What's your credit score?

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Thinking of borrowing from a bank? It will be good to find out your score, the TransUnion Score.

Yes, the credit Information Bureau of India (CIBIL) on Wednesday opened its closely-held credit information system to the public. For Rs 450, you can get yourself a credit score that takes into account your credit history and payback capability. The information is shared by over 500 banks and financial institutions in India.

The score will put in place a system that will let bankers offer credit to more people. According to a study by Mumbai-based Indira Gandhi Institute of Development Research, less than one household out of seven has credit access in urban India.

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In the absence of inclusive formal financial system, poor individuals and smallentrepreneurs have to rely on informal sources to invest in better opportunities because of itstimely availability and easy accessibility, but at a much greater interest burden.

Informal Credit includes cash loans payable by the households to non-institutionalagencies (Landlord, agricultural money lender, professional money lender, trader,relatives and friends, doctors, lawyers and other professionals, and others).

The study reveals that approximately a quarter of the total households in India take loans from informalsources, while this proportion is less than one-fifth for formal sources. The proportion of ruralhouseholds being dependent on informal sources for credit is higher (27.5 percent). Urbanreliance on informal sources for credit (18.2 percent) is lower in comparison to rural areas,but it is still very high than formal sources (13.8 percent).

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The credit score will allow banks to reach out to new as well as existing borrowers, build credit records and offer incentives to deserving borrowers. There could be differential pricing of loans based on the score.

So blame yourself if your neighbour often gets better loan deals than you do!

For more: http://www.igidr.ac.in/~money/Banking%20Outreach%20and%20Household%20level%20Access.pdf