EMI defaults have maximum impact on your credit score: ClearScore

In India, there is no severe age concentration of people availing credit, Justin Basini, Global CEO & Co-Founder, ClearScore, said. Most loan activity is observed in the 24 to 44 age group. This is a prime age for borrowing. People start with two-wheeler, car, personal, credit card and consumer durable loans and then upgrade to a home loan. Loan activity tapers off at a later age.

In an interview with moneycontrol, Basini talks about consumers checking their credit scores in India, ClearScore services in India, its USP and factors that have a negative impact on credit score.

Edited excerpts:

A: There are about 300 million consumers who have ever taken credit in India and have a history of opening/closing a credit account. On an average, across multiple platforms, you will see only about a million people a month registering and trying out what their credit score is. The numbers are staggering and numbers are so low.

Typically, this platforms offer credit report only once and then it’s a paid service. Some do offer multiple times but they don’t offer any coaching. To put things into perspective, there are 15 million applications in a month. This is an increase of 5 times what it was in 2013. Our goal is to increase awareness and make them financially savvy.

A: We set up ClearScore in September 2014 and launched our first service of allowing customers to check their credit score for the UK market from July 2015. At present, we have 6.6 million customers in the UK market. This makes us one of the biggest organisations which allow customers to check their credit score in the UK market. We launched our first international business in South Africa in May last year. We have 550,000 customers in South Africa.

Everyone should have control of their financial information: credit reports and scores. Banks use this information to check an applicant’s credit worthiness. In developing country like India, we would like people to be aware of how credit reports and credit score works. How they can use credit, so that they can make the best choices as they access credit. We at ClearScore will provide free access to a credit report 12 times a year.

We impart financial education around improving a credit score. We will offer various third-party credit options based on an assessee’s eligibility criteria for products they qualify. All these services will be free and there will be no upsells to our customers. We will receive fees from banks, if customer subscribes to any of the credit product from our platform.

A: We had introduced financial coaching in UK market with chatbots, which are quite popular now. It helps to interact with the computer and get some educational contents. We have developed something similar for the Indian market keeping the customer in mind here. This will be launched in a couple of weeks and help people to understand bit a more about credit score and report, finances, etc. The chatbots will be sharing references to articles, videos, etc in an engaging manner as per questions asked.

A: Our services will always remain free and there will be no upsells. We will update your credit report every month, which is very critical. We are trying to help people (customers) improve their credit history overtime. Credit scores take a while to improve, so our regular update will help see your progress, which is very important. We are even trying to be engaging and making credit financial terms easier for our customers. We would help our consumers who are not financially healthy to improve their credit score with our financial coaching. We would also help new consumers entering into credit market to help them find an appropriate product suitable to them.

A: There are three broad credit score buckets. If you have a credit score of 850 and above, then it’s outstanding, between 750 and 850 is considered a good score, and between 650 and 750 you are considered on solid ground but there could be scope for improvement. There is nothing like a clean cut-off to avail loans. These are broad parameters to know the importance of credit score.

A: First, we would analyse the credit report and highlight what’s good and bad. The important thing which will help people understand what their actions have produced. For instance, if they have missed some EMI payments, then how it impacted the score will be explained. It would then highlight credit utilisation ratio, which goes into creating your credit score. We will also provide credit score peer group analysis in a particular city/region for people to understand and compare where they stand. In the UK market, our consumers have managed to improve their credit score by 100 to 150 points on our grading parameter using our financial coaching and timely guidance. We are expecting similar success in the Indian market.

A: The most important thing for a consumer is to pay on time against credit. Missed payments towards your credit have maximum impact on your credit score. Knowing your credit utilisation ratio is important. If you are increasing your credit by availing more loans or utilising more by using your credit card, assuming your income remains the same, it shows you are credit hungry. That is something to watch out and keep in control. There shouldn’t be a sudden increase in your credit exposure. The important thing is not to apply at multiple banks at the same time for loan which will have numerous inquiries on your credit score. Numerous inquiries/applications over a short period of time may have a negative impact on how a lender views the loan application.