In a major step towards improving the timeliness and accuracy of credit reporting, the Reserve Bank of India (RBI) has introduced a new policy mandating banks to report credit bureau accounts on a 15-day cycle from January 1, 2025. This shift from the earlier monthly cycle is expected to give lenders and borrowers a clearer picture of borrowers’ financial activity.
Quicker credit score updates
Under the new system, the lenders will observe more frequent updates of the credit scores of the borrowers based on their behaviour. This implies that on-time payments or defaults will be captured and reported to the credit bureaus more often, allowing lenders to make better loan application decisions.
For example: If the borrower is making timely payments, he or she will have a more favourable credit score sooner, improving the chances of obtaining good terms on any future loans.
Enhanced lender decision-making
The new cycle of reporting makes it easier for lenders to judge the creditworthiness of borrowers. By using up-to-date credit information, lenders can screen loan requests in terms of latest financial information and avoid lending or giving money to borrowers who would default on their repayment. Not only does it help lenders cut down defaults but also enables borrowers to obtain loans that are equal to their repayment ability.
Increased consumer protection
The RBI norms also aim at promoting consumer protection by providing better and updated credit information to borrowers. The lenders will now intimate when they pull their credit reports and when they are nearing the default rating.
This keeps the consumer more vigilant of any repayment issue and allows a healthy credit record. As Benjamin Franklin would once say, “An investment in knowledge pays the best interest.”
When consumers understand the importance of credit scores and paying their credit card bills on time, they can prevent debt traps and obtain loans with a lower interest rate. The faster updates of credit scores make paying their bills on time an increasingly important consideration than ever before, since paying their bills on time instantly impacts access to favourable credit terms in the future and keeps a check on credit utilisation.
In addition, the policy shift reminds us of how crucial it is to have a good credit score. Borrowers must review their credit reports to ensure accuracy at regular intervals and pay their instalments on time.
The sooner update cycle also will prompt borrowers to start disciplined financial practises such as having low credit utilisation ratio and not taking consecutive loans in close proximity. In this way, people can enhance their financial position and benefit from better loan terms from banks. This transition to real-time credit reporting is going to transform the lending sector in India by fostering a culture of credit discipline and transparency.
