If you've been late on credit card payments and your credit score has taken a beating, does that mean you're precluded from getting another loan?
While that could have been true earlier, it may not necessarily be so from here on, said Satish Pillai, managing director and chief executive officer at credit bureau TransUnion CIBIL. The bureau assigns potential borrowers a credit score of between 300 and 900 based on their history of loan payments.
A score of 750 or above is traditionally considered to be a good one, with CIBIL estimating that 79 percent of approved loans being in this category. Banks may now increasingly start lending to customers below this threshold. CIBIL is using big data and algorithms to identify potential borrowers below the 750 mark who have shown positive signs with regard to repayments.
“Let's look at individuals who have a score of 650. I look back at the last 36 months and I know that they have one credit card, one car loan, and one home loan already. Their score is 650 because they might have missed a few payments on the home loan or credit card,” Pillai said in an interview with BloombergQuint.
Assume that the data points to individuals who have always repaid the full amount due on their credit card bills rather than the minimum required, and their home loan payments were advanced, Pillai said. These people are much more creditworthy than their score would suggest, he said.
A study conducted by CIBIL showed that 6.3 crore individuals sought credit in 2016. Of these, only 3 crore received loans. The bureau, using the algorithm it has developed, identified 15 lakh borrowers who were declined credit but it expects would be creditworthy. The bureau estimated that these borrowers could potentially have led to incremental credit lines worth Rs 69,000 crore being deployed.
CIBIL also found that 20 lakh borrowers who got credit could have been given a higher borrowing limit.
With a large portion of the banking industry's bad debt having emerged from the corporate sector, more and more banks are focusing on lending to individuals.
Banks will increasingly adopt big data to expand the base of borrowers, Pillai said. The bureau intends to collaborate with financial technology companies to gain insights into potential borrowers who do not have a credit history, he said.
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