Starting January 1, 2025, the Reserve Bank of India (RBI) requires lenders to update credit bureau records every 15 days, instead of monthly.
Here's a simplified explanation:
What is changing? How often lenders send information about borrowers' loans and credit cards to credit bureaus.
What was the old system? Lenders sent updates once a month.
What is the new system? Lenders must send updates every 15 days.
Why is this change happening?
- To make credit scores more accurate and up-to-date.
- To reflect borrowers' financial activity more quickly.
What is a credit score? A number (between 300 and 900) that shows how likely someone is to repay a loan. A higher score is better.
How are credit scores calculated? Credit bureaus use information from lenders, including:
- Payment History: Whether you pay your bills on time.
- Credit Utilization: How much of your available credit you are using.
- Credit Mix: The different types of credit you have (e.g., credit cards, loans).
- Recent Credit Enquiries: How often you apply for new credit.
How will the 15-day rule affect borrowers?
- Credit scores will be updated faster.
- Good payment behavior will be reflected sooner.
- Lenders will have more accurate information to assess creditworthiness.
How will this benefit lenders?
- They will have more current information to make lending decisions.
- They can identify potential risks earlier.
- They can offer better loan terms to responsible borrowers.
What problems in the credit market does this address?
- Multiple Loan Applications: It will help lenders see if someone is applying for many loans at once.
- "Evergreening": This is when someone takes out a new loan to pay off an old one. The new system will help lenders detect this.
- EMI Management: Because payments are due on different dates, monthly updates could be outdated. The 15-day cycle will provide more accurate information.
What are the challenges of implementing this change? Lenders and credit bureaus will need to upgrade their technology.
Key Terms:
- CRIF High Mark: A credit information company in India.
- Evergreening: Taking new loans to pay off old ones.
- EMI: Equated Monthly Installment (loan payment).
- Credit Utilization: The amount of credit used compared to the total credit available.
- RBI: Reserve Bank of India (India's central bank).
What is the future of credit reporting? The 15-day updates are expected to make credit information more reliable and transparent, leading to better loan deals for responsible borrowers.
In simple terms: The RBI is making it so that lenders have to send updates to credit bureaus every two weeks instead of once a month. This will make credit scores more accurate and help both borrowers and lenders make better financial decisions. It will also help prevent some bad practices in the lending market.