Wednesday, 18 March 2015

How credit score affects interest rates?

Repayment of a loan has two parts- the principle and the interest on the borrowed amount. And thus every person who is looking for a loan tries to find the lowest interest rates possible. A low interest rate makes it easier for the borrower to repay it back as there is less interest added to your monthly payment.

Bank interest rates are not set generally but they are set up on the basis of your credit score. Banks check your CIBIL score to measure your credit worthiness i.e. the ability to repay back the loan which is one of the main factors in deciding your interest rates.


The three major credit bureaus- CIBIL, Equifax and Experian collect data from lenders and banks about your credit history and payments and they compile this data into your credit report. Banks use these reports to determine your credit worth. The better your credit score, the better interest rates you get and the lower your credit score, the higher will be your interest rate. Higher credit scores show the lender that you've handled credits well in the past and pay your dues on time and thus lower interest rates while in lower credit score, the banks see you as a high risk customer and are sceptical about you paying off your dues.


The higher risk you pose as a borrower, the higher interest rates the banks set up for you and vice versa. The range of a credit score generally is 300 to 900. A credit score higher than 750 is most likely to get lower interest rates and anything below 600 gets you higher interest rates.

Monday, 16 March 2015

Debt management tips

It’s become really hard dealing with credit in the present economic conditions. Your loan application is scrutinized more thoroughly now by lenders and banks. Your credit report is what is used to evaluate your loan application and debt forms a big factor of your report. But managing debt is different for every individual as your debt could be because of different circumstances like job loss, medical etc. You can just follow these basic tips to manage your debt:

Prioritize:
Prioritize your payments; Think of paying off which debt would be beneficial to you. Decide if you want to pay off a smaller debt first or high interest debt first.


Negotiate:
Negotiate with your bank or creditor to lower your interest. Talking to your banks helps you as they cooperate with you for your debt payments.

Debt Consolidation:
If negotiating doesn't work, you could look at consolidating your debt. Debt consolidation is taking one big debt with a lower interest rate or zero interest to pay off all your debts. It helps you as you don’t have to paying off multiple debts but only one debt instalment a month.

Credit Counsellors:
If sometimes you can’t help yourself, credit counsellors can. They help you draw your budget, reduce your spending, negotiate with your banks for lower interest rates. Research well before going to a credit counselling agency, so that you get the best services at the best price.

Settlement/ Bankruptcy:
If you have no other resort left, settlement can be the last option. In cash settlement with your credit or bank, the bank gives you a big discount for paying off your debt by a certain date in cash. If you don’t have cash for a cash settlement, then you may have to declare bankruptcy.

Settlement and Bankruptcy both negatively affect your CIBILscore and stay on your credit report for a long time, so try to follow the above steps and try to never reach the last resort.  

Friday, 13 March 2015

Why does my credit score change?


We believe if we don’t change any of our financial habits, our credit shouldn’t change. But our credit score depends on our credit history which keeps changing, little by little. When you generate a credit score from a credit bureau, it generates a new credit score for each credit score request and gives you the updated credit score.

There are three credit reporting bureaus- CIBIL, Experian and Equifax who create your credit reports and your credit score is based on that. When the credit bureaus receive new balances, enquiries, recent payments and any other information from your lenders; your credit report is updated and a new credit score is calculated based on this recently updated information.Any small variation in your credit line could have an impact on your credit score, the main factors being changes in your payment and borrowing behaviour.


·   When you make payments, your total debt reduces which is one of the factors to calculate your credit score.

·   Old items i.e. negative credit history like bankruptcy disappears from your credit report after 10 years and that may account for some changes in your credit report. In the same way, when you close old credit card accounts they fall off your report after a period of time too.

·   When you use too much of your available credit, your credit utilization ratio rises thereby dropping your credit score. Keeping it low is the key to maintain a good credit score.

All these may account for small changes in the credit report, but they are changes nonetheless.

Tuesday, 10 March 2015

How mobile bill payments affect your credit score?

Your cellphone/ telephone bills are one of your necessary monthly expenses. Most people don’t know this but not missing a bill payment or not paying your mobile bill doesn’t only cut off your network, there is another repercussion to it too. Like your other monthly expenses like mortgages and loans, not paying your mobile bill affects your credit score too.

So how exactly do your mobile bill payments affect your CIBIL score?

Like it usually happens with other bills, not paying off your mobile bill may damage your credit score. Most mobile networks would cut off your network if you fall behind on your payments. You may think that you only have an outstanding bill, nothing to worry about. But you wouldn’t even know and by the end of this you’ll be stuck with an outstanding bill as well a low credit score.


After cutting off your network they’ll most likely report your nonpayment dues to the credit bureaus and then turn your debts to the debt collections agencies. An account which makes itself to collections stays on your credit report for a good 7 years thereby harming your credit score more. So pay off your cellphone bills on time to save your credit report from any harm.

You may be thinking not paying a bill can negatively affect my credit score so does paying it improve the score? No it doesn't. Since your bill payments are paid by cash or from your bank account and also your mobile network company hasn't given you credit, your payments are not reported to the credit bureaus.

If you do want your regular bill payments to affect your credit score positively, then use a credit card to pay off your bills and if you can’t get a credit card, you could opt for a secured credit card. Whatever you charge on your credit card is limited to the amount you put on your card. And your credit card issuer will report your payments to the credit bureaus, and thus you can build your credit score with your mobile bill payments.

Wednesday, 4 March 2015

How to pay off your debt faster

Paying off or defaulting on your debts plays a major role in shaping your CIBIL report. One late payment on your debts could affect your credit score in a very negative way. So what does one need to pay off these debts faster in order to maintain your credit score at a good score?

There are two main ways to get rid of debt faster:

Don’t let your debts increase: 

The first and foremost thing you could do is to see to it that you don’t let your debts increase. Pay off the installments on time; don’t miss any installments as that could affect your credit score negatively. As the debts would increase, it would become that much harder to salvage your credit score.

 credit score


Try to reduce the interest rates:

Second thing to take care of is, don’t let the interests on your debts pile up –that would affect your credit score much more. If you are not able to pay off your debts, talk to the banks to give you reduction in the interest rates. You may not be aware of this but some banks do give recessions like these.
You can also apply with the same banks for a balance transfer or debt consolidations. In Balance Transfer cards, banks let you shift off your balance to a zero or low interest cards so that you can pay off your debts faster without the worry of the interest piling on. While in debt consolidation, you can consolidate your multiple debts by taking one debt to pay it all off. This saves you time, money and also the efforts to maintain those multiple debts.
These are some of the ways you could pay off your debts faster and save your credit score from dropping drastically.

Saturday, 28 February 2015

Understand your Credit History

Credit history is an individual’s or company’s records of his past borrowings, repayments, other payments and bankruptcy. It is basically all the past records of your credit life. Credit History plays a very important role in shaping up your credit score and that is why it is important to understand your credit history.


All the factors affecting the CIBIL score are somehow or the other related to your credit history.  Having a good mix of credit in your credit history forms 10% of your credit score.  You should’ve taken a good mix of unsecured and secured loans including home loans, auto loans, personal loans etc. to score higher in your credit report. Not only taking loans but servicing them in time also affects your credit score. You should have timely made payments as part of your credit history so as to get a good credit score.

 CIBIL score


The other factor which gets affected by your credit history is the length of your credit accounts.  The longer your credit history, the better your credit score. That is why it is recommended by most people not to close old credit card accounts which have been going on for a long time, as it brings down the average length of your credit history. 


But also be aware that defaulting on your payments and bankruptcy stays on your credit history for a long time too and negatively affects your credit score. Therefore, making timely repayments and servicing your debts responsibly for a long time is the way to a good credit history which in turn is the way to maintain a credit healthy life and a good credit score!

Wednesday, 25 February 2015

How to use a balance transfer card wisely?

Balance transfer cards are cards that offer very low or zero interest rates. If you have high-interest debts to pay like loans, credit cards then you can opt for a balance transfer card to save money on the high interest rates.  You can transfer your due balance to a balance transfer card with a low or zero interest rate and pay off the balance without worrying about the interests piling up. But to get approved for a balance transfer card, you need to have a good credit score. A good CIBIL score also helps to get the balance transfer deals. But you should also know that balance transfer cards have an expiry period ranging from 3 months to a year.


So how should one use a balance transfer card wisely? 

Your main aim should be paying off that balance before the low interest rates for the balance transfer card expires and interests start piling up again. Don’t transfer a balance if you are not sure of paying off the debt before your low interest rate expires. Transferring a balance when you are not sure about paying it does more hurt than help because in the end you’ll be stuck with a bigger interest rate than the one in last account, once your low interest rate expires.  You would lose money than what you were thinking of saving while transferring the card. Make sure you understand all the terms of the cards before you make a transfer. Try to get the lowest fees & interest rates and the longest period of time.

Balance transfer card don’t make the balances go away- they optimize your debt by making it less expensive for a limited period to help you pay it off. So follow these steps and use your balance transfer card wisely!