Thursday, 5 May 2016

This is the right time to invest in your own home

A roof over one’s head is a cherished dream that every individual has, and for any middle class salaried person it turns out to be the most important financial decision he is called upon to take in his lifetime. If you are willing to take that big step ahead and thinking whether or not this is the right time to invest in your own home, here are some answers that you will find useful, before you go out seeking the best home loans in India and compare home loans. 

A conducive economic environment
Before making a purchase decision when it comes to property it is but natural that you need to check out the economic environment. The overall macroeconomic outlook for the nation has an impact not only on the real estate market but a direct bearing on home loan interest rates. From the latter half of the year 2015 there have been encouraging economic trends, with respect to the reducing inflation, cutting down of key short term rates by the Reserve Bank of India and a increase in GDP growth. With further rate cuts said to be in the offing, the stage is set for a revival in the real estate sector that has been in a state of turmoil over the past few years. 

Changing stance of developers
Developers have a natural affinity to invest in big housing projects that have investors flocking in and raking in the big bucks. However, with a slowdown in the economy over the past few years, developers found themselves stifled with unsold inventory. As a result there have be property price cuts in the range of 20-30% across markets in India.

 Besides, there was a gaping demand and supply gap as there was a severe shortage in housing in urban India. With a rapid growth in urbanization, developers are now realizing that affordable housing is a notion that is here to stay and notwithstanding the problems associated with dealing with buyers who come from the middle to lower income group, developers are realizing the tremendous potential that lies in this segment. 

The Government too, in the latest Budget sweetened the deal for developers who are now eligible for a 100% deduction of profits for undertaking housing projects for flats up to 30 sq meters in the four metropolitan cities and 60 sq. meters in other cities, so loan as the projects are approved by June 2016 and completed within 3 years. This is a considerable benefit for developers who can now reap the benefits of a 15 to 20% upside even after paying Minimum Alternate Tax (MAT). This would also give them the opportunity to attract foreign and domestic investment for housing projects. Given these advantages, developers have already begun advertising a slew of projects that bear the affordable tag. 

Advantage to the prospective buyer
The Government aims to extend the advantage of having a roof over one’s head to the entire nation. Towards this end, it has not just encouraged developers to launch more affordable projects with the exemptions as stated above, the new budget baits in the first time home owner who is willing to take a home loan of Rs 35 lakhs where the price of the property does not exceed Rs 50 lakhs. For such aspiring home owners, the Government has granted an additional tax exemption of Rs 50,000. Therefore, if you have been waiting in the wings to buy your own house, this is indeed good news for you. 

Before you apply
Before you go about checking your expenses on a home loans EMI calculator, here is a word of caution. The RBI has made it mandatory for all lenders to check out your credit score as a part of their credit assessment process. Therefore having saved up for the down payment of your house may not be enough if you do not have a CIBIL score of 750 and above. Ideally therefore you should have been making continual attempts at improving your CIBIL score, at least a year or six months ahead. Before you apply for your home loan, make sure you pull out your CIBIL score and CIBIL report and see that you have a perfect credit score. 

If there is anything amiss such as an error that has brought your score down, make sure it is rectified before you make that application. Finally, keep all your papers such as your salary slips, your bank statements, an employer certification and the likes in order before you apply so that your application process can go through smoothly. If everything is already in order and all you were waiting for was the “right time” to make the investment in your first property, there is indeed no better time than now!

Friday, 29 April 2016

How to keep your CIBIL report clean of errors?

They say “To err is human”'
Coincidentally, this phrase would also fit the financial context with a little modification.

“To err is human and CIBIL report”

For all those who are lost in simplification, the above phrase means that a human being can make mistakes and a credit report can have errors. As in practice the lenders conduct a CIBIL score check before they start considering one’s loan application seriously. However, the lesser-known fact is that different kinds of inaccuracies can infest the credit report and affect one’s credit health by lowering the score. Frequent mistakes appearing in a credit report, which are not evident in a simple CIBIL score check, can be categorized into three parts: ownership, incorrect personal details, and inaccurate account details.
If the data regarding one’s personal details or accounts is not identifiable or some entries in one’s report regarding small personal loans do not ring a bell, then it is an ownership error.
CIBIL score check, which poses as an activity of high magnitude at every lending point, will bear wrong results in case of incorrect personal details. Credit Institutions send an individual’s personal details like his contact information (name, address, date of birth, PAN, telephone number) and his employment details to CIBIL. In case there is a change and one forgets to update and inform their credit institution, they may end up with an incorrect credit report.
The most detrimental error is the last one known as inaccurate account details. Given the nature of this error, it should ideally be called “inadequate” account details. This error can reflect in both accounts: secured (eg: home loans) and unsecured loans (eg: small personal loans). Many a times, lenders may forget to update a customer’s payments and an inaccurate current balance record or an overdue amount record might appear in that person’s CIBIL score check and CIBIL report. However, before one cries wolf, it is wise to acknowledge a small fact – the date. Any credit institution submits data to CIBIL within a period of 45 days. If you carry a CIBIL score check or purchase your credit report in this period i.e 45 days from your last payment, it very likely that your last payment is yet to be updated. Hence, always make sure to check the “Date Reported” column associated with that specific account in the report. Say, if the date in one of your small personal loans accounts or credit card account is more than 2 months old, there is definitely an error from the vendor’s side.
Once the CIBIL score check is done, the report is out, and a potential error has been identified, then the next innate step is to initiate a CIBIL dispute. Different online and offline remedies are available depending on the choice of the initiator.
The first and foremost thing is to determine the Control Number. A tool of prime importance while making dispute requests, the Control Number is an absolute must have while raising disputes. One cannot raise a dispute without the Control Number. After one does a CIBIL score check and gets the CIBIL report, he can find the number at top right hand side of the credit report.
The next step is to raise a dispute. If one has attained the credit report from the bank, he can follow the CSEV process. CSEV is an acronym for Complete, Select, Enter, get Validated. The comprehensive process of the same is a below:
  •    One is expected to visit the CIBIL website and Complete the online dispute form with proper details.
  •    Then, he must Select the section, which he wants to dispute. For example: eg payments related to small personal loans section.
  • Then he should Enter the correct or revised value in the selected disputed correct value of EMI’s in case of small personal loans.
  • Finally , he should get the dispute Validated from the system and then assign it to the credit institution.
  • If the credit report has been obtained from the CIBIL website, the procedure of error rectification is slightly different. To keep it simple, one can simply remember an easy rule.
  • “MyCIBIL wants you to Click, Select, Enter and get Validated” Rationalizing the rule, it means that,
  •  One has to login to MyCIBIL with their id and password.
  • Then look for the “Raise a Dispute” Tab and Click on it.
  • Then look for the section, which one wants to dispute and Select that particular small personal loans.
  • Then, Enter a correct and updated value for the same.
  • Get the dispute validated and assign the same to the concerned credit institution.
The offline ways of cleaning the credit report of errors are not herculean tasks either. One of them is the old school letter-writing way. You can raise a dispute request by writing to the CIBIL office situated at the following address Credit Information Bureau (India) Ltd, Hoechst House, 6th Floor, 193, Backbay Reclamation, Nariman Point, Mumbai 400 021.
The other popular and common method is to seek professional help from credit repair experts like Credit Sudhaar and let them do a good job. This organization has a separate team, which specializes in issue resolution. Apart from this, they also offer a plethora  of credit repair services like credit health check- up(CIBIL score check) –score improvement module, debt consolidation and complimentary assistance not only for small personal loans but also for heavy and secured loans.
After an individual has requested the dispute, in any of the one ways, the turnaround time is usually 30 days. It means that it will take a period of 30 days or earlier for any dispute to get resolved. Also, during this period, the status of that particular section in your credit report will be marked “Under Dispute”.
Cleaning the CIBIL report is one of the important steps involved in obtaining a bona fide and a good result. One can choose to neglect this step or wait until the last minute, but that may just delay the loan. After all, “A stitch in time saves nine!”

Friday, 22 April 2016

Good CIBIL score management guide for youngsters

Credit is something that has become a part of the wool and the warp of our lives today. From groceries to gadgets one tends to buy everything on credit today and the younger generation of Indians are comfortable and compatible with the idea of an EMI being a part of their lives. In a scenario like this, it becomes extremely important for youngsters to build a good credit score from the beginning and make a continual attempt at increasing CIBIL score. A good CIBIL score of 750 and above (out of 900) is imperative to access timely credit at competitive rates of interest.
With the RBI having made it mandatory for all banks and finance institutions to check an individual’s credit score as a part of their credit assessment process, it is likely that your loan application or credit card application will get rejected if you do not have a satisfactory CIBIL score. If you are wondering what you should do in order to improve your CIBIL score and how you can manage your finances in a manner that it enhances your credit score, we have some answers for you today.
Get a credit card
You may have been warned by your elders or come across articles that tell you that credit cards are potential debt traps and thus you think you are better off without one. This in fact is only half the information. If you have just started out independently and have drawn your fist few salaries and are keen on building good credit, do not shy away from comparing different offers from credit card companies to get your first credit card.
If used judiciously a credit card can be the perfect tool to build credit. However, before you make a credit card application, do bear in mind that you have to carry out adequate credit card comparisons before you decide which is the best credit card for you. Compare things such as fee structure, reward points and interest rates before you finally apply for credit card. Once you have your credit card in hand, also make sure that you spend small amounts on it and pay the outstanding amount in full before the completion of the billing cycle. If you maintain this financial discipline, you are well on the way of steadily increasing your CIBIL score. 
Make timely repayments
These days, young people are prone to availing of credit to improve their quality of life. Therefore 20 somethings paying a car loan EMI along with a small personal loan as well as maintaining a credit card is nothing unusual at all. While taking on so many credit lines, sure exudes your confidence do make sure you are not biting off more than you can chew and are not skipping repayments on even one of these credit lines that you have availed off. Making timely repayments is the best way to ensure that your CIBIL score remains high and you even get to enhance your credit score if you maintain a good track record of repayments over a prolonged period of time.

Maintain a good mix of credit
Apart from making timely repayments on all your loans and credit cards, you must see to it that you are maintaining a good mix of credit. Leaning towards too many unsecured loans such as instant personal loans and low interest credit cards may seem like a lucrative option to you, but it in fact does not do any good to your CIBIL score. In order to improve your CIBIL score, you need to maintain a good mix of credit, that is a combination of secured and unsecured loans.
Do not seem credit hungry
As mentioned earlier, youngsters today are quite comfortable with the idea of taking loans to improve their quality of life. The easy availability of credit and aggressive advertising by lenders makes it seem all very easy, but the truth is really far from it. Taking on too many loans and credit cards may not just spell trouble for you because you may be overleveraging yourself, it has a detrimental impact on your CIBIL score as well.
Each time you make a fresh credit card application or a take on an easy personal loan, your CIBIL score takes a dip on account of a “hard inquiry” made by the concerned lender. Every hard inquiry pulls your CIBIL score down by a bit. Too many hard inquiries will also make you seem “credit hungry” and will not put you in good stead when you are really in need of credit. Having a credit card to begin with is fine, but do not apply for too many credit lines unless you are really in the need of the same.
Check your CIBIL score and report periodically
Lastly, but not the least, it is very important for one and all to keep a strict vigil on the CIBIL score and CIBIL report. You must check your CIBIL score and report at least twice annually to ensure that no errors or discrepancies have crept into it. Sometimes, because of the large volume of data that banks usually handle, some unwanted errors or misinformation about your loan or credit card accounts make way into your CIBIL report, thus bringing down your CIBIL score. You must therefore make it a habit to keep a hawk eye over your CIBIL score.
Maintaining good CIBIL score or good CIBIL score management is all about maintaining good financial discipline. Once you have the basics in place it will not be rather easy to maintain a good CIBIL score, thus opening up doors when you are in need of credit.

Friday, 15 April 2016

Should you use surplus funds to pay off your home loan?

Mira and her husband Navin were celebrating at home; as Mira’s bonus from work had just come in post the annual appraisal. With surplus funds in hand, they were debating how to utilise the funds. Mira was all for spending a chunk of it to take the family on a much-deserved vacation, and saving the balance. On the other hand, Navin was of the opinion that they should use all of the money to clear off their existing home loan. What do you think would be the best approach? Would it make better financial sense to invest the funds, or pay off the loan instead?
The decision of whether to pay off an existing home loan or to invest the surplus funds elsewhere, be it mutual funds, fixed deposits or any other form of investment is always a tough call. However, there are pros and cons to both the choices and before you do decide on which one to make, it’s best to weight in your options. This will help you make an informed choice.
Remember that when you avail of a home loan, the average cost of your home goes up, because you need to factor in the interest rate in addition to the principal repayment, and home loans do not come cheap. Hence if by paying off a loan each month you are likely to be eating into your money, it makes good sense to prepay the loan with the surplus funds in hand. This will also reduce your debt burden to a large extent, possibly freeing up the money you were paying by way of an EMI to another investment avenue. Also, this will pave the way for the chances of your buying another property that much sooner, ultimately resulting in better profits.

Further, consider the stage of the home loan you are at. If you are in the early stages of your home loan, paying it off with surplus funds is probably a good idea, since you have not serviced the loan much. Typically a home loan is for a 20-year tenure and the closer you get to the end of the tenure, you have already paid a significant amount by way of interest. Hence pre-closing the loan at this stage may not make much sense. Also factor in the loan processing fee you would have paid, when calculating the cost of your loan and keep in mind the home loan rates.

When you choose to repay a home loan, you typically have two options – (a) reduce the tenure, or (b) keep the tenure constant by reduce the EMI. With most lenders the default option is to reduce the tenure, but you can always choose to work on the EMI instead. However, the edge that reducing the tenure gives you is a proportional reduction in interest cost as well. Not doing so may defeat the purpose of loan prepayment. Another option that you can avail of is to increase the EMI, and deploy your surplus funds in that manner, bringing down the overall loan tenure.

What makes a home loan attractive for most homeowners is the tax benefit available under Sections 24(b) and 80EE of the Income Tax Act, 1961, which is why people tend to debate about whether to pre-close a home loan or not. However, even this comes with a downside – if the interest cost adds up to more than what you save by way of a tax deduction, probably closing the loan would be more prudent.

What next, then?
Well, if you choose not to pre close your home loan, consider alternative investment options with your surplus funds. Keep in mind that you should ideally choose an option that does not result in paying a heavy amount of tax, else the purpose of investment is somewhat diluted and you would likely have been better off clearing off your home loan instead. Select an option that gives you tax benefit and makes your money work for you.

In conclusion
Remember that whether you prepay your home loan or choose to continue with it for the complete tenure, your credit history will reflect your repayment behaviour. Hence in order to increase CIBIL score, do ensure that you make timely payments towards your home loan EMI. 

Finally, when it comes to paying off the loan, also keep in mind that you would not want to fall back on your other commitments, be it monthly household expenses, other EMIs or as in the example at the beginning of this piece, use some of the funds to go on holiday. Whatever be your decision, make your decision after considering your personal situation in addition to factoring in the pros and cons of doing so. 

A CIBIL report can be the backbone of your financial fitness and hence it becomes imperative to take adequate precaution to ensure it does not slide. After all, a good score can help you when you need a fresh line of credit the most.

Thursday, 7 April 2016

Similarities between stock investments and credit scores

One would think one who has the investor mindset, does not really need to bother about credit scores, but that is a myth. Whether or not you are an investor or not, it is imperative for everyone to make a continual attempt at manage good credit score, for the simple reason that usage of credit at some point of time in your life is inevitable. 

You may find yourself seeking out small personal loans, checking out your options of buying your dream car with a car loan calculator or least of all comparing offers from various credit card companies for a credit card that you think will work best for you. Without a good CIBIL score, it is nearly impossible to get access to cheap and timely credit when you may need it the most. 

It is therefore a must for you to try and increase your credit score at all times. In fact, if you are starting out as an investor, it may serve you well to know that investing in stocks and maintaining a good credit score, requires almost similar levels of due diligence, skill set and discipline. Here are some similarities that we have listed out for you to check out for yourself. 

Start early
If you are interested in investing in stocks, it is always considered financially prudent to start out as early as possible. The younger you are, the higher is your risk appetite. In other words, you have a larger tolerance for potential losses. The higher the risks you can take, the higher are your chances of earning higher returns as well that ultimately goes a long way in wealth creation. Similarly, when it comes to maintaining a good credit score, you should begin with good credit card right from the time you start using a credit card. Good credit behavior sets you out on the right path and surges you ahead on your quest to better CIBIL score at a later date.  

Educate yourself
When it comes to investing in stocks, the one thing that is absolutely necessary to do is due diligence and adequate research. You need to follow the capital markets, follow the macro economic trends, track the proceedings of the companies whose stocks you are interested in investing in and their market value and performance. What we are trying to say is your research must be completely thorough and you should educate yourself about every possible nuance of investing before you actually start the process of investing. Thorough knowledge and good research are the key ingredients when it comes to recipe for success in the stock markets. 

Similarly, when it comes to maintaining a high CIBIL score, you cannot undermine the importance of self-education. Credit scores are a relatively new concept in India and not too many people know enough about its importance. Thankfully though credit bureaus, credit health companies as well as lenders themselves have taken it upon themselves to educate the public at large about the need to maintain a high CIBIL score in order to access timely credit. As a result, there is a lot of information going around about credit scores and their importance. It is therefore very important for you to educate yourself about credit scores as much as you can and maintain good credit behaviour. This will help you keep your credit scores high and open up doors when you need credit. 

Any investment advice begins with the simple premise that you do not intend to keep all your eggs in one basket. The key to good investment is diversification. The more you diversify among various asset classes, the lesser is your risk and the higher are your chances of potential returns. Similarly, if you intend to improve your credit score, you should ensure that you do not have too many unsecured loans such as personal loans and credit cards. This increases your risks and also brings your credit scores down. It is thus always advisable to maintain a good mix of credit such as secured and unsecured loans and service them well on time. This will help you to improve CIBIL score in the long run. 

Periodic review
The thing about investments is that you cannot invest once and simply forget about it. You need to take periodic reviews to find out whether your investments are on track and are in sync with your financial goals. If not, you need to do what it takes to remove the laggards and back the performers. The same principal is applicable to your credit scores. You cannot sit tight presuming all is right with your CIBIL score. It is considered financially prudent to carry out periodic reviews of your credit scores by checking you credit scores and credit report. This is to ensure that no errors or discrepancies have crept into it. If you are keeping a hawk eye on your CIBIL score and CIBIL report your financial health will be in perfect order and you can be assured that you will get access to credit whenever you need it. 

Thus as you can see, both investing in stocks and maintaining high credit scores require the same amount of financial discipline. Just as you take care of your physical health by eating the right foods and exercising enough, so you should with your finances as well. You financial health is as important as your physical health and it is up to you to do the needful.