Thursday, 23 June 2016

Understand Your Credit Report Can Help Raise Your Credit Score?

It is very important to understand your credit report when you wish to have a good score and enjoy credit facilities offered by modern banking system. To maintain a good credit score is not a rocket science but requires financial diligence and discipline. You need to have a good credit history of paying out your loans and bills on time on the credit information report (CIR). Let’s understand in detail how knowing your credit report helps you raise your score.
Your credit report contains detailed information of your credit accounts. It does not contain anything regarding your savings and investments. All secured loans and unsecured loans such as home loan, auto loan, credit cards, personal loans and overdraft facilities are reported in the CIR. You can access your report online using CIBIL consumer login.
A typical credit report has following sections:
1. Credit Score
This section shows your credit score. For example your CIBIL Transunion Score would range anywhere from 300 to 900. Score above 700 is considered good. About 80 per cent of people with such good score tend to get their loan application approved. The credit history of your loan accounts and enquires would basically drive the score calculation.
2. Personal Information
This part has your personal information like name, birth date, gender and ID numbers- PAN, passport and voter ID number.
3. Contact Information
Here, contact information including up to 4 addresses and telephone numbers are mentioned.
4. Employment Information
This section mentions your income as reported by banks. When you apply for loan you share your income details and the member banks report that data to CIBIL and other bureaus every month.
5. Account Information
This section shares vital information regarding the credit accounts on your name. It details about names of banks and financial institutions, types of loan (such as auto, personal or higher education loan) and credit facilities used by you. The account and ownership detail including account numbers, date of opening, date of last payment, credit amount, current balance and monthly payment record for 3 years are precisely mentioned here.
6. Enquiry Information
Your report also shows enquiries made by banks when you apply for loan or credit card. The credit history with too many enquiries show that you need funds desperately and marks a bad flag.
Knowing your report by heart basically helps you assess your current credit worthiness. You get to know your current balance, what you can currently afford to pay back and how much credit you can apply for, all at one place. Practically acknowledging your current financial status you can definitely work to improve credits core.
It would be righteous to say here that your credit report helps you repair the credit score. As credit history reported on credit report holds importance so does its correctness. Without checking your report, you cannot figure out errors, if any emerge on your report. If there are errors in your current account balance or repayment history it would directly stumble upon the score. The credit score would fall without your knowledge.
Although CIBIL allows you to start a process to dispute the error to the concerned bank and as the error is corrected and reported to the credit agency the score improves. The process however may take more than a month’s time. Watch out for following common errors on the report:
1.       Computer errors regarding personal information, contact information and employment details. These need to be corrected for validating your identity.
2.       Errors on account details should be immediately reported to the bank. This may adversely affect your entire history.
3.       Unknown enquiries if spotted on the report shouldn’t be ignored at any cost. This could be a warning sign as someone else might be misusing your personal information to draw credit. You need to report it as soon as possible and stop the call and identity theft attempt.
4.       These can certainly hamper the growth of your score.

Thus it is advisable to check credit report several times a year. By checking your report you ensure that there are no errors pertaining to your personal information or account information. Also, knowing your report, you basically know your credit score and credit worthiness. All in all, knowing your report is the first step to raise the score.

Thursday, 16 June 2016

Common Credit Mistakes by the Common Man

“Common Man”, or the idiomatic “Aam Admi”, does not refer to a gender but to a socio economically average person who is also a hard working tax payer and is generally considered gullible. His dreams of the future are better than the history of the past. What would such a person want? Perhaps lower taxes, better education, better healthcare and a peaceful family life. Since, “getting loans at low rates of interest” does not ordinarily feature on a “Common Man’s” list therefore he is bound to be negligent towards his CIBIL score. Such a mistake can cost him time, effort and a great deal of money.

Here is a list of some common mistakes that people make without realising its impact on their credit score. Avoiding these mistakes can help your score stay in a favourable zone and help you stay out of any credit related anxiety.
1.       A wallet bursting with credit cards – There may be no real need for it yet sometimes we apply for credit card because we are attracted to the various offers and end up signing for more cards than we need. Firstly, these cards may come at an annual charge of which you may not be aware. Secondly, having too many cards can affect your CIBIL report poorly. When a banker reviews it, he or she is likely is to assume that the person under review has an insatiable appetite for credit. Do note neither the credit report will justify nor the bankers will seek any clarification on why you have so many cards with you? A lender will simply reject your loan application for having irresponsible credit behaviour.

2.       Shutting down old credit cards – Now that you know too many cards could be a problem, rushing to shut them down can pose another. It’s best to not sign up for credit excessively. But now that you have, cut down on your cards at intervals. Begin with the most recent ones as they will have the least negative impact on your score. It is a common tendency for people to get rid of their old cards. Well, that is a big no! When you shut down an old card you also shut down the good old credit history. All of its credentials will be removed from the report.

Your credit utilization rate is also affected with every cancelled credit card.  Utilization rate is the percentage of credit used vis-à-vis the total available credit limit across all credit facilities. For example, if you have used only Rs. 10, 000/- out of a limit of Rs. 1, 00, 000/- it means your utilization ratio is only 10%. Whereas, if you have used Rs. 10, 000/- out of a credit limit of Rs. 50, 000/- then your utilization rate goes up to 20%. Though your usage has remained constant the impact on your utilization rate is due to the drop in available credit limit. Either ways, a higher utilization rate means lower credit score.

3.       Guaranteeing loans or becoming a co-applicant to help a family member or friend – Remember, lenders ask for a co-signee or a guarantor only for those borrowers who have a risky profile and are not eligible for loan otherwise. By standing in as a guarantor you may have helped someone else wriggle out of a tight spot but it means now the loan repayment is as much your responsibility as it is of the primary borrower. All these details will be recorded in your credit report and any missed or delayed payments will have an equal negative impact on your score. This also adds up to your credit exposure. So be doubly sure before you sign on that dotted line.

4.       Building a debt pile – A habit of charging without restraint and maxing out your cards can lead you to drown under a pile of unmanageable debt. This means you should be sure of what you want to purchase and have a plan on how you will repay your advances, only then you must use credit to make payments. Another sure shot way of building up a cliff of debt is to make only minimum payments due at the end of every credit cycle. This means, that all roll over balances will attract a high interest rate and cast an exponential effect on your outstanding bill amount. Also, avoid constantly seeking low interest rate balance transfer to make existing payments.

5.       Being indifferent towards delayed or missed payments – This certainly has the most devastating effects on anyone’s credit. A delayed payment implies you do not have enough resources to fulfil your financial commitments on time. It not only leads to a declining score but also makes you seem to be hard pressed for cash and being irresponsible with credit. No lender would ever want to partner with such a person.

6.       Not using credit even though you have access to it – This is one damaging factor. Any credit score has to be calculated upon your good or bad credit history. If there is no history of credit usage, there will be no score for you. Not having a score means, a prospective lender will not be able to make any judgements about your credit behaviour and thus may not extend any credit to you. So, make a charge every month, for example: let your mobile phone bill be paid through your credit card and be sure to pay it back on time and in full. This way you will be able to maintain a healthy and positive credit score.

7.       Not checking credit report – Experts have asserted that you must check your CIBIL report atleast once a year to be sure that all information provided is accurate. Also, you can look out for red flags such as unauthorised enquiries on your report or an unidentified loan account in your name. This could indicate a case of identity theft. You must immediately raise a CIBIL dispute to highlight it and get it resolved. If the case is resolved in your favour then it can help your score to escalate some points.

Money makes the world go round. But in today’s world, its credit that makes the world go round. For not just a credit card, but even buying a house, a car, completing an education etc. You need credit to meet any of these financial goals. Since credit is of critical essence in fulfilling your worldly desires, it is only common sense to look after all things related to it like, your credit score. Be conscientious & fulfil your financial commitments in a timely fashion, check your report regularly, make conscious efforts to maintain a high score & don’t go for irrational credit shopping.
Happy Credit to youJ

Friday, 10 June 2016

7 Reasons when you may require to take loans

Easy availability of credit helps you improve life. You can practically buy you dreams with available funds. You can support your education, start a business, build a home, plan special life events such as marriage and travel across the world! There is nothing that you cannot get a loan for. Here is a list top 7 reasons for getting loan.

1.       To Buy Your Dream Home
Whether you want to buy a new home or get a renovation done for your existing abode, you have ample choices to bring forth the credit. Home loans are one of the most popular credit products available. For all kinds of needs pertaining to your home, credit is available. Besides regular home loan to facilitate buying of a residential property, you can draw special loans for repairs, loans for extension, top up loans, EMD, reverse mortgage loan as well as loan against a property.

With plenty of offers on interest rates and affordable EMI plans, most people seek home loans when buying a property. However it is important to keep CIBIL score calculation in mind before you apply for a home loan.

2.       To Drive a Luxury Car
Auto loans are always in demand. These are usually secured loans, available till 100 % finance with very attractive car loan rates and payment options. In case of default the vehicle acts as a collateral and can be seized by the bank. Whether you want a new car, or a second hand one you can easily get credit to make the purchase. Besides you can also get loan against car.

3.       To Meet All Kinds Of ‘Personal’ Needs
Personal loan can meet maximum needs of a borrower. You can travel, throw a party, indulge in luxury or meet an emergency expense, using with this fund. There is no check, whatsoever on the usage of personal loan. It is an unsecured loan where your credit history plays a very crucial role otherwise a very high interest rate is levied on loans for bad credit score. If you need a loan for short term with minimum documentation, personal loan is the choice for you.

4.       To Add Wings for Success With Education Loan
Education loan is like a silver spoon in the mouth of the one who lacks funds for pursuing higher studies. You can fund your entire fees as well as related expenses via education loans. This future investment is available at 100% financing, attractive interest rates for the best of universities and institutions with the least documentation and processing issues. More offers are available with co-applicants and collateral. The repayment is usually started after the completion of the study program.
5.       To Start Or Grow Business
If you want to start a small business or expand your existing venture, look no further and apply for business loan. It is an unsecured loan and available in a very wide variety. Your credit history will predominantly define the terms of your business loan. Special deals are available for premium customers.

6.       To Buy Electronics, Gadgets And More
Name it and you have it! Yes, you can get loan to meet practically all of your needs. From LED TV to refrigerator, to washing machine to laptop, from air-conditioners to mobile phones, tablets and camera, you can buy all this and more with the help of a consumer good loan. Many of these products come with 100 % financing options and easy EMI offers. Truly speaking credit improves the way you live today.

7.       To Shop And Hop!
Spending plastic money is a total fad these days. Whether you want to shop for your favourite brands of clothing, jewellery or shoes; or for that matter, pay for a meal outside and/or at gas station, just pay with your credit card. At the end of the month you just require to pay the bill with processing charges. However plenty of benefits such as cash backs and discounts are offered on card buying. So you need not carry cash to buy. You can borrow instantly via your credit card for your purchases.

The list of reasons for building credit can continue forever. Banks and financial institutions offer all kinds of loans for different needs. All you need to do is, clearly know your needs and choose the right option. It is equally important to plan repayment at the same time.

Thursday, 2 June 2016

Having High Credit Score is as good as investing in Provident Fund

Provident fund is a term that spells financial security and to an extent a kind of sanctity also in the financial parlance. All working individuals compulsorily contribute to the provident fund (PF) right from the first pay cheque they get and continue to do so till the day they are working. The provident fund occupies a kind of financial reverence because no individual wants to touch it till they have exhausted all other options of funding and want to use the PF only in case of extreme urgency. Something else can also offer you the same financial safety despite it not being a saving option; in case you are wondering what it is, we are referring here to the credit score.

Similarities between a Good Credit Score and Provident Fund:
We discussed a little about the PF above, now let us have a brief look at what a credit score is. Credit score is a three digit number that is calculated based on a person’s credit history and credit behavior. There are various factors and variables that contribute to this score which is also known as the CIBIL score in lay man’s language. This score is the first step to getting a loan, without a healthy score the application could be rejected outright and a good score could also get you better loan deals.  Just as one focuses on keeping their provident fund safe they should also concentrate on how to keep the credit score healthy and if required concentrate on how to increase CIBIL points too? So why are both important for an individual?

*      Offers Financial Security: In case one requires emergency funds for a medical condition or sending one’s child abroad for education then a good CIBIL score could come to your rescue. One could use a personal loan or education loan for abroad to access funds that can help them in fulfilling their dream. Without a good CIBIL rating borrowing from organized channels might not be possible and one might be forced to dip in their savings of which PF is one staple option. Both CIBIL rating and PF come to your financial aid when required most. Soon a healthy credit score could also be a must for getting a job in the financial sector or higher management levels.

*      Help in Fulfilling Dreams: Everyone has dreams for themselves as well as their families too; both PF and a good credit score can help one in fulfilling them. So if one is looking for home construction loans or auto loans then a good credit score is a must. Saving through a life time can sometimes not be sufficient to buy a house as the costs also go up with time; in such a scenario one might be forced to borrow from their PF. This is where a good score comes in; with the help of a healthy credit rating when could easily take a home loan without having to touch the PF and can get a good deal on the loan too. So the dream of a car, fancy holiday or to own a house can be fulfilled with either the PF or a good CIBIL score.

*      Independent of one’s income levels:  Irrespective of how much one earns a PF or a good CIBIL are both viable options. As said earlier PF contribution starts with the first pay cheque whether one earns 10000/month or 1 lakh a month. Similarly a good CIBIL score has nothing with how much is the income level of a person; a person with modest income levels could be credit healthy and one with very high disposable could be struggling with low scores due to being an irresponsible borrower.
So be credit healthy, it is as essential and as useful as your provident fund when required. Both are great tools that offer financial security and help in fulfilling one’s aspirations.

Thursday, 26 May 2016

What is a suitable age to take a Home loan?

Is there a suitable age to take a home loan? If someone were to ask me this my first reaction would be whenever you can afford it and I guess that is what most people will think. Well after I gave some serious thought to the subject it seems that is not the case; taking a home loan has a strong co-relation to the age of the borrower and borrowing at different stages comes with its own baggage. So rather than waiting for the right time it is important that you know what is the right time to borrow and then plan accordingly.

Starting Young…..
Let us look at the scenario when one plans to take a home loan when they are young which means that they have just acquired financial independence (not like two months back); the job is new but still fairly stable and they have less responsibilities. This would generally be the age group 25 to 30, there is no hard and fast rule give or take a few years. Let us consider what are the advantages of starting young:
Ø  Fewer Responsibilities: In the initial years after one assumes financial independence there are considerably lesser financial responsibilities for a person as compared to in later life when the expenses rise due to a growing family. Thus paying the EMI can be simpler in these years and with passing years the EMI burden will ease out due to growth in income.
Ø  Longer Term Available to Repay: Though banks have the maximum loan term fixed as per their own rules but another factor that comes into play is the age of the borrower. The banks are not willing to extend the loan duration beyond the retirement age of the borrower. Thus the sooner you borrow the longer you have to repay the loan, which can ease the EMI burden considerably. The difference even a five year loan term makes to the monthly outflow is considerable and can easily be seen by using a home loans EMI calculator.
Ø  Effective Way of Planning: Buying a house is a great way of financial planning, it brings in financial discipline, helps in building an asset and also aids in tax planning. So the sooner one does the better it is. Also when one starts young there is still some leg room available to scout for the right property, do some research and wait, there is no rush.

On the flip side: 
While starting young has their advantage there is a flip side too, obviously! Since one is at the start of their career they might not be able to afford a big monthly outflow and similarly they may not have enough saved for the down payment. Thus they might have to limit their options to less steeply priced options. It can sometimes put financial pressure on the borrower too!

Don’t Panic If You Are Slightly Older:
Ø  Well if you have crossed that age there is no reason to panic. As obviously when one grows in their career they have more financial security and a higher income flow. Thus buying at this age gives one the edge to be able to bear a bigger loan burden and gives them more flexibility about choosing the right property because of a bigger available budget. Plus if both partners are working they could explore the option of taking a joint home loan. A joint loan has many advantages like bigger eligibility, share responsibility and greater tax advantage.

Do Factor In Other Aspects Too:
Well though the odds are in favor of starting young, the situation may vary from each individual to individual and also depends on some macro factors and of course conditions like financial stability, willingness to commit to a place and so on.
Ø  Property rates: Whenever one considers buying a house they should definitely look at the general market trend for property rates. It does not make sense to invest when property rates are inflated, better to wait for the right time.
Ø  Interest Rates: Home loans interest rates are a major consideration when deciding about from where to borrow and when to borrow. So again look at how the market interest rate trend is, no point taking a very expensive loan. It makes more sense rather to wait for the interest rates to soften.
Ø  CIBIL score: Irrespective of the age one decides to borrow, the CIBIL score is important. In case it is low, you might want to take some time and try to focus on how to increase credit score before applying for a loan. A good CIBIL score is a great advantage when applying for a loan.
Though taking a loan when younger is better; but like stated earlier focus on other factors too like one’s financial stability, employment status and the possibility to stay in one place. Macro factors should also be given due importance along. Borrowing when slightly older comes with its own set of advantages.

Thursday, 19 May 2016

Checklist to see Before You Apply for a Car Loan

In current times cars are mostly bought by taking a loan. Though taking a car loan is not as complicated as taking a home loan but still an individual needs to exercise caution and consider a few factors before applying for a loan. This will ensure that one gets the best deal and also does not have to face any negative impact on the credit score due to a rejected loan. Though the basic process is same there may be a few variations from one lender to another which makes it useful to check the lender’s process before actually applying for a loan.

Checklist for Taking a Car Loan:
Let us briefly discuss a few factors that must be considered before one applies for a car loan.

Ø  How Much to Borrow:  The first thing one needs to finalize is how much to borrow. This will be based on two factors; the first is how much one has saved for the down payment and the other is the EMI bearing capacity of the borrower. The loan requirement will depend on the cost of the car and the LTV policy of the lender. Having said that the amount one can afford to pay as installment and what is saved as down payment also influence the borrowing capacity. One can use a car loan EMI calculator available online to check how much they can pay each month comfortably.

Ø  Terms and Conditions of the Lender: Though the basic rules for auto loans will be same across lenders, there can be small variations in the terms and conditions which can make one FI more suitable for your requirements. If you have saved less for the down payment then one might prefer a lender that has a high LTV ratio. LTV for new cars is usually around 80% to 90% while in the case of second hand car loan it is around 60% to 80%.

For Example: Mr. Suresh wants to buy a car worth Rs. 800,000. He has saved around Rs 100,000 for down payment which is almost 13% of the car value. Thus he will have to approach a bank that has a LTV ratio of 90% for car loans as a lender who offers a lower LTV will not match his requirements.
Factors like processing time, charges, loan duration also impact the borrower’s choice and must be given due consideration before finalizing the FI.

Ø  What is your Credit Score? An individual’s credit score plays an important part in loan approval. Thus a few months ahead of applying for a loan one must access their credit report to see if there are any negative or disputed items in it. This will let give the person some time to try and improve upon their credit score if required and get a quick loan approval on favorable terms. In case of a low credit score one has the option to approach lenders that offer loan for bad credit score. Having said that, this option is highly avoidable as these loans are available at very high interest rates. Thus it is advisable to keep a healthy credit score which will allow one to access a loan on favorable terms.

Ø  Documents Required: No loan can be approved without the requisite documents. These will include the mandatory identity and address proof, income and employability proof and so on. Ahead of applying for a loan one must get the required documents ready so by checking with the lender the actual requirements. In case something is missing take necessary actions to get the requisite documents ready.

Consider the above when planning to borrow for buying a car. Being prepared will ensure that one does not waste time and effort when they actually apply for a loan and will also help in saving money and time.

Thursday, 12 May 2016

Disputing negative items from your CIBIL report

Mr. Mehta accessed his Credit Information Report (CIR) and was surprised to see a loan that did not belong to him. On further investigation he found out that it was a personal loan taken by someone else that was wrongly reported in his CIR.
Mr. Sharma before applying for an auto loan checked his CIR and saw a loan in his CIR that he thought did not belong to him but after going through the details he realized that it was a home loan that he had guaranteed for his brother. 

In the above examples Mr. Mehta has a genuine CIBIL dispute which requires that he take action to get the negative item removed from his credit report while Mr. Sharma’s is not a dispute but an oversight on his behalf.

Understand the Negative Term First:
Before trying to remove a negative term from the CIR it is important to first understand the reason behind the negative term. Negative term could be due to various reasons. There could be an instance just like in the case of Mr. Mehta when a loan that does not belong to you is reported in your CIR because of an error or sometimes due to identity theft which could have made it possible for someone to open a loan in your name. This is done by getting hands on fraudulent identity and address proof documents of a person and taking a loan based on those documents.

It can also happen that you have a running loan or a card and by error the lending agency has reported a delay or a default though you have paid on time. In both the cases despite you not being at fault your credit report could be impacted negatively. Thus these instances should not be ignored and must be immediately brought to the attention of the right agency so that the negative item can be removed from the report. CIBIL cannot do so on its own and will get in touch with the financial agency that has reported it to get it removed from your CIBIL report. Doing so might take time but it will immediately increase credit score.  

The negative item can also be a result of an actual late payment or a payment default, the lender will report to the rating agency about it and the same will be accordingly updated in the CIR. In such a case there is not much that can be done except pay the dues and try to settle the account. Depending on the nature of default the impact will last for a few years. 

Disputing the Negative Term….The Process.
As discussed above the negative term can be due to a multitude of reasons and depending on the reason the corrective action will have to be taken. If the negative term is due to an error on the behalf of a third party then also it should not be ignored and it has to be brought to the notice of CIBIL. There is an online process as per which the wrong entry can be reported and CIBIL will take the necessary action to get it removed from the credit report. It is however required that the report holder get their report or check CIBIL score online free to see if the changes have been updated or not. One can write to CIBIL too which will then get in touch with concerned lender and the lender will revert, as per the information received CIBIL will update the report. The entire process takes around 30 days.
When there is in actual default or delay then the borrower has to pay the dues so that it is not reported in the subsequent CIRs but the negative impact of the past delays cannot be avoided. When a payment has been made or an account has been settled then also one needs to get the CIR to see if the same has been updated in the report. Settling an account will impact the report depending on the type of account and how it has been settled.
A red band in the report indicates that there is disputed item in the report; till the time it is resolved the red band will appear in the report. Once the dispute is resolved after the information is received from the concerned lender the report will be updated.