Credit is derived from the Latin translation ‘to believe.’ It is a trust built between two parties where one party provides resources to the other party and the other party does not reimburse the first party immediately but allows them to repay or rearrange the resources on a later date. Credit is given by a lender or creditor to a borrower or debtor. The resources here may be financial conduct (loan) or goods and services (consumer credit). The common forms of consumer credit are credit cards, personal loans, auto finance and mortgages.
Credit bureaus-Credit information company, do not decide on whether the customer should be given credit or not, it is just a consumer reporting or consumer reference agency which collects information from various sources and provides it for future use. It is the agency which collects and maintains a person’s credit information and gives it to the creditors, financial conduct lenders and consumers as credit reports. The first credit bureau in India was the credit information bureau (India) limited (CIBIL).
These reporting agencies collect the customer’s credit history from the credit card companies, banks or mortgage companies. The information is then used to calculate a three digit score. Every time a customer applies for a credit, the bank calls up the credit reporting agencies to review the credit score and credit report. Moreover, after this, it is decided whether to give a loan or not. The credit bureau is like a warehouse of information about the consumer’s past. It is also used to detect fraud, corruption or threat. There are other credit bureau agencies in India like Equifax, Experian and Highmark.
To illustrate the role of a credit bureau, when a customer applies for a credit card and provides the credit card company with all personal information such as name, address, other cards, etc. Then the credit card company contacts a credit reporting agency (CRA) for reviewing the consumer’s credit report. If the company approves the credit card application then the information that has been supplied and the payment history is given to the CRA, and it becomes a part of the overall credit report. All the transactions that involve credit have to report monthly to the CRA’s by the creditors who are dealt with.
While the credit report itself provides the history of the consumer’s dealings with creditors, it becomes easier for the potential creditors to learn from it. So, the credit bureaus play a vital role in the acceptance of the application for a loan or credit card. So it becomes necessary to keep a good credit track record on the credit report.