This post by Subra sheds light on the credit scoring system in India, highlighting its flaws and implications for the common person. Here’s a summary of the main points:

1. Credit Score: Not Always a Tool for Help

• Purpose Misaligned: Originally meant to help consumers secure better loans, the CIBIL system has become a cause of harassment for many.
• Negative Impact:
• Small dues or unnoticed charges (like an unused credit card fee) can snowball into massive debts due to compounding interest.
• Even settling disputes can leave lingering negative effects on your score.

2. Flaws in the System

• Unfair Low Scores:
• Never Borrowed? If you've never taken a loan, your credit score might still be low, despite no history of defaults.
• Loan Renegotiation: Any renegotiation to ease repayment terms can also negatively impact your score.
• Administrative Gaps:
• Missed or delayed settlement letters can tarnish credit history.
• Fees on unused or undelivered credit cards accumulate into substantial penalties.

3. Implications of a Low CIBIL Score

• A poor credit score can restrict you from:
• Getting loans at competitive rates.
• Securing a bank job.
• Renting a house.
• Even impacting personal relationships (e.g., marriage prospects).

4. Critique of the System

• American Influence: The CIBIL system mirrors credit systems in the U.S., focusing on loan dependency rather than rewarding financial independence.
• Unfair Defaults: Penalizing individuals who never borrowed or avoided debt is counterintuitive.

5. Takeaways for Consumers

• Stay Proactive:
• Regularly check your CIBIL report to identify discrepancies or unknown dues.
• Settle disputes with written proof to avoid lingering penalties.
• Use Credit Strategically:
• Maintain minimal activity to build a score without over-dependence.
• Advocate for Change: Encourage reform in how creditworthiness is evaluated, especially for those without borrowing histories.

Final Thought: While a high CIBIL score has become essential, it’s important to remain vigilant and address issues promptly to avoid unnecessary financial burdens. Awareness and proactive management are key to navigating the system effectively.

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