'Bad credit history is the top reason for loans being rejected'’

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: Harsh Roongta, CEO, ApnaPaisa Pvt Ltd, founder of apnaloan.com and apnainsurance.com and experienced in the area of personal loans and credit, spoke with Abhay Rao of The Financial Express about credit records, scores and CIBIL. Excerpts:

•What does a credit score or report indicate and why is it so important?

Most people believe that CIBIL is like Satyam, a list of defaulters. However, the reality is very different, for the CIBIL database has a list of peoples total credit history and behaviour. It is the one place, which keeps track and knows how much money you have borrowed and what is your repayment history.

The basic concept used by them is that a person’s past record is a good indication of their future, and by knowing a person’s past with credit it is easier to judge their intent to a certain extent. This is where a credit score is useful, for it enables banks to judge a potential borrower’s intent. This is very useful to banks especially, for the two things on which a bank judges a person is ability and intent, of which the latter is harder to gauge. Companies like CIBIL help banks make their lending decision by providing a person’s credit history and also by scoring their intent. Banks then use this and combining this information with the person’s ability to pay back, which they gauge themselves, they make a more informed decision before granting a loan.

•How can consumers maintain a good credit report then and demonstrate intent to pay the bank?

Consumers can at best maintain a good repayment history and clear most of their dues on time, to try and maintain a good record. This is a rather crude and elementary manner. However, this too does separate the people with good intent and bad intent, automatically disallowing major defaulters especially those who have done so on purpose, from getting loans in the future.

•How does a credit score fit into all of this?

Credit scoring is a proprietary tool of different bureaus that collect data and prepare credit reports. Each one will have their own formulae and method of calculating this. A credit score basically converts a person’s intent and credit history into an easily understandable number.