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A wrongful blot on credit report can also haunt you

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So why did this happen? According to Panicker, in 2011, he became a victim of a fraud in New York. A merchant charged him $1,200 on his credit card for a purchase that was actually worth only $750. The card had been issued by the Indian arm of Citibank. The merchant disputed the transaction. Panicker refused to pay the extra amount to Citibank and stopped using the card. A good nine years later when he applied for a new credit card, his application was rejected because he was shown as a defaulter. Panicker asked for his Cibil report and, to his horror, found his name was spelt wrong, the phone number against his name was unknown to him and there were credit inquiries against his name that he knew nothing about. Panicker raised the matter with Cibil and was asked to approach the bank concerned. In case of details like incorrect postal address, email address and phone number, it was not even clear which bank he had to approach.

Panicker’s case highlights two issues that borrowers face vis-a-vis their credit reports. First, disputed transactions hurt their credit history even if the merchant or bank is at fault. Second, basic details such as name and phone numbers are often entered wrongly into the report. Borrowers have to run from pillar to post to fix them, with little help from the credit bureau they are dealing with. We tell you how borrowers are cornered and what they can do to fix the situation.

Disputed transactions

In response to Panicker’s tweet, the social media was flooded by similar complaints. One of them was by Delhi-based entrepreneur Fahad Moti Khan. The 40-year-old had taken a used car loan in 2005. He had four instalments left when the bank sold off the loans to another institution. However, he didn’t receive the intimation for this because he had shifted houses himself. As a result, the remaining four cheques, addressed to the original bank, became defunct with the new lender. “The repayment account was a separate one through which I did not regularly transact; so I did not immediately realize what had happened,” said Khan. When he did realize after around 18 months, the new lender asked him to pay up the overdue amount with hefty interest. A sum of 28,000 became 1 lakh in this period. Khan refused to pay it and this became a black mark on his credit report.

The bank did not proceed against him in court and the recovery eventually became time-barred, as per the provisions of the Limitation Act, 1963, under which recovery can’t be followed up after three years. However, Khan objects to the fact that even 13 years after the so-called default, his credit report is not clean.

“Most western countries follow the seven-year rule after which the credit history is wiped off. In India, however, your credit report continues to show late payments and defaults but the score is drawn from your activities in the last four to five years only,” said Parijat Garg, former senior vice-president, CRIF High Mark, a credit bureau.

Cibil, in its response to Mint, indicated its cognizance of this type of situation: a dispute escalating into a huge payment turning into default and a permanent black mark on the credit report. “A missed credit card payment or loan EMI can impact your score. If you miss a credit card payment, the late payment fees levied by the lender can lead to the principal outstanding amount snowballing into a much larger amount. In addition to this, the lender reports this outstanding amount (principal and late fees) as well as the delayed timelines to Cibil. This amount appears in the days past due (DPD) section of your credit history in the Cibil report. Not only does this impact your score but is also viewed negatively by other lenders, impacting your future access to credit,” said Sujata Ahlawat, vice-president and head of direct-to-consumer interactive, TransUnion CIBIL.

What you can do: The practical thing to do is to pay up early and then try to get the amount reversed, according to Adhil Shetty, CEO of Bankbazaar. “If you withhold payments, the disputed amount keeps accumulating interest and becomes even bigger. From the bank’s perspective, as the outstanding amount increases, the process for waiver becomes even longer and requires more approvals, further elongating and complicating the process. At the end of it all, even after the dispute is resolved, it is difficult to predict how the changed record will look for the bureau and how it will impact the score,” said Shetty.

Hrushikesh Mehta, country manager India, Clearscore Technology Services, agrees. “If you have missed a payment and there are late fees (that you have contractually agreed to), then you must pay those down quickly before they balloon into a larger amount,” he said. However, this does not address the situation of someone who simply cannot pay an inflated amount.

Wrong basic details

The situation for fixing something as basic as incorrect name, phone number or email ID also seems dire. These inaccuracies can affect the credit report if the wrongly mentioned person defaults on his or her borrowings.

Kunal Bajaj, Mumbai-based financial services professional found his credit score a little lower than what he expected. When he downloaded his Cibil report, he found a completely random person’s name, email address and phone number in the report. Bajaj raised the matter with the company but was told to approach the bank. However, since he was not a customer of the bank, he had no locus standi. The credit score is collated through reports from individuals banks. “If there is a conflict in the information you’ve provided versus what the bureau has received from the bank, you will have to connect with the bank to resolve the problem,” said Shetty. However, as the cases of Panicker and Bajaj show, credit bureaux don’t mention which bank borrowers have to approach or ask them to approach banks with whom they have no relationship.

What you can do: To start with, you can avoid taking cards from direct selling agents or DSAs, who make a lot of these basic mistakes. DSAs market credit cards to customers on behalf of the banks. “A lot of document collection, data entry and loan application is supported by third parties (DSAs),” said Garg. “In a hurry to close cases, a few DSAs (especially individuals) even punch in dummy or incorrect data without bothering about the impact on the consumer.”

DSAs also check your loan eligibility with multiple banks, without seeking your consent or even informing you, said Garg. “The Reserve Bank of India recently issued a notification to banks and non-banking finance companies that any access of credit bureau data to DSAs is prohibited and should immediately be terminated in case provided. But the remedy to this mischief is to apply for credit cards online where platforms explicitly seek your consent or specify the purpose of the document,” he said.

Skewed system

Credit bureaux provide an important service to lenders by aggregating information about borrowers and allowing people with good credit history to get loans more easily or at lower rates. However, they pay little heed to the concerns of the borrowers who have no direct voice in their functioning. Even administrative mistakes at such bureaux can disrupt people’s lives and businesses but they get little help.

Disputed transactions can blot people’s credit scores even if they have done no wrong, creating a skewed system in the favour of lenders, and even time-barred disputes continue to bedevil credit reports. “The central bank should limit the data on credit reports to seven years. Supervision on complaints about credit score/report with credit bureaux as well as lenders can be strengthened for both timely (within 30 days) and quality closures,” said Garg.

The system needs urgent intervention from RBI, said experts.

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