Saturday, 29 April 2017

Secured card can help you rebuild your credit score

An imperfect credit profile can affect one’s ability to secure a loan. If you have financial black marks on your report due to late payments, defaults or foreclosures you need to work on your profile and re-establish credit. Getting new credit and managing it responsibly is the key to rebuild a bad credit history. But it’s easier said than done. Most creditors shy away from lending to people with black marks on their credit report. So does that mean that your past credit mistakes will continue to haunt you forever? Does it imply that people with a bad credit score do not stand a second chance?  Absolutely No.
A secured credit card can help you improve credit score and rebuild your credit. A secured credit card is similar to a regular credit card where you have a specified credit limit. You swipe your card to make purchases and repay it either all at once or through monthly payments. The major difference in a secured credit card is that you are required to make a security deposit which serves as collateral and covers the bank’s risk in case you default. If for some reason your payments are late or insufficient, the bank can dip into this deposit to recover the dues. Since the collateral secures the bank’s money against any bad credit behaviour, most banks issue these cards without a CIBIL score check. The security deposit does not earn any interest. Your credit limit is based on the amount of deposit you make. It is usually equal to or less than the cash deposit. For example if you make a deposit of say Rs 70,000 you may start with a credit line of around Rs. 50,000. With responsible credit use you may eventually get a credit line increase. Many credit card companies increase your credit limit after 6-12 months of on time, consistent repayments.
Do not confuse a secured credit card with a debit card. Firstly the security deposit does not count towards the payment of purchases. It is only a collateral and you need to make monthly payments against the charges that you make to the card. Secondly debit card usage information is not reported to the bureaus. The usage of a secured credit card on the other hand affects your credit score.
Here is how you should use your secured card to improve credit score and build a positive credit history.
1.      You need to charge something to the card and pay it off to show that you are a responsible user. So use the card every month. Keep the purchases small so that you can be sure to pay it off at the end of the billing cycle. Don’t use the card to create debt. If you cannot afford to pay for a purchase, it is better not to charge it.

2.      Use only a small portion of the available credit line every month. An important component of the credit score is the utilization percentage. A low credit utilization rate helps to improve credit score. If you max out your card’s spending limit each month it reflects that you are overly dependent on credit. Such a credit behaviour can have serious negative consequences on the credit score.

3.      It is necessary to maintain a strong record of on time payments if you wish to improve credit score. Payment history is in fact the biggest factor that contributes to building your credit. The best way to ensure that you never miss a payment is to set up payment alerts on email or mobile or arrange for automatic monthly debits.

You can obtain a secured credit card without a CIBIL score check. But like any other financial product, a secured credit card comes with a fee. So compare the interest rate, application fee, processing fee etc. and shop around before you select your card. Responsible use of a secured credit card gives you an opportunity to re-establish your credit history. When the bank reports your spending and payment patterns to the credit bureaus, that information gets recorded in your credit report. Good credit habits and timely payments improves credit score over time. Once you gain a better footing you can request the issuing company to convert your card into a regular credit card. You will then get your deposit back in your pocket.

Friday, 21 April 2017

Can Annually Checking Your CIBIL Report for Errors Actually Help You?

Rajat Sareen is a 28 years old IT engineer working in one of the most reputed software companies of the world. He is considered as a valuable employee of the company and is also responsible with his credit usage as well. He makes sure he pays the EMIs of his land mortgage loan and higher education loan on time, and also keeps his credit utilization under 30% (which is the threshold percentage of credit utilization for a good score). However, he has never checked his credit score himself, not even once. He believes that it’s not necessary to check credit score for a good credit report.
Rajat is not the only one. Many people overlook the importance of checking their credit score from time to time. However, this robs them of the benefit of a much better score. This is because, printing mistakes and discrepancies in the CIBIL reports are two of the most common reasons behind low CIBIL score. Many people start working hard to improve CIBIL score, when in reality they could have done so by simply getting a few mistakes corrected.

Won’t Checking my CIBIL Report Lower my Score?
It is a popular misconception that has been floating around, which is that checking your own CIBIL report can have a negative impact on your score. Truth is that you can check your own credit report as many times as you want, and it will never affect it negatively. This is because this type of enquiry is called a “soft enquiry”.
However, when lenders, such as banks and NBFCs make a formal enquiry on your credit report, which is usually when you apply for a loan or a credit card, then it’s called a “hard enquiry”. This does have a negative impact on your credit report. In fact, if multiple enquires are being made back to back then it can have even greater impact on your score. This is because this only happens when you apply for a loan at many banks at the same time, and they all make enquiries on your credit report. This reflects a credit-hungry behaviour, which puts you in a bad light, and hence credit bureaus deduct your score for the same reason.
Advantages of Checking your CIBIL Report
There are numerous benefits of checking your own CIBIL report from time to time. These are:
1. Credit Score Monitoring
One of the most important things that you must do to ensure your score remains high is to check on it from time to time. This way, if you notice that your score is dropping then you can find out the reason and prevent further damage before the situation has gone out of your hands.
2. Improve Credit Score
As mentioned earlier, discrepancies and errors in your credit report can cause a huge damage. Thus, if you find any, you can have them corrected by contacting your bank or the credit bureau itself. As soon as the changes are made you can observe a boost in your credit score.
3. Keeping Loans in Check
Your credit report can also serve as your financial report that you refer to for getting an understanding of where you stand. You can easily find out about your total pending debt, the money paid in your loans to date, and other details of your bank accounts and credit cards, etc. Thus, you won’t have to create a separate report for tracking your expenses.
Every credit user must check their credit report at least once a year. Although, it is recommended that you do that every 2-3 months. It is a really good habit that will help you in the long run.

When checking your credit report make sure you get it from the official credit bureau and not from a third-party website, most of which provide credit reports for free. This is because only the credit bureaus can provide the most accurate reports which are also referred by the banks and other lenders. 

Saturday, 15 April 2017

Personal Loan Vs Used Car Loan: Which is Better?

Although there are a variety of financing options available for automobile purchases today, many people still find it difficult to buy their choice of cars. Reasons include finding a loan for low credit score, not being able to meet minimum monthly salary requirements set by the lender, etc. If you are unable to buy your dream car then you mustn’t lose hope, for there is a solution. 
A new car, no matter how premium or popular, starts losing its value as soon as it is taken out of a showroom. In fact, in the first year alone the car may get a 10% to 20% depreciation rate. Thus, it often makes sense to get a used car which is still in a good condition at a much lower price than a new car. Plus, getting a personal loan for a used car may be easier than for a new car.
Generally, if you are not able to make the full payment of a used car, you have two options- a personal loan and a used car loan. Let’s find out which of these would be better for you:
Interest Rate
Whether it is about instant personal loans or used car loans, the rate of interest plays a major role in your decision making. Since most loans have a tenure of 3 years at least, the interest you have to pay is huge. Thus, it is best to choose a loan that has a smaller rate.
Typical interest rates on used card loans vary from 14% to 20%. However, a personal loan has a higher interest rate which varies from 15% to 25%. The interest rates vary from one financing institution to another, so be sure to compare personal loans and used car loans, mainly on the basis of the interest rates.
There are many car manufactures that have their own financing services that make it easier for the people to buy their cars. However, these services are likely to be limited to new/used car loans only. Still, you might want to check them out as well.
Credit Score
If you have a low credit score, then you may have to limit your choices. This is because personal loans are unsecured loans, and there is a high risk on the lender’s part with them. Thus, they might deny your loan application right away, or charge a high interest rate at the very least.
Used car loans, on the other hand, are secured loans (with the car as the collateral). Thus, even if your credit score is not high you can get a second hand car loan at an affordable interest rate. 
Loan Tenure
A used car loan can be obtained for a tenure as long as 5 years. However, personal loans can be obtained for even longer tenures (up to 6 years). Thus, if you seek smaller EMIs then you may have to choose a longer tenure. However, it also means that you will have to pay a lot more in the form of interest. Thus, there is a trade-off.
Loan Amount
When you apply for home loans or car loans you usually never get the full amount, if your loan is approved in the first place, that is. Usually you get only about 70% or 80% of the amount you have applied for. This is because lenders calculate the value of the property or the car using their own methods. Thus, if you are applying for a used car loan of Rs. 4 lakhs, then you will only get about Rs. 2,80,000 or Rs. 3,00,000. The rest of the amount will have to be borne by you. On the other hand, if you are applying for a personal loan then you can get the full amount. Thus, if you want full loan amount then a personal loan may be a better option for you.

As you must know by now, that a personal loan has its advantages, just like a used car loan has its own. In the end it is all about which of these suits your requirements better. However, no matter which one you choose, it helps to improve CIBIL score first. This way you can get a better interest rate, and even get a loan approved faster.

Wednesday, 5 April 2017

Taking a Personal Loan? Make Sure You Know the Associated Risks

It is not uncommon for the people to take personal loans for all kinds of things these days. They take easy personal loans for buying a car, house, or even to manage emergency expenses.
In most cases instant personal loans are a good way to get a large amount of cash in a small time. However, many people are unaware of the potential risks that these loans have. The following are some of the top ones that you must know about:
1. Collateral Repossession
Personal loans can be of two types- unsecured and secured. In the former you don’t have to provide collateral, but in the latter you do. For instance, you can get a secured personal loan by offering your house as collateral. This makes the loan “secured” as the lender holds the rights of the property and can seize it if you are unable to repay the loan in the future.
Many people choose a secured personal loan over unsecured personal loan because it usually has a lower interest rate. However, there is a risk of collateral repossession too. Thus, if you don’t want to put your house or any other asset at stake then it’s better to get an unsecured personal loan. You may have to pay more in the form of higher interest, but it is at least safer this way.
2. Early-Payoff Fees
Say you took a personal loan for a new house at a tenure of 10 years. However, after 5 years you land an excellent job and are able to pay off the loan before the actual ending of the tenure. You approach the bank and discuss the same, only to be informed that you will have to pay a hefty fine for that. Sounds absurd, right?
You would think that the lenders would be rather happy to have their loanees pay off their loans sooner than the actual due date. However, truth is that when you decide to repay a loan sooner it is financially counterproductive from the lender’s perspective. This is because they won’t be able to receive the interest amount that you would be otherwise paying if you didn’t repay the loan prematurely. Thus, before you take a personal loan it is important that you discuss about the early-payoff situation. There may be some lenders who won’t charge for prepayment of loans and it may be a good idea to get your loan from them.
3. Bad Personal Loans
Is there such a thing as a “bad personal loan”? Actually, yes, there is!
Small personal loans have become so accessible to the people today, especially with the popularity of P2P lending and attractive interest rates, that they are used for almost everything today. From vacations to marriage ceremony expenses, the reasons galore. However, that’s exactly where the problem lies.
Despite how convenient personal loans are you must get them when absolutely necessary. Otherwise they can lead to a huge debt which can result in CIBIL dispute or your name being added to the loan defaulter list. Your life can also become stressful when you have to pay high EMIs every month. Thus, if you can do without a personal loan in a situation then you should. If needed, you can take a loan from your friends or family instead, which is a lot better than approaching a bank.
4. Damaging Credit Score
Before you apply for a personal loan, or rather any kind of loan, it is important that you check your credit report first. Only if your credit score is high you should go ahead and apply for the loan. If your score is below average, then applying for a personal loan can cause even more damage. In fact, it is possible that your score drops so low that to improve credit score again you have to work for many months. Thus, it is better to withhold your application until you are able to increase it to an appropriate number.

Personal loans are often akin to a glimmer of hope for many people. However, it helps to know the risks they are associated with. Be sure to keep the above mentioned points in mind next time you apply for a loan. It might save you a great deal of time and energy later on. 

Thursday, 30 March 2017

Do not shop around for loan. It may lead to rejection

If you were to apply for a college and school admission the strategy one would follow is to apply to maximum places and then wait for a favorable response. This would seem to hedge your risks. The same can be done when applying for a loan, right? That way you would be assured of getting a loan at favorable terms; no wrong. Applying for loans randomly is not a good idea; while it makes sense to compare interest rates for a loan and also the terms and conditions it does not make sense to apply at too many places as it could impact your chances of getting a loan approved.
Shopping for Loan: Why to avoid?

Before we understand why shopping for loans is bad it is important to understand about hard enquiries. Whenever one applies for a loan, the first step is the prospective lender seeking a Credit Information Report of the applicant from one of the credit bureaus. This generates a hard enquiry and is one of the five factors that go into the credit score calculation. Thus as many applications you make for a loan there will be as many hard enquiries corresponding to it as each bank will access your credit score. All these enquiries into your credit score are reported in the CIR and impact the credit score negatively. Thus if you are working on trying to increase CIBIL score a good way would be to stay away from making any loan enquiries.
So coming back to shopping around for a loan; when you make too many credit enquiries then it reflects that either you are credit hungry or are not qualified to get a loan or both! While at some point a hard enquiry may be unavoidable and it is mandatory before a loan is sanctioned it is best to avoid too many of them. Making too many credit enquiries can reflect that the applicant is credit hungry and is trying to access credit from multiple lenders at the same time or within a short span of time which obviously makes such a person a high risk candidate and lenders would obviously try to avoid such an applicant. Then another conclusion that can be drawn from a CIR which has too many credit enquiries is that the applicant is applying for loans with various prospective lenders but his/her application is being rejected thus leading to fresh loan applications. This will also make the prospective lender vary and could reduce your chances of getting a loan sanctioned. One or two hard enquiries a year will not have any adverse impact on your credit score.
Shopping for Loan: The Right Way:

Loans are usually a burden whether big or small depends on the loan quantum, interest rates and duration. In some cases especially like home loans even a small difference in the interest rate or the terms and conditions could make a huge impact financially. Quite obviously one would like to compare home loans, the terms and conditions, interest rates and other things too before applying so that they can get the best deals. But how to do this without reducing your chances of getting a loan approved.

Thursday, 23 March 2017

Focus on Credit Factors Rather than Credit Score

Your CIBIL score is often the only indicator of your creditworthiness, and thus extremely important. Whether you need a higher education loan, land mortgage loan, credit card, or even apply for a job, your credit score can prove to the top influential factor in the process. So, it goes without saying that you must keep your credit score in check, and if need be you must take all possible measures to improve credit score as well.
Finance experts always emphasize on credit score. However, other than that you must also focus on the credit factors too. In fact, by focusing on these factors alone you can greatly improve CIBIL score.  This is because these factors are what that shape your credit report, and thus the credit score.
The following are the most important factors that you must keep a close eye on to avoid being listed on the loan defaulters list and to enhance credit score:
1. Payment History
Every individual follows a certain payment pattern. Some people try their best to pay the credit card bills and loan EMIs on time, every time. On the other hand, there are many people who tend to delay the payments every now and then, often paying after the due dates. Depending on your own repayment behaviour your credit score can be considerably affected.
Of all the factors the payment history is usually the most influential one (in many credit bureaus it makes up for 30% to 40% of the total credit score). In other words, this alone can make your score excellent or terribly poor. Thus, you must never delay your payments. Every single payment matters, and thus be given due importance.
2. Amounts Owed
Your pending debt vs the credit available decides the utilization rate. So, if you are able to repay your debt fast it can improve your credit score fast as well.
Another important factor is credit utilization ratio. It is the ratio of the credit limit available to you on your credit cards and the amount you actually use. Thus, if you are allowed to take credit up to Rs. 2 lakhs and you spend 1 Lakh a month, then your credit utilization ratio is 50%. Generally speaking, a credit utilization ratio higher than 30% is not considered good. High utilization is a sign of hunger for credit, which raises red flags for the lenders.
3. Length of Credit History
The age of your credit card accounts and saving accounts etc. also play a major role in the calculation of your credits score. The longer is your credit history the better it is for your score. This is because longer history, which is decent, can provide more reliable information regarding the candidate. So, if you have a long history of timely payments then you will have extremely high creditworthiness. When dealing with lenders you can easily have the upper hand, and can demand better interest rates on the account of your history alone.
4. Credit Variety
Having a long history with credit cards or home construction loans, small personal loans, etc. is definitely good for your credit score. However, if your history includes all of these then it’s even better. This is because if there is a lot of variety of the credit taken by you it shows you are experienced and know how to handle debt. You can easily get an increment of 10% to 15% if you have a history of decent credit mix.
5. Report Accuracy
Even though credit bureaus try their best to maintain accuracy in their credit reports, errors do take place nonetheless. There are many possible reasons for the same- the bank may not send the correct information to the bureau, or may withhold certain information inadvertently, etc. Sometimes there are printing mistakes too, but can affect your odds of loan sanctioning. 

So, by now you must be able to understand why credit forming factors are equally important as your credit score itself. Be sure to check these factors from time to time as developing this habit can do wonders for your creditworthiness.

Friday, 17 March 2017

How to Compare Education Loans in India?

There are no two ways to the fact that quality education is important to attain wisdom and make a decent living. Unfortunately, there are many meritorious students all over India whose dreams of becoming the best engineers, doctors, and architects of the world get trampled due lack of enough money to pay for higher education. However, lately many banks have started offering education loans at attractive interest rates, using which anyone can fulfil their dream of getting the education they want.
While education loans are no less than a boon for those belonging to financially weak families, it is important to be cautious when you apply for one.
There are all kinds of loan providers and all kinds of loans for the same course you are interested in. Thus, it is best if you take your time comparing your options in order to identify the best loan that suits your requirements.
Here are some of the basic things you must pay attention to when comparing higher education loans:
Education Loan Eligibility
Most of the popular courses and institutes are recognized by the banks of India. However, it is still a good idea to confirm the same with the banks or the financial institutions that you are considering. Apart from these basic education loan requirements also get the information on their eligibility criteria. Different banks have different criteria for approving education loans. Thus, if you don’t qualify for the education loan with some banks then you can take them out of your list.
The maximum credit limit on higher education loan also varies from one bank to another. Thus, there is point in pursuing a lender when their maximum limit doesn’t cover your requirements. So, if you need lakhs for an education loan for MBA but a bank can offer 10 lakhs at max there is no point in keeping them for consideration. Also, when you enquire for the limits do let them know whether you need the loan for studying in India, or abroad. Sometimes they have different limits for each of them, and may sanction a higher amount for an education loan for abroad.
Processing Fees and Moratorium
Many people underestimate the processing fees when writing an application for education loan.  However, these fees such as processing fees, documentation costs, administrative fees, etc. can be a huge amount when combined. Thus, it is important that you enquire about the same with the banks. Also, don’t just take their word for it and go through the terms and conditions yourself. There can be hidden charges that they might not tell you verbally.
The moratorium period is the grace period that you get when you complete your education. You don’t have to start repaying the loan during this period. Thus, you would want the moratorium period to be as long as possible. This makes loan repayment a lot easier.
Education Loan Interest Rate
The rate of interest applicable the education loan is one of the most important factors to consider when comparing your options. In fact, this factor alone can stand between accepting or rejecting a loan. This is because most education loans have a tenure of 4-7 years, which is a long time. Thus, you will be paying a lot of money in the form of interest.
It is a no-brainer that a loan with the minimum rate of interest is the best. However, you must also check whether it is fixed interest or floating interest. While the former stays the same throughout the tenure, the latter is susceptible to change (can both increase or decrease). Thus, choose wisely. To get a low rate of interest on an education loan product, the applicant must have a high CIBIL score.
 Prepayment Options
If you are able to finish your education on time, and get a good job soon then it is possible you might want to repay your loan sooner than the due time. This is clearly advantageous as you can save a lot of money that you would otherwise have to pay in interest. However, many banks charge a fee for the prepayment option. Thus, make sure you get information on the same before you finally obtain an education loan.  

Education loans can be really helpful, but at the same time they are a big responsibility too. Thus, be sure you weigh all your options carefully and get every possible information to help choosing the best education loan possible.