Have unpaid loans lowered your credit score? Don't worry
Jul 23 2013, 17:25 | By Entrepreneur
Remember the time while shifting homes when you decided to not pay your credit card bill thinking your bank would not be able to trace you? Defaulting on your financial obligations ruins your credit score and becomes a hindrance when you are seeking a loan. Credit Sudhaar, however, can bail you out.
Started by Arun Ramamurthy, 37, and Gaurav Wadhwani, 35, in late 2011, Credit Sudhaar is a credit advisory company launched to make individuals credit healthy.
"We were career bankers with Deutsche Bank. The year 2006 to 2008 was chaotic globally as far as lending was concerned. India, however, had a different set of issues. The industry went through turmoil as all underwritings prior to this period were in the absence of any structured credit bureau," recalls Ramamurthy, Co-Founder, Credit Sudhaar Services Pvt. Ltd.
Credit rating companies like CIBIL, Equifax and Experian set up operations only in 2006 after the Credit Information Companies (Regulation) Act, was passed in 2005. Two Cs -- character and capacity, are aspects to be checked before granting credit. All underwritings before 2006 only checked an individual's capacity. Credit character, to include instances of defaulting, was something banks could not check or investigate peripherally.
"We figured that 99 percent of people do not know about the concept of credit health. People need to be credit healthy because it affects almost every facet of an individual's life. There is a gap between where people are and where they should be when it comes to credit scores. We thought this would be a nice gap to cover," says Ramamurthy. The duo invested Rs. 2.5 crore and the startup began operations in January 2012.
"The credit bureau, as per last estimates, has 15 crore people on board. If India has a population of 120 crore, leaving non-banked people aside, almost everyone is on the bureau," points out Ramamurthy.
Post-enrollment, a three-stage process comes into play. Firstly, it restores credit. "We pull out records from bureaus, analyze the reports, find out what is right and wrong, and look at various errors that may have crept into them. This is followed by issue resolution and tracking," explains Ramamurthy. He says 30 percent to 40 percent of credit reports have errors and the reasons maybe either self-inflicted, circumstantial or because of inaccurate recording.
The next step enhances credit scores. "Having restored your credit, it is important to take it to the next level, which is generally done through improvement modules," says Ramamurthy.
He says most individuals do not secure credit because of past mistakes and are unable to improve the situation as they cannot get fresh credit.
Credit Sudhaar is associated with Dipran Finance Pvt. Ltd, a non-banking finance company‚ that lends small loans.
"We infuse small doses of credit like loans of Rs. 15,000-Rs. 20,000 based on our appetite for risk. A customer gets a credit line to work with. Over a period of time, his repayment record is sent to the bureau so that scores increase," elaborates Ramamurthy. Finally, Credit Sudhaar protects credit. "Having restored and enhanced your credit‚ it is important to hold on to it. We have protection plans including identity theft and lost wallet protection, ATM assault and even rudimentary processes like making a will. Around 80 percent of India's population does not make a will leading to misery for future generations," notes Ramamurthy.
Slow and steady
These three stages cover 30 modules over one year and have certified advisors of National Association of Certified Credit Counselors (NACCC), a non-profit, credentialing body.
Credit Sudhaar works with both nationalized and private banks as well as credit bureaus in India. Services are offered through three annual packages: The Gold package is priced at Rs. 7,500, Platinum Rs. 11,000 followed by Titanium at Rs. 16,000.
To date, 2,500 clients have improved their credit health. "We would like to target Rs. 5 crore in revenue this fiscal and Rs. 10 crore next fiscal," says Ramamurthy. So far, it has grown at 30 percent year-on-year.
Credit Sudhaar came to the rescue of 42-year-old Sachin Shah from Mumbai. He was unable to secure a top-up for his housing loan and knew there was a problem. "I eventually found out that there were errors in my report pertaining to financial products I had never subscribed to. Credit Sudhaar resolved that by putting it through the correct banking channel," informs Shah, a platinum customer.
A senior management official of a credit bureau says people complain about low credit scores, incorrect data in the bureau or erroneous reports.
He says education is needed to highlight that a credit bureau is not a negative database; instead‚ it provides information which is both positive and negative. "When you pay your loans and financial obligations on time, it amounts to a good credit history and vice versa," he says on condition of anonymity.
With time, the official feels, business will evolve to play a more prominent role. "Today it is at a nascent stage and may not make much difference to the workings of a credit bureau. Going forward, it will have a lot to contribute," he concludes.
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