Tuesday, 27 September 2016

When Is Your Credit Score Good Enough?

Having a hard time getting a loan approved by the banks? Perhaps you should take a look at your CIBIL report and see if you have a low CIBIL score. By learning how to increase your CIBIL rating you can enhance credit score, and thus improve your chances of loan approval. However, how do you know that your score is good enough? Keep reading to find out.

What is a Good CIBIL score?
Any person’s credit score can range from 300 to 900, which are the absolute limits. So, the closer your score is to 900 the higher is the possibility of you getting a loan approved. Any score higher than 750 is generally considered good. However, people often get loans approved with a score lower than that too.
There are only 3 credit bureaus in India that are authorized by the RBI- Experian, Equifax, and CIBIL. Out of these three CIBIL is the most popular, and majority of banks obtain the credit report of a loan applicant from the same bureau.   Thus, if you are trying to improve your credit score then that’s where you should be obtaining your reports.

How do you Improve a Low Score?
If your score is lower than 600 then you should seriously consider improving it before you even start applying for loans. This is because if you will apply for loans with a poor score and you get rejected your score will take damage, which will make things even worse for you. Thus, it is best to start sending applications only when you are confident with your score.
Here are some of the best ways to enhance credit score:
1) Timely Payments
One of the simplest, yet most effective methods for improving credit score is becoming punctual with repayments. Whether it is your credit card bills, or loan EMIs, you have to pay your dues on time if you want a good credit score. Even if you have missed the last few payments you can take control of the situation and get back on the right track before it is too late.
2) Clearing Out Your Credit Cards
Many people don’t take their credit card bills seriously and prefer making minimum payments thinking they can pay the bills later.  This kind of approach is not good for anyone’s credit score. If debt is piling up on your credit card then you must do something about it before your CIBIL score is completely ruined. By clearing up your credit card dues not only you will save a lot of money on the interest and late fees, but you will also see a boost in your credit score.
3) Lowering Credit Utilization
If you are seeing your credit score dropping gradually every few weeks then high credit utilization ratio (CUR) could be the reason behind it. At best your CUR should not exceed 30%. Thus, for instance, if the limit on your credit card is Rs. 1,00,000 then you should not spend more than Rs. 30,000 a month if you want to ensure that you CIBIL score remains intact.  
4) Fixing Discrepancies
If you are lucky you can improve your CIBIL score easily if you can find discrepancies in your report and get them fixed.
 Managing credit reports of hundreds of thousands of people is a huge task, and often banks and credit regulation bureaus like CIBIL overlook mistakes or take wrong data into consideration when allocating CIBIL scores. It is only wise to check your report every once in a while. If you find any discrepancy then you can contact your bank and request them to rectify it. They will send updated data to CIBIL and you will get an updated report with an improved score.
Banks don’t approve loan applications so easily these days. They carefully analyze every application and especially check the CIBIL score of the applicant. Thus, you should never feel satisfied with your CIBIL score, no matter how good it is. You must try to keep on improving your CIBIL score not only to ensure you get a loan approved easily when you want but also to have the upper hand when negotiating interest rates with the bank.


Tuesday, 20 September 2016

How Does Credit Limit Affect Credit Score


Credit score is a three-digit numeric that reveals your creditworthiness. It ranges from 300, which is the minimum, to 900. The closer your score is to 900, the more willing lending institutions will be in entering into an agreement with you. A number of factors go into calculating your CIBIL score, and one such factor is the credit limit. A credit limit is the maximum amount that a lender permits you to borrow on a credit card. Lenders will look at your score when they set your limit. Looking at your CIBIL score gives them a better idea of your repayment pattern and your ability to repay future credit. Thus, if you wish to get a credit limit increase, it is important to understand the different ways on how to improve CIBIL score.

When you make a request to the lending institution to increase your credit limit, the institution will perform a credit check. They will look at your credit report, which will reveal to them your credit history. The report shows them the kinds of credit you use, whether bills and EMIs have been paid on time, status of your credit accounts and the duration for which your accounts have been open. What is important to be noted is that every time a credit inquiry is made, your score gets affected. So keep that in mind when you make a request for a credit limit increase. In case you come across inquiries that you did not initiate, you can raise CIBIL dispute over the same and get it removed. Spotting and rectifying discrepancies in the report is one of the ways on how to improve CIBIL score.

Increasing your credit limit is one of the solutions to how to boost your credit score, provided you do not increase your spending accordingly. Your score will be positively impacted when more credit is made available. Raising the limit and keeping the spending in check can help lower your credit utilization rate. When the credit utilization rate is low, your score will go up. On the other hand, if you avail a higher credit limit and use all of it up then your credit utilization rate will shoot up and your score will be brought down. Also if you make a request to lower your limit, your credit utilization rate may go up. Make sure to get all information from the financial institution before sending out any application. Remember, keeping your credit utilization rate low is one of the ways on how to improve CIBIL score. Consider asking for a credit limit increase when your income has increased or when you do not have much debt.

The sum that you owe on your cards plays an important role in determining your CIBIL rating. With an increase in the credit limit, there is a possibility that you may end up having more debt on account of increased spending, thus raising the amount that you owe. Increasing the overall debt will terribly hurt your score, and because of this other lending institutions may be hesitant to enter into any agreement with you. If they do then they could charge you exorbitant interest rates in exchange of the credit. Thus, making sure that you limit your spending and paying down your debt is another solution to how to boost your credit score.

It is important that you have a good credit score to show when lenders make a credit inquiry. Look at the different ways on how to improve CIBIL score if you do not already have a score of at least 750. Most financial institutions do not even proceed with applications where the score is below 700. Ensuring timely payment of bills is one of the ways on how to boost your credit score. Delays on loan repayments can hurt your score and tarnish your creditworthiness. Another solution to how to improve CIBIL score is by lowering your credit utilization rate, as seen above. It is essential to practice the different ways on how to boost your credit score before sending out application for a credit limit increase since chances of approval will be higher.

While a higher credit limit means that you have more credit at your disposal, it does not mean you have to increase your spending accordingly. Increasing the limit is a good thing if you are financially disciplined. It can then serve as your asset. On the other hand, if you are careless then you will quickly fall into a debt trap. Make sure to practice the different ways on how to boost your credit score so that you do not face any hindrances in your financial journey.

Wednesday, 14 September 2016

3 simple steps to enhance your credit score

A credit score is a three-digit numeric summary of a person’s creditworthiness. The score will range from 300 to 900, and the closer it is to 900, the better. Most banks and financial institutions will only take into consideration applicants holding a score of 750 and above. It is thus very important to try and enhance credit score so as to improve chances of availing credit to one’s liking. At a minimum, you must check your CIBIL score two times a year. Knowledge about your score not only gives you an idea about what your creditworthiness looks like to financial institutions, but will also help you realize if you have fallen victim to identity theft.

How to check your CIBIL score?

If you wish to do CIBIL score check, the first thing you would need to do is visit CIBIL’s official site and fill in the CIBIL online score request form. You would be asked to fill in the kind of subscription and your personal details such as email address, date of birth, gender and PAN number. Once you have entered all the details, the site will direct you to the payment page. This is the second step to checking your score. The payment can be made via net banking, debit credit or cash card. After you have made the payment, you will be asked to submit authentication details. You would have to answer three to five questions on your credit cards and loans. And once this third step is successfully completed, you will receive your score in a matter of some hours via email.

If you are unable to complete the online application process, you can send a printed application to the credit bureau. Here, you would have to attach a copy of your ID and address proof to your printed application. After verification, the credit bureau will send you the printed copy of your report. With the credit report, you can view the number of loans reported against your name, accounts that have been settled or written off etc. If you do find spot any discrepancies, you can raise a CIBIL dispute and get the error rectified. Keep in mind that your focus should to enhance credit score. A poor score will tarnish your image among financial institutions and can cause lenders to turn down your application almost immediately. In order to keep from happening, let us look at some measures on how to increase your CIBIL rating.

How to increase your CIBIL rating?

It takes time, effort and systematic planning to enhance credit score. The first step you can take to increase your rating is ensuring timely payment of bills. For instance, if you are making payments through cheques, it is advisable to drop it off few days before the due date so as to avoid late payments getting recorded in your report. Making sure that loans are repaid on time and in full is one of the ways on how to increase your CIBIL rating.

Another solution to how to increase your CIBIL rating is by maintaining a healthy credit mix. If you hold too many unsecured loans, it will reflect poorly on you. In case you want to hold multiple loans, it is advised that you maintain 70% to 80% in secured loans and the remaining in unsecured. It is also very important to avoid portraying a credit hungry behaviour. Do not send out too many loan applications at the same time as this causes the lending institutions to make credit inquiries together. And every time a credit inquiry is made, your credit rating will take a beating.

One of the other ways to enhance credit score is by keeping the credit utilization low. It is calculated by dividing the credit you are using to the credit you have available. When the credit utilization rate is high, your CIBIL rating will come down. On the other hand, when the ratio is low, your score will rise. You can also take the assistance of a credit advisory company to help you enhance credit score. A credit advisor will counsel you on how to increase your CIBIL rating, credit repair and avoid bankruptcy, among other things. They will help you to create an action plan that is aimed at boosting your score and improving the credit profile.

3 simple steps to enhance your credit score

A credit score is a three-digit numeric summary of a person’s creditworthiness. The score will range from 300 to 900, and the closer it is to 900, the better. Most banks and financial institutions will only take into consideration applicants holding a score of 750 and above. It is thus very important to try and enhance credit score so as to improve chances of availing credit to one’s liking. At a minimum, you must check your CIBIL score two times a year. Knowledge about your score not only gives you an idea about what your creditworthiness looks like to financial institutions, but will also help you realize if you have fallen victim to identity theft.

How to check your CIBIL score?

If you wish to do CIBIL score check, the first thing you would need to do is visit CIBIL’s official site and fill in the CIBIL online score request form. You would be asked to fill in the kind of subscription and your personal details such as email address, date of birth, gender and PAN number. Once you have entered all the details, the site will direct you to the payment page. This is the second step to checking your score. The payment can be made via net banking, debit credit or cash card. After you have made the payment, you will be asked to submit authentication details. You would have to answer three to five questions on your credit cards and loans. And once this third step is successfully completed, you will receive your score in a matter of some hours via email.

If you are unable to complete the online application process, you can send a printed application to the credit bureau. Here, you would have to attach a copy of your ID and address proof to your printed application. After verification, the credit bureau will send you the printed copy of your report. With the credit report, you can view the number of loans reported against your name, accounts that have been settled or written off etc. If you do find spot any discrepancies, you can raise a CIBIL dispute and get the error rectified. Keep in mind that your focus should to enhance credit score. A poor score will tarnish your image among financial institutions and can cause lenders to turn down your application almost immediately. In order to keep from happening, let us look at some measures on how to increase your CIBIL rating.

How to increase your CIBIL rating?

It takes time, effort and systematic planning to enhance credit score. The first step you can take to increase your rating is ensuring timely payment of bills. For instance, if you are making payments through cheques, it is advisable to drop it off few days before the due date so as to avoid late payments getting recorded in your report. Making sure that loans are repaid on time and in full is one of the ways on how to increase your CIBIL rating.

Another solution to how to increase your CIBIL rating is by maintaining a healthy credit mix. If you hold too many unsecured loans, it will reflect poorly on you. In case you want to hold multiple loans, it is advised that you maintain 70% to 80% in secured loans and the remaining in unsecured. It is also very important to avoid portraying a credit hungry behaviour. Do not send out too many loan applications at the same time as this causes the lending institutions to make credit inquiries together. And every time a credit inquiry is made, your credit rating will take a beating.

One of the other ways to enhance credit score is by keeping the credit utilization low. It is calculated by dividing the credit you are using to the credit you have available. When the credit utilization rate is high, your CIBIL rating will come down. On the other hand, when the ratio is low, your score will rise. You can also take the assistance of a credit advisory company to help you enhance credit score. A credit advisor will counsel you on how to increase your CIBIL rating, credit repair and avoid bankruptcy, among other things. They will help you to create an action plan that is aimed at boosting your score and improving the credit profile.

Thursday, 8 September 2016

4 key facts about credit score

CIBIL is a credit information company that collects and maintains the records of an individual’s payments for loans and credit cards. Banks and other lenders submit this information to CIBIL on a regular basis. Based on the credit behaviour of an individual CIBIL assigns a score to them. A credit score helps to objectively evaluate the creditworthiness of an individual. Lower the score higher is the risk associated in lending to the person. This credit score is now being used widely by all banks, financial institutions as well as private lenders to evaluate and approve loan applications. Here are some key facts about the credit score that will give you a clear picture of how it affects your financial journey and what you should do to ensure a high score.
If affects various aspects of your financial life
Your credit score is the main factor that determines your eligibility for a loan. Lenders check your score to evaluate your reliability. If you have a good score you can get approval for loans without any hassles. It also gives you the power to negotiate for better terms and conditions and a lower interest rate. These days credit scores are accessed not just by financial institutions. Telecom companies, insurance companies and many broking firms can access the credit information of an individual. A bad credit score may mean higher insurance premiums. Many landlords check the credit score of an individual before renting out a property. Employers too check the credit score to ascertain the reliability and financial health of a prospective employee.

There are a number of factors that affect a credit score
There are several factors that go into the constitution of a credit score.
·         Payment History- You need to pay your bills and loan instalments within the stipulated dates in order to maintain a healthy score. A single late or missed payment can have a negative impact on the score.
·         Total debts you owe to the lenders- If you are utilizing too much of the credit limit that is sanctioned to you then it will negatively impact the score.
·         Length of the credit history - If you have been repaying your debts diligently over a long period of time, it gives sufficient proof that you are a responsible borrower and hence it raises your credit score.
·         No. of hard enquiries- If you have applied for a loan recently the lender will run a check on your score to judge your financial health. A number of such enquiries can have a negative bearing on the score.
·         Credit mix- Having a healthy mix of credit including secured and unsecured loans like mortgage, car loan, credit card etc. affects the credit score positively. In contrast a single type of credit like a credit card is likely to harm your score.

If you do not take credit you will not have a credit score
Many Indians still believe that living on credit is a bad thing. As long as you pay for your expenses in cash you are financially sound. But the fact is if you avoid credit cards and loans you will not have any credit history. There will be no information regarding your credit behaviour and hence no score will be assigned to you by the bureaus. In the absence of any proof regarding your credit worthiness lenders will find it difficult to assess your repayment capabilities. You will be considered as risky as those with a low credit score and so you can have a hard time in getting loan approvals. If you have not taken any credit till now then start doing so and make timely repayments to build a positive credit history.

A low credit score does not mean you cannot get any loans in future
Different banks have different lending criteria. While some banks may reject your loan application because they have strict credit score requirements others are flexible with it. There are many lenders who extend credit to people with lower scores. They charge high interest rates to cover for the greater risk that they are exposed to.
Moreover, if you have a low credit score it does not mean that it will stay that way always. Through strict financial discipline you can improve your credit score and hope for better terms and interest rates. Order your credit report, analyse it for errors, and dispute them to get them corrected immediately. Start making payments on time and work on the factors that are bringing your score down. These efforts will help in raising your score in the long run.


Tuesday, 30 August 2016

All you should know about loan classification

Classification of Loans
 Loan is no more a facility that only a small group of people avail of; they have become much more common now and aid a great deal in financial inclusion.  Loans are taken for various personal and commercial purposes. There are education loans, home loans, business loans, seed capital loan, loan against property and so on. However do you know that loans can be classified into various categories based on different factors? They can be differentiated on the basis of their duration, purpose, collateral backing, repayment status and so on. Here we discuss few such classifications.
Secured and Unsecured Loans:
Secured and unsecured loans maybe distinguished on the basis whether any collateral is attached with the loan or not. Secured loans are those loans which are given against a pledged asset like home loan (against the property for it is taken), car loan, loan against gold, loan against deposits. While unsecured loans have no collateral against them, examples of such loans include education loan, personal loan and credit card borrowing. Secured loans are safer for the lender as the lender as an asset as a safety net if the borrower defaults. This makes them less expensive when compared to unsecured loans. Interest rates for unsecured loans are higher.
Commercial and Non-Commercial Loans:
When a loan is given to a non-individual or a legal entity for business purposes then it is known as a commercial loan. These loans are given for purposes like buying machinery, inventory or equipment. Non-commercial loans are given to individuals; these are loans like car, home, personal etc. For commercial loans the creditworthiness of the organization is assessed while for a non-commercial loan the credit rating of the individual is important.
Demand Loan and Term Loans:
This loan classification is based on the loan tenure. There are term loans and then there are demand loans. In case of demand loans the lender can ask the borrower to return at any time, as the name specifies; on demand. These loans are generally taken for working capital requirements like buying raw material or paying short term liabilities etc. Term loans are for a fixed period, there can be short term loans (less than a year), medium term (one to three years) and long term loans (more than three years).
Priority Sector Lending:
As the name specifies these are advances for specific sectors which require focus or special attention owing to various reasons. Banks may not find it lucrative to lend to these sectors but the government would like to encourage lending to these sectors as these sectors may be important for the economy and the overall development and prosperity of the country. Agricultural loans, loans to Small and Medium Enterprises (SMEs) fall in this category. Loans to such sectors may be given at special interest rates or under special terms.
Classification of Loans as per their Repayment Status:
This is a classification of loans that you can find in your Credit Report and is based on the
repayment status of your loan.
  • STD is for Standard; these are loans for which the payment is made within a 90 day period.
  • NPA are Non Performing Asset and is used for those loans that have been overdue beyond a period 90 days.
  • SUB denotes Sub Standard Account; NPA for over a year are put in this category.
  • SMA denotes Special Mention Account. This category that is used to report a standard account falling to the sub standard category.
  • Doubtful is a loan that has been in the SUB status for more than one year.
  • Loss; an account which is uncollected and is confirmed as a loss.
Irrespective of how a loan is classified; the basic rules for them remains the same. The must be taken with utmost care and should be repayment in full without any delays or defaults.

Monday, 22 August 2016

Fixed Rate Home Loans V/s Variable Rate Home Loans

When it comes to buying a residential property, you ought to use home loan facility. Irrespective of surplus cash in your hand, you should always make use of credit for buying a house. You should never exhaust all the savings in hand for purchasing a home. Availing a home loan is not only a cheaper credit option but it also offers a lot of tax saving benefits. But as you decide to get a home loan, you should clearly know which type of loan you should apply for- a fixed rate home loan or a variable rate loan.

How fixed rate home loans are different from variable rate home loans?
In the simplest words, fixed interest home loans can be defined as home loans with fixed rate of interest for entire amortization period. While the variable rate home loans are the ones where rate of interest is not fixed, but changes as per the market conditions throughout the term of loan.
Thus, if you choose to go for a fixed interest rate home loan, your monthly installment for entire duration would be same, irrespective of market conditions. While the payout would keep fluctuating in case of variable or floating interest home loan.

So, what you should expect when you go for a fixed or a variable interest component?

1.       First things first, with fixed monthly installments you can easily calculate your monthly expenses and make a budget. Thus it is always easier to manage a fixed loan EMI, as compared to a variable interest EMI. In case of variable interest loan, you would need to calculate your EMI every month and this is the most inconvenient factor regarding the changing interest rates. You can use online home loan emi calculator to know about your monthly installments.

2.       Sometimes interest hike may cost you thousands of rupees in a single month and affect your budget. However, when rate of interest is fixed irrespective of market conditions, you pay the same amount, despite the increase or decrease in the base rate. This certainty factor goes in favour of fixed rates.

3.       Usually the rate of fixed interest is higher by 1 to 2.5 % as compared to floating interest rates. Banks charge higher interest rate to cover up the risk of rising interest rates in future. Hence you tend to pay higher rate of interest if you go for a fixed interest loan.

4.       Again, when home loan interest rates fall, you ought to lose the benefits of falling rates if you go for fixed rate. Your EMI will remain high despite the change in market conditions.        
When you should go for a fixed rate home loan?

1.       As home loan is a long term commitment it is viable to have a fixed rate of interest so that you have a kind of certainty pertaining to your expenses. Particularly when monthly installment is less than 40 % of your income, it is considered fairly easier to manage the loan repayment. So as a credit responsible person, you can lock your EMI by going for a fixed rate. By doing so, you need not worry about hike in monthly expenses due to change in interest rate.

2.       Next, when you are comfortable paying your current loan, you can also enjoy other credit requirements with a little planning in the near future. Repaying your loan is the most important factor to improve CIBIL score.

3.       Another good option is to go for an initial 3-4 years fixed loan that is convertible to floating rate thereafter. However you should always check out the fee for switching between the rates from the bank.

4.       This might be a common sense, however it is an important aspect that needs to be considered when you choose the type of loan component. When interest rates are already low and are expected to rise in the near future, go for fixed rate.

5.       For long duration loans, fixed rates are generally a preferred choice.

When you should go for a variable loan?

1.       If you plan to prepay the loan you should opt for floating rate loan. For, fixed rates are higher and if you choose to close the account in a short period you would certainly save on the interest. Also, your loan would not see many cycles of rate fluctuations so you need not bank on fixed rate and pay for certainty factor unnecessarily.

2.       Next, if you are really good at managing your funds, you can certainly choose floating rate as fixed rates are always higher than the current floating rate being offered. You can always save from 1 to 2 per cent on interest rates every month. Also, interest rate would not jump to 2-3 per cent in a day. You will get time to switch the rate type by paying the fee. Next, rate will keep on fluctuating so it is not going to remain higher than fixed rate for entire tenure.


So the decision to opt for the fixed or variable interest rate should primarily be based on your budget and current market situation. Hope the points discussed above helps you take an informed decision.