Wednesday, 18 October 2017

How to Build Credit When You are New to the Credit Card

Building credit is of utmost importance if you are looking for a stable financial life. Approval of car loans, home loans, personal loans; interest rates all depend on how strong your credit profile is. But getting started on this journey is a bit tricky. To have a credit score, you need at least one open account where the creditor has reported your activities of the past 6 months to the credit bureau. Based on this information the bureau will prepare your credit report and determine your credit score. But how do you get approved of credit and display responsible repayment behaviour in the absence of a credit history?
Well, a secured credit card can be your starting point. You do not need a credit check to get approved for a secured card. Here you make a cash deposit that serves as collateral for your credit line. Your credit limit will be determined on the basis of the amount of deposit you made. Since the lender’s risk is completely covered, the credit score is not taken into consideration before the approval. The card issuer reports the borrower’s activities to the bureau and gives him a chance to prove his creditworthiness. But possessing a card will do no good, unless you use it in the right way to build credit. If you are new to credit cards the following tips will help you to achieve your goal of an excellent credit score.
1.      Charge an expense to the card every month
 Just possessing a credit card will do no good to your credit history. You need to charge some small expenses to the card every month in order to keep your card active and demonstrate that you are responsible with the credit. Your credit profile will become strong only when positive credit activities are reported to the bureau. So make a few purchases using the card each month and pay the bill in full and on time.
2.      Keep a check on credit utilization rate
Credit utilization rate plays a significant role in determining one’s credit score. It is calculated by dividing the total balance on your card by the total credit limit. This balance can be a snapshot at any point in time when the lender reports the activity to the bureau. So even if you pay the balance in full each month, you may still have a very high credit utilization rate if you have charged several expenses in a month. A very high balance is a sign of financial instability. It gives an impression that you are desperate for credit and hence lowers your score. It is a good habit to utilize not more than 30% of available credit limit. So know your credit limits and keep a check on how much you charge each month along with the balance that you carry on the card.
3.      Make payments on time
Your payment behaviour contributes to 30% of the credit score. Making on-time payments consistently shows responsible behaviour and works in favour of your credit score. Make sure you never miss a credit card due date. Set auto pays or reminders to ensure that you are up to date with the payments.
4.      Pay the balance in full

Though you need to use your card to build credit you need not carry any balance on the card to do so. In fact paying the balance in full when the monthly statement arrives is the best practice. So live within your means and purchase only what you can afford to pay back in full. If you do proper budgeting and follow this golden rule, you can build credit without actually taking on any debt and paying interest charges.
5.      Check your credit report
Get your free credit report every year to check for any suspicious activity. Ensure that the information recorded in the credit report is correct. If you find any errors and discrepancies you can report it to the bureau and get it corrected.

Credit cards are a good way of building credit without actually taking on any debt. But you can get into a lot of trouble if it is not managed properly. Be sure to stick to your budget and not go overboard in spending just because you have available credit limit. Be responsible with the payments as it is the foundation for building good credit.

Saturday, 7 October 2017

Does Getting a Divorce Hurt Credit score?

Divorce touches your life in more than one way. While it mostly brings a lot of emotional stress and trauma to the couple involved, it certainly affects financial aspects of their life. Before seeking split of relationship, the couple should thus also consider financial implications of the decision on their credit score and credit worth.
Although divorce is not something that is stated on your credit report, but a legal separation from your spouse also divides household income, assets and liabilities. Thus a relationship split is likely to affect your credit score in a very significant manner.
Let’s understand how getting a divorce hurts your credit score and worth.
When your ex fails to pay out the bills
Many couples fail to follow divorce decree as far as financial obligations are concerned. Being a couple, it is likely that you two hold several joint credit accounts, and failure of meeting any of the open accounts by anyone of you would hurt the other person’s credit history and credit score as well. It would drop the credit score to be precise and it would become difficult to borrow loan with bad CIBIL score.
Later on even if you make the missed payment, that too would make a footprint in both the CIBIL reports.
Following a divorce, it is thus recommended to keep a strict vigil on the timely payment, even if the divorce decree makes the other person responsible for the payment. As long as the account is open, there is a risk of missed payment on time. In order to keep the last minute surprises away, you should take responsibility of timely payouts. You can set a monthly reminder on your mobile and contact your ex to politely ask them for the timely payment of the dues.
Irrespective of the issues between the two of you, the point of the matter is these accounts have your name attached and if they are not met on time, your rating will suffer.
In case your ex refuses to pay out an instalment, you can consider making the payment. You can always claim the refund later on in the court.
When you find yourself struggling for payments
Divorce cases could sometimes turn dirty and may involve a lot of expenses. If you were not the bread earner or support lesser salary than your previous lifestyle, you could be feeling stretched out after paying hefty bills to attorney for court proceedings.

In such pressing times, you may find it difficult to pay on time. In order to stay on track, many splurge credit card use, but that would eventually hurt your credit score too. For, rolling over balance on card could be a very costly mistake. It attracts very high interest rate.

Also, to keep your score robust you should not use more than 30 % of limit every month.

In face of lowered income source and additional expenses, you need to make a practical budget plan that helps you save enough every month. In the meantime, keep looking for additional ways to add to your income.

3. Try to find out an amicable solution to financial disorder in your life.
Although it could be easier said than done, you should try to have a peaceful interaction with your ex. The sooner you two figure out solution to your credit issues, the better it would be for you two. Do not forget to remove each other from joint accounts wherever possible. Many a times, the change in bank account details is not reported to Credit Bureau. So after you divide the accounts, report the changes to the credit agency. This will ensure that any mistreatment of accounts by your partner would not make an impact on your credit report.
Let’s check out some quick budget tips that will help you stay afloat.
1. Being on budget is not living miserably but precisely it suggests to cut down the less important expenses and save wherever possible. You need to first of all make list of all the expenses and income sources. Study the list and mark the expenses you can do without. This would be your first step to save for improving your credit situation.
2. Also, analyze if there are better avenues to general more income. This is meant to channelize your efforts in the right direction.

3. Make lists for shopping in advance. This will help you spend only on the required items.
4. Never make impulsive buying decision. Rather read reviews and reconsider several times before bringing a new gadget or device home.

5. Bring in simple lifestyle changes such as cutting down coffee, alcohol, cigarettes and other addictions. Use public transport more often. You can use bicycle or walk down to the nearer places. This will save you enough money and bring the good health at the same time.

All in all, leading a life after Divorce could be difficult in the beginning. But with right efforts you can build a good credit health within a couple of years.

Thursday, 28 September 2017

Repay Your Mortgage Early, Get Free!

Do you wish to become debt free as soon as possible? Well who does not! We all want to quickly pay off our debts to lift the strain of the monthly EMIs on our income. Moreover, if the tenure of the debt shortens we will save a huge amount of money on interest payments.  Here are some ways in which you can try and pay off your mortgage early.
1.      Make this your no. 1 priority and use whatever extra cash you get to pay down your debt faster. A rise in the pay, annual bonus and cash gifts received are some examples where lumsum cash can be used to make a large mortgage repayment in one go. Not only will you save huge amount on interest costs you will shorten your loan tenure by a few months too.  And all this can be achieved without reconfiguring your monthly budget. Before you do so, check the terms and conditions of the loan to ensure that there is no prepayment penalty. Also make sure that whatever extra payment you make goes towards the repayment of the principal and not the interest cost or the prepayment of next EMI.

2.      Make a little extra payment every month by increasing your monthly outgo of loan EMIs. Do a quick calculation on the loan EMI calculator to see exactly how much your mortgage tenure shortens if you pay off a larger EMI.

3.      Instead of paying every month, make bi-weekly payments of half the amount. This will essentially lead you to paying one extra payment every year. Without feeling too much load, you will be able to enjoy a faster pay off. With frequent payments less interest will accrue on the principal balance. This will translate into significant savings over the life of the loan.

4.      If your current loan provider is charging too much as a repayment penalty, you can get your loan refinanced by a different provider who is ready to offer you shorter loan tenure. You will have to do your maths to compare whether it is beneficial to shift to a different loan provider after paying off the early repayment fee on your current mortgage. The loan EMI calculator will help you evaluate how much you will save on interest payments if you switch to a different provider with a shorter loan term.

5.      Link your savings account with the mortgage. The money in the savings account will be deducted from the principal balance and hence lower the amount of interest charged. You can use this method to pay off the loan early.

6.      Lenders usually charge different rate of interest depending on the risk associated with the borrower’s profile. If your credit score wasn’t very impressive at the time of taking the loan, you may have been asked to pay a high rate of interest. Start working on your credit profile and pay attention to the factors that affect the CIBIL score calculation. If you are able to raise your credit score in a few years time, you may use it to your advantage and ask the current lender to lower the interest rate. If you have been diligent with your payments, your bank may agree to renegotiate the interest rates. Alternatively, you can look for other lenders who may be ready to offer you a lower rate. In this case you will be able to keep the EMI amount same and still be able to pay off your loan sooner.

The above tips will help you to pay off your mortgage faster. But before you start implementing these strategies, check your portfolio and see if you have any credit card balances or other debts. High interest debts should be paid off first to save on interest costs. Also remember that shortening the term will increase your monthly outgo. Set it at a level that you can easily afford. Use the loan EMI calculator to see what tenure and EMI amount suits you. Alternatively, keep flexibility in how you repay; by overpaying only when you have cash available. Make sure that the additional amount is applied to the principal balance and not the next month’s payment.

Friday, 22 September 2017

Is it Important to Monitor Your Credit Score on regular basis?

Why do I need to check my credit score on a regular basis? Isn’t that the job for banks or any other financial institution when I apply for a loan? I am not planning for a financial product anytime soon, so why should I? What’s in it for me? This is the perception of almost everyone when it comes to checking their credit score.

Is this perception right? Absolutely not! Consider at time of an emergency, when you think of taking a personal loan and the process getting delayed because of your low cibil score or even get denied, what would you do? It is always suggested to get the rating checked on regular intervals to avoid such problems.

Here is why you need to monitor your credit score on a regular basis, 

To know where you stand

As we all know cibil score is a three digit number which is used by the bank to consider giving you any type of financial product like loans, credit cards etc. when you check your score, you will be able to determine where you stand and how is your credit health. Is it low, average or high, if low you can start working on the same and try building a good score because when the time comes your loan taking process will be smooth and easy.

Make sure your credit information accurate

When you try checking the score, you will not only be able to see how much your score is but also will be able to see all your loans, accounts and credit cards. If you see any other information which is not yours and that particular account is causing your score to go down, you can immediately report it to the credit bureaus. 

Get insight into what actions hurt and help your credit score

Imagine you checked your score three months back and then the score was good to go. Due to some financial difficulties you did not make the payments on time and end up being in the loan defaulter list now when you check the report there is a huge decline in the score. By checking your report on a regular basis you can easily analyze where you went wrong and how you can cope up with the scores in future.

Prevent identity theft

This happens a lot, if you do not monitor your cibil report on a regular basis, some fraud might use your information for taking a loan or a credit card without you even knowing. You need to check the reports on a regular basis so that you avoid such mishaps. Majority of the time this kind of a situation is faced when a person is dead; the dead person’s details are taken for loan purpose. If you have anyone who has recently passed away, do inform your relatives about this and report the cibil authorities to avoid data theft.
To identify credit bureau errors

You always make your payments on time, no one can find errors in your financial pattern, but when you apply for a loan your loan gets rejected. This can happen because of credit bureau errors. The banks send monthly reports to the credit bureaus to update your score and to add financial history many a times there are errors, if you check the score on a regular basis you can avoid such mishaps and report it back to the bureau. Yes this process takes time, but it is always “better safe than sorry”.


You can get a free cibil report once in a year, where you can get all the information.  Do not get the cibil report every month cause that will lead you to chances of declining your score, as when applying for a loan the banks will see how many times you have requested for the report. It is suggested get the report done every three months and try keeping a track on your finances to avoid any problems in the future.

Thursday, 14 September 2017

5 Stupid Things you’re Doing to Ruin Your Credit Currently

Credit score reflects how we have treated our debts in the past and what our attitude has been towards credit in general. So not only our EMI and credit card payments but the overall credit behavior is taken into account when the score is calculated.  Credit rating can be negatively affected due to deliberate defaults, negligence on the part of the borrowers, some errors that may occur due to oversight or some oversights. There may a few aspects that an individual may ignore at the cost of ruining his score. Here are few that we focus on here today.
1.       Excess Swiping of Your Credit Card
When someone applies for a credit card; he/she is issued a card with a specific credit limit. This credit limit is important as the usage per card or for all cards is measured as a proportion of the sanctioned limit per card and overall too. This determines the credit utilization ratio for the individual. While using the credit card the user may assume that as long as he/she pays the bill on time and the usage remain below the sanctioned limit, there will be no problem for the user. However think again, excessive use of cards which means using more than 30% to 35% of the sanctioned limit could spell trouble even if you do pay on time. If you are looking for a way to increase credit score then keeping a low utilization ratio is a good idea.
2.       Settling an Old Debt
This may also happen due to the ignorance on part of the borrower. Sometimes one may have an overdue debt in their CIR which may be raising red flags every time a prospective lender looks at it. Well the borrower may assume the best thing is to settle it; not so! Settling an old debt means not paying the entire amount due but paying lesser than that (due amount) as per the agreement reached between the borrower and the lender. Whenever a borrower decides to pay old dues they should negotiate with the lender to report the repayment of the debt as “paid “or “closed” rather than reporting it as “settled”. A settled debt is not good for the credit rating.
3.       Guaranteeing a Loan without Being Sure:
Another stupid mistake that could cost a dip in the credit score is guaranteeing a loan without being sure what it implies for the credit score or not being sure about the credentials of the borrowers. There may be times when getting a personal loan without CIBIL Score, or a home loan without the required documents and so on may not be possible. In such a scenario the applicant may consider getting someone with a better score or better credentials to guarantee a loan. While it may be come as a relief to the borrower as he/she can have access to credit it may not be so for the guarantor. Guaranteeing a loan reduces the guarantors borrowing capacity and any defaults by the borrower will also impact the credit rating of the guarantor without them being at fault at all.  
4.       No Credit at All:
Gone are the days when no credit meant a good thing! So while taking a loan just for the sake of creating a credit trail might not be such a good idea using credit cards could solve this problem to some extent. If you have credit cards and you do not use them thinking that no credit is a good thing then it’s time to change that. Small regular transactions with dues paid on time set a healthy credit trail which is a good thing for the credit rating.
5.       Making too Many Credit Inquiries:
Credit inquiries made by a financial institute before accepting her/his application for credit are included in the CIR of an individual. Hard inquiries are amongst the five factors that are at taken into consideration when calculating the credit rating. So when applying for a loan be sure about the requirements and eligibility criteria so that the application is not rejected. An application being rejected will lead to the applicant applying elsewhere thereby resulting in another hard enquiry. Making unnecessary credit inquiries is also not advisable. 

So stay credit healthy, follow simple rules to staying credit healthy and avoid the above mistakes which can cause your score to dip.

Wednesday, 6 September 2017

Renting A Cab Vs Buying A Car, which is more feasible?

Owning a car has always been a mark of pride in the Indian society. It gives us emotional gratification apart from the freedom to travel whenever and wherever we want. But off late, traffic snarls (especially in the big metros) are making driving a nightmare. The hassle of manoeuvring through the dense traffic and hunting for parking spaces is pushing people to look for alternate options. The advent of app based cab services like Ola, Uber, Meru etc. is proving to be a solution to most of these inconveniences. These cab services are slowly changing the way people travel. One can travel through the city without any hassles at a reasonable cost. So now many consumers are juggling with the question of whether one should buy a car or rent it out on need basis.
Firstly one needs to consider whether buying is really an option. To own a car you either need to provide funds yourself or rely on a car loan. In case you already hold a home loan or an education loan, you may not be eligible for any further loans. Your income may not be sufficient to cover for a new loan after paying the old EMIs on your existing loans. CIBIL rating also plays a major role in car loan approvals. If your CIBIL score is less, you may find it difficult to qualify. In such cases renting a cab may seem to be a more feasible option. But let’s say you can afford to provide funds yourself, or your CIBIL rating is high enough for an approval. In such a case how do you make a choice?
Let’s look at some factors that help us to compare the pros and cons of both these options.
1. Cost- Needless to say one should do a comparison of the cost structure of owning a car vs. hiring it, over a specific period of time, and see which one works out to be cheaper. Most people rely on a car loan to finance the car. So apart from the price of the car, one needs to factor in the car loan interest rate that one pays over the loan tenure. Also take into consideration that car is a depreciating asset.  Cost of fuel, Annual premium for insurance, maintenance cost, driver’s salary, parking charges are some other expenses that one needs to add to calculate the cost of purchasing one’s own vehicle. Buying a car certainly puts pressure on one’s liquidity position. Compare this with the per kilometre charges you pay for renting. Also consider the surge pricing charges that are sometime levied by cab service providers.
If one looks at the costs involved, the cab services are surely tilting the balance against buying a car. Though these cost comparisons will depend on the distance travelled, but surely it will be much more economical to hire a cab if you do not commute daily or travel short distances. But there are times when emotions overtake the rationale of an individual. For some, car is not just a mode of transportation. It is matter of prestige for them, as they use them to project their lifestyle. Moreover, hiring a cab cannot match the excitement, joy and thrill of owning your own car.
2. Flexibility and ease- If you have a fixed travelling schedule then relying on cab services makes sense. After all it frees you from worries of maintenance and depreciation. However, with cab services there may sometimes be uncertainty of availability when you need it urgently. Sometimes lesser cars may be plying during a strike or a rainy day, which may cause inconvenience. As against this, a self-owned car provides convenience in case of emergencies.  It frees you from the hassles of waiting for the cab. There is peace of mind that you can travel as per your suitable timings.
3. Safety- With rising cases of misconduct by drivers, people have started believing that it is always better to drive your own car, than hire a cab, especially for women. Driving your own car is being considered as a much safer option.
4. Time- If you do not have a driver, then driving to and fro office 2-3 hours a day in your car may seem like wastage of time. Driving during rush hours can become a nightmare. While in a hired cab, one can have a relaxed journey and save a lot of time. Sitting at the back seat one can utilize the time productively by catching up with office mails or personal calls.
Ultimately it all boils down to one’s priorities, needs and travelling habits. Hiring a cab service will definitely be lighter on your pocket. But if you value safety, convenience and independence more than money, then owning a car is the best choice.



Friday, 1 September 2017

Test Your Financial Literacy Here

What is financial literacy? What do people mean when they say are you financially literate? Does this mean I need to study a subject named financial literacy?

No, financial literacy refers to the knowledge and skills required by and individual to make financial decisions. Financial literacy and its stability are the two key aspects which will lead to an efficient economy. India is a fast growing economy and not many people have a clear picture on how to manage their finance and look in the future. A person is considered intelligent and wise when they have secured their finances by banking in bonds, debentures or any other financial product. This helps you secure the future.

      Understanding the needs and wants in terms of financial options, opportunities, services has become complex from the last fifteen years. Be it preparing for a monthly budget or saving for child’s tuition. Getting a grasp o the basic terms will serve you as n advantage.   

  
The following quiz will provide you a glimpse on financial literacy and basics to adhere it,


1. What is your gender?

·         Male
·         Female

2. What percentage of your income should be saved?

·         5%

·         10%

·         15%

·         33%

 

10% being the right answer

3. True or false: creditworthiness is low leads to low credit card interest rates

·         True

·         False

Answer being false; if your credit worthiness is low the interest rates will be high.

 4. What is APR?   

·         Average Personal Revenue

·         Annual Percentage Rate

·         American Public Radio

Annual Percentage Rate being the right answer

5. Assets minus liabilities determine a person’s ___________.

·         Net worth

·         Economic potential

·         Sweet spot

Net worth being the right answer

6. How many credit cards do you use?

·         1
·         2
·         4 or more
·         I don’t use credit cards

It’s suggested not to use more than two credit cards. The fewer cards you use the less liability you tend to pay.

7. How do you normally make your credit card payment?

·         Make minimum payment
·         Pay entire balance
·         Pay more than minimum but not entire amount
·         Credit card payments are taken care by parents/spouse

Always try paying the entire balance amount, to avoid dip in the rating.

8. Where did you learn most about managing money?

·         From family
·         From friends
·         From school
·         Experience in managing my own money
·         From books

9. Do you prepare a monthly budget?

·         Yes
·         No

Always make secured plans in terms of finances

10. Do you stick to your fixed monthly budget?

·         Yes
·         No

Be the wizard of your financial plans and witness the magic yourself.

11. Let's say you have INR 100000 to invest. Which would be the safer way to invest it?


·         Put money in one investment.
·         Put your money in more than one investment. 

Put your money in more than one investment being the right answer

One word diversification always put money in different investment plans as they have different schemes ad returns. 

            12. Which portfolio has the most aggressive risk level?

·         50% stocks, 50% bonds
·         80% stocks, 20% bonds
80% stocks, 20% bonds being the right answer

Stocks are generally equity investments and the risk levels are always high.

13. Do you get loans for bad credit?
·         Yes
·         No

Usually it’s a no, but you can opt from various banks which offer loans with higher interest rates if the credit report is bad.

Having a sound knowledge of finances can help you grow further in life. This was just the tip of the iceberg and we hope that we gave you a heads up on some financial terms.