bills. So remember to pay your telephone bill on time if you want to get married after a few years.

 
The author is CEO apnaloan.com
He can be contacted at ceo@apnaloan.com