Why do credit bureaus need to be more borrower friendly? Explore here | Mint

For credit bureaus do hold an important part in dictating our financial lives although many borrowers find these very complicated, opaque, and sometimes unfair, part of their treatment as a borrower customer. Here we will highlight the key areas to be improved and look at several reasons why the credit bureaus must be more borrower focused.

What are credit bureaus?

Credit bureau where an organisation collects, retains, and manages the credit data of individuals and companies. Such data includes payment history, credit enquiries, public records regarding credit accounts loans, credit cards, and lines of credit.

In India, Equifax, Experian, CRIF High Mark, and CIBIL (Credit Information Bureau India Limited) are the four principal credit bureaus. These agencies gather data from various sources to create credit reports and scores to be distributed to borrowers and lenders, including banks, credit card companies, and other financial institutions.

How do credit bureaus work?

1. Obtaining credit information: Credit information is provided by banks, NBFCs, credit card issuers, and other financial institutions to credit bureaus. These include those related to credit accounts, payments, defaults, bankruptcies, and inquiries.

2. Updating credit data: New data, such as payments made or defaults incurred, or any modification to a credit account, is often added to their databases.

3. Generating credit reports: Credit bureaus compile comprehensive credit reports for an individual or company that will help lenders arrive at well-thought decisions.

4. Credit score calculation: Credit bureaus would use the information collected in order to lay out a credit score, which is a short-form metric of an individual’s repayment capacity.

How can credit bureaus become borrower friendly?

1. Making the transparency better: Many times, the borrower feels somewhat bewildered about how the credit scores for that particular individual are found or even the reason behind the information affecting their creditworthiness.

2. Easy way to dispute resolution: Fraudulent credit reports are commonplace; however, resolving them can be a lengthy and annoying process. Borrowers could simply erase errors if they can get a dispute resolution process streamlined.

3. Lessen the prejudice: The objective of credit bureaus must be to completely eradicate all forms of system biases that may prevent a borrower from getting a fair deal.

In conclusion, credit bureaus are gatekeepers for credit opportunities for debtors. Credit bureaus help in understanding and managing credit better with increased transparency, procedural efficiency, and removal of prejudice. A borrower-friendly system would, above all, make the financial system more inclusive and healthy for all people.