What Is RBI’s New 15-Day Credit Reporting Policy ? How It Impacts Credit Score ?

In a bid to ensure more accuracy and timely representation of the borrower's financial activities, the Reserve Bank of India has introduced a new credit reporting rule, mandating lenders to update their credit bureau records every fifteen days as opposed to earlier one-month period, effective January 1, 2025.

The decision comes as monthly updates of credit records caused delays in reflecting borrowers' repayment behaviour, sometimes resulting in an unfair negative impact on their credit scores. For example, if a borrower cleared all the outstanding dues in the first week of a month, but their repayment was reported only at the end of the month. This would show no improvement in their credit score immediately. This delay could severely affect the borrower's ability to secure new loans or credit cards, despite having rectified their payment history.

Key Impacts Of New Credit Reporting Policy

Improved Assessment Of Credit Scores - Under the previous system, missed payments or defaults could take up to 40 days to reflect on a borrower's credit report. This delay often forced lenders to depend on outdated information to provide loans, increasing the risk of approving loans for financially struggling individuals. With the new policy, the latest credit history will be timely reflected on credit scores, ensuring that lenders access loan applications based on borrower's latest financial behaviour.

Real-Time Monitoring - Lenders will now be able to keep a track of borrowers' financial behaviour in real-time under the new policy, enabling them to detect early signs of financial distress. This will also help financial institutions to minimize lending risks and prevent excessive debt accumulation.

Halting Loan 'Evergreening'- Loan Evergreening is a situation where the borrower applies for a new loan to repay old loan, resulting in an unsustainable debt cycle. The updated policy will help the lenders to keep a tab on such borrower practices, allowing them to decline loans applications of such high-risk borrowers.

Better Understanding of Financial Health - With the timely update of credit records, the borrowers will get detailed insights into their own financial health, allowing them to identify financial risks early and helping them to make informed decisions. This could also help individuals to increase their credit scores faster by addressing outstanding payments promptly and managing debts more effectively.

While announcing the updated rule, then RBI governor Shaktikanta Das emphasized in his monetary policy statement that accurate credit information is crucial for both lenders and borrowers, maintaining a stable financial system and ensuring fair lending practices.

The new credit reporting policy marks a significant shift towards greater transparency and accuracy in financial assessments. As the financial ecosystem adapts to these new changes, this policy is expected to strengthen the stability of the credit system, building a more responsible borrowing and lending culture.