Who Moved My Credit Score?

The pandemic hit in March. You may be among those who lost their job or saw their salary slashed.

But loans and credit card dues wait for none.

And so the Reserve Bank of India stepped in to help borrowers. It announced a three-month repayment moratorium, which was later extended to six months. During this time, the regulator intended that you would be protected from all consequences of delayed payment.

“The rescheduling of payments, including interest, will not qualify as a default for the purposes of supervisory reporting and reporting to credit information companies by the lending institutions. CICs shall ensure that the actions taken by lending institutions pursuant to the above announcements do not adversely impact the credit history of the beneficiaries,” the central bank had said.

Whose Fault Is It Anyway?

So what's going on?

It appears that while the regulator's instructions on treatment of moratorium loans was clear, banks and credit bureaus failed to get their communication right, at least in some cases.

Credit bureaus are blaming this on delays in receiving accurate information from banks, while lenders are taking the cover of pandemic-induced disruptions.

It is important to understand that lending institutions do not flag consumers who may have opted for moratorium when they submit data to credit information companies, a spokesperson for TransUnion CIBIL said in an email response to queries. “Therefore, we do not have data and insights on which customers may have opted for moratorium,” the spokesperson said.

Manu Sehgal, business development leader for emerging markets at credit bureau Equifax, also said information on whether a borrower has opted for a moratorium does not flow through to them.

“As a credit bureau we do not have any access to information regarding whether a borrower has opted for the moratorium or not. The lenders update the asset classification of the borrower depending on their assessment of a loan account and the credit score is determined using that,” Sehgal said.

Bankers, in turn, point to the lack of clarity on how they have to report data on moratorium loans to the bureaus.

According to the head of retail lending at a large private sector bank, who spoke on condition of anonymity, the guidelines given by the RBI were to not change the asset classification of a customer between March 1 and Aug. 31. The guidelines did not clarify how to report the repayment data to bureaus.

Private banks had reached out to the RBI for clarification but did not receive any response from the regulator, the banker quoted above said. In the absence of any clear guidelines, each bank followed their own approach to reporting data, which could have caused data volatility in credit scores, he said.

What Should A Customer Do?

Both TransUnion CIBIL and Equifax said they are working to iron out any glitches in the flow of information flow between lenders and bureaus.

“Over the past few months we have been engaging extensively with the lending institutions to ensure timely and accurate data reporting reference the RBI guidelines so that the credit history of the borrowers who have opted for moratorium is not adversely impacted,” said the spokesperson for CIBIL.

According to Equifax' Sehgal, there were some data disruptions among lenders during Covid-19 and work from home arrangements. “If there has been an error, the lender can send the corrected information and the credit score can be updated appropriately.”

Still, customers may find themselves stuck with a lower credit score.

As banks don't have clear guidelines for reporting and credit bureaus do not have the right to make changes to the data themselves, the borrower is stuck in the middle, said Abhishek Agarwal, chief executive officer of CreditVidya, an alternative credit scoring company.

Citing an example, Agarwal explained that under the moratorium period, banks continued to send bureaus the same asset classification, which the account carried in March. So say a customer was 30 days past due in their repayments on March 1 and had opted for the moratorium later that month, the bureaus received six months of data where the customer is marked 30 days over due, adding up to 180 days of default.

“So as on Sept. 1, the customer would see multiple months of overdue loan, even when they were under moratorium. Ideally, the credit bureaus should have ensured that a customer's credit score is computed using only the March repayment status and not for the moratorium months. That could have made for a better situation,” Agarwal said.

But credit bureaus said overdue loans aren't the only input into a credit score and customers must be mindful of other metrics that could have impacted their standing. These include: the repayment record, last date of default, proportion of the credit limit utilised.

“Any large purchases using a credit card, maxing out their credit limit, applying for multiple cards and loans can affect the score too. It is not possible to determine what caused the changes among credit scores right now, but one must look at their own spending habits once,” Sehgal of Equifax said.

In their response, TransUnion CIBIL said if a customer finds any inaccuracies in their credit data, they should raise a dispute on the company's website. According to India's largest credit bureau, it will facilitate the correction of such data inaccuracies with the concerned lending institution.