Credit information company
Also called: CIC, Credit bureau · Topic: Banking Regulation, NPAs and Financial Stability · NCERT: Beyond NCERT
Meaning
A credit information company (CIC), also called a credit bureau, collects records of how borrowers have repaid their loans. It turns these records into credit reports and credit scores, a number that sums up how reliable a borrower is. Lenders use them to judge risk. This reduces adverse selection, where a lender cannot tell risky borrowers from safe ones and ends up drawing in the riskier ones. CICs are regulated under the CIC (Regulation) Act 2005.
Example
Before approving a home loan, a bank checks the applicant's score with one of India's four CICs: TransUnion CIBIL, Equifax, Experian or CRIF High Mark. A record of late EMIs lowers the score and can lead to a higher interest rate or a rejected loan.
Don't confuse with
- Credit rating agency: it rates companies and their debt instruments, such as bonds. A CIC keeps repayment histories of individual borrowers and firms.
Related concepts
- CASA ratio
- Credit-deposit ratio
- Base rate
- Marginal Cost of Funds based Lending Rate
- External Benchmark Lending Rate
- Loan-to-value ratio
- Adverse selection
- Letter of credit
- Factoring
- Trade Receivables Discounting System