What It Takes to Make Formal Lending Solutions Available to Thin Credit Files

Lending By Sunita Manwani, Business Head - Lending, PayNearby November, 2020

Will I get access to formal credit if I am ‘Invisible’?

Being invisible in the financial system means that either you have no credit history or there is not enough information available about you with the credit bureau. As a result of which, your access to formal credit like home loans, credit cards, personal loans etc. becomes very limited or comes at an extremely high cost.

Is there anything I can do to change this?

Yes, of course, you can.

Let’s look at the following options that will help you start building a credit history if you are an NTC (new to credit) customer:

  • Apply for a secured credit card. This card would work exactly like a normal credit card except with a difference that this is backed by a security deposit or a fixed deposit, to open a bank account at the bank which is providing you with this card. This deposit is fully refundable and the credit limit on your card will initially be limited to 75% or the full value of the deposit placed with the card-issuing entity. All other terms and conditions for payment, delays and interest work exactly like the other credit cards. If you are a college student and want to start building your credit history at a young age, go for a secured student credit card.


  • Get a secondary credit card with your spouse/parent. While the full responsibility of the credit card will be with the primary cardholder, the credit history of the secondary cardholder also gets build individually and gets reported to the bureau. So, go ahead and get an add-on credit card from your partner/spouse/parent and start building your credit history.


  • Pay your mobile phone and utility bills on time. While in India, the details of utility payments are still not required to be reported to the bureaus yet, some bureaus have tied up with telecom companies/service providers, whereby they get insights into the consumer payment behaviour for all the utility bill payments they make every month. Alternate data is becoming equally important in the credit underwriting journey especially when the traditional lending models in India are now being replaced with digital lending.

In a rush to build your credit history do not apply for too much credit at one go, as too much credit at a single point in time will hurt your credit score. Be choosy with which lender you want to have an account with, open one facility at a time, review it for six months and then keep adding more accounts subject to your requirement.

Also, remember not to charge all your expenses on the credit card. From your monthly estimation of expenses, start booking 30-40% of your expenses on grocery, rents, entertainment, travel etc. on the card as utilising a higher limit will also work adversely on your credit score.

Keep checking your credit report regularly which is available for free once in 12 months from any credit bureau. Remember to review your credit record and its accuracy regularly including your PAN, address, loan repayments and credit card utilisations. Any discrepancies observed should be reported to the bureau within 30 days of your notice.

While the above will help individuals and entities to fatten their credit files over a period of time, a lot more can be done to bring this NTC segment into the formal ecosystem.

We need to enable the bureaus to access alternate data points like monthly rental payments, payment of school fees, insurance premium payments etc. as this alternate data and its analytics has the power to disrupt the lending value chain in India. Most of the young and mobile working population will have house rent as a major cash outgo of their earnings month-on-month (25-50% in most cases). With digital lending being the way to go, it is extremely important that the credit bureaus collaborate with fintechs/property aggregators in order to facilitate this credit penetration.

In countries like the United Kingdom, the United States of America and others, there are rent aggregators/property companies which collate this information and the landlords in these countries are required to report the monthly rental payments to the bureaus. We can do that in India as well. This will require digitisation of various records and databases which will result in a multi-fold increase in data of individuals and entities. This automation and data-driven analytical models with risk-based underwriting will enable serving the underserved segment.

Today, all consumers – urban and rural – are digital-savvy. Their interactions in the digital world are influencing their purchase decisions. A surge in the use of smartphones and internet for a variety of reasons in our day to day lives has created an abundance and continued supply of data, which with proper consent and regulation can be harnessed for use in the lending ecosystem. Ownership of certain properties or assets above a certain limit can be updated into your Aadhaar account details. More than 90% of us in this country have a biometric-verified identity.

Digitisation and automation followed by with partnerships between credit bureaus and various fintechs (including technology companies, ecommerce platforms, cab, food, utility, travel and payment aggregators, social media wallets, search engines, market places etc.) is the way to go to extend credit to the larger sections of the society. Of course, all this collaboration must be done in a manner that the privacy of the user is not compromised and that the user gives his consent to use his data. Adopting open banking regulations in the country will also help as this will enable banks/agencies to share consumer data in a standard, encrypted and secure form post user authorisation. India stack and OCEN are steps in the right direction.

So, what are we waiting for, let’s break the silos!

Sunita Manwani, Business Head – Lending, PayNearby


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