Saturday, 31 January 2015

Reducing long term debt

In simple terms, Long term debts are obligations that are to be repaid 5 years or more in future. Home loans, auto loans, loans for business, basically loans for big purchases, are usually classified as long term debts. Long term debts are very common nowadays, as for most of the consumers these high priced items are out of reach and they only become affordable when the price is stretched over a period of many years, in the case of long term debt i.e. more than 5 years.

Long terms are manageable for most people if the principal and the interests are reasonable and the individual has a steady income. But then why are so many people ‘underwater’ on their mortgages? Some are behind on their payments because they borrowed a loan which did not justify their incomes while some became jobless due to the recession and lost the payments track.

First thing you could do is be honest about the situation. Take a look at your income, your debts and the interest rates. Are your savings and income enough to pay off your whole debt in the given time? If no, then you have two options- debt consolidation or a refinance.

Some people do not want to go through the process of refinance just for the sake of 1%, they think it doesn't make much difference but when calculated in the long term it does make a difference. Research on the mortgage options and look for lower interest rates. If you have a loan which values more than your asset, the least thing you could do is save on the interest on your long term debt.

A borrower should consider all the alternatives for paying down on your debt. Talk to your bank, they can help with lower interest rates. Banks would rather settle with low interest than nothing. With these ways, you may pay off your long debt slowly but surely.

Friday, 30 January 2015

How much Debt is Beneficial?

Debt is a financial tool which helps you finance large purchases, open a business or even help build your credit score. It is a topic on which different people have different opinions; some find it acceptable till the time you have enough resources to pay it back while some think it is not necessary and that it would become a big liability on your finances.

But we have to remember that debts do help you finance big purchases when you don’t have enough cash flow and it also forms a big part in shaping up your CIBIL score, we just need to know where to draw the line. When is the time when debt become too much? Till How much debt is beneficial for your credit health?

There are guidelines by the lenders on how much debt you should have. Your debt shouldn't exceed a certain percentage of your income. You should have enough income to cover off your debts as well your interests.

When you start missing out on payments, work overtime to pay off your debts, use up your savings- that’s the time when you have crossed the ‘beneficial debt’ line. The debt is no longer beneficial to you and it would start harming your credit score now. Till the time you use it responsibly, debt is a great credit tool but if not it becomes a big dent in your finances.

Before taking additional debt, keep these points in mind.

• The most important one- you should have enough income and saving to cover your payments for the debts( including interest)

• Always go into debt when you are confident you receive a ROI (return on investment).  If you don’t get a good return, no point in going for the debt. Research well on the debt’s ROI value before you go for borrowing.

• Check if you are qualifying for a good interest rate. Calculate the overall charges in the long run. For eg - if getting a house at a low interest rate would be better than renting. If you are not getting a good competitive rate, then take a little time look at your options or if you have a bad credit score, rebuild it and then go apply again.

If you fill the criteria then the debt you are going for is not too much, but if you can’t then that debt is too much.

Thursday, 29 January 2015

Factors needed to qualify for a refinance

Refinancing is basically replacing one debt with another debt obligation under better terms.With interest rates going low, many individuals think of going for buying a home, vehicle, investments or refinancing a mortgage. But it is always the worry of the consumer on whether his loan or refinance will get accepted, with the lending standards now increasing day by day. So what factors are needed to qualify for a refinance?

Before applying for a refinance, make sure that your corporate credit health is in good financial shape. If you don’t have enough financial strength to refinance, then going through the application process is a waste of time. Different credit institutions have different criteria to qualify for a refinance, but following are the general factors needed to qualify:

Value of the equity:
Lenders mostly require consumers to have equity in their homes, other properties etc. The home-owners value of the property should be more than what he needs for the refinancing of his loan.

Credit score:
The mortgage lenders would take in account your credit score, making note if your mortgage payments have been on time. Your credit score shows the credit worthiness of an individual helping the lender make a decision about whether to accept your application.

Debt-to-income ratio(DTI):
DTI is the total debts to be paid as a percentage of the gross income. The lenders take into account your DTI ratio and a low DTI ratio is needed to qualify for a refinance. If you debts form a large part of your income, the lender sees you as a risk as you may not be able to pay back the refinance loan.
The other factors which are seen while evaluating your application is your income, savings and there also may be some additional factors for some other banks.

Tuesday, 27 January 2015

Can you get credit with bad or no credit score?

An individual with low or no credit score has a hard time getting a loan as they are looked upon as a lending risk that may default and leave the lender in losses. People with no credit find themselves into a muddle state since banks refuse to give them credit as they have no credit history and they need credit to build themselves a credit history. So what do you do in such situations? How do you get credit to build your credit history:

Be ready to pay a deposit: 
Understand that you do have a bad credit score and you’ll be needing to pay a deposit to get a card or loan. Many people shy away from secured cards as they have to pay a deposit against it. But remember that, a secured card is the best way to improve your credit score, as in almost all cases you’ll be denied a card or loan with bad credit. So this is the easiest way to build your credit score quickly and then apply and get accepted for better loans.

Also make sure you apply for a secured card which reports your on-time payments to the credit bureaus. Some cards do not do so, and all your efforts of being credit responsible will go to waste as your good habits aren't reported to your credit report and there will be no difference to your credit score.

Credit builder Loan: 
This is something similar to a secured card but in the form of a loan. Here the bank will lend you a small loan for an object you needed to buy. The object is being held by the bank while you make monthly payments to the bank and the possession is given back to you when you pay off the whole loan. This not only gets you the object which you wanted to buy but also helps you build a good credit record.

Avoid Multiple credit applications:
In all these though, you need to avoid applying for multiple credit lines. Applying for multiple credit lines  at the same time does more damage than help. Multiple credit applications leads to several hard enquiries against your credit report which lowers your credit score. So be slow, research well and be selective about the credit you apply for. It is very dangerous for people with no credit as they look as an individual having no credit to bursting into the credit scene which can be bad for their credit health. Don’t waste your time on credit cards or loans which require excellent credit- it is a waste of time as well a dent in your score due to the multiple enquiries.

Discuss with lenders:
Talk to your lenders before you apply for a loan. Some lenders have services wherein they can pull out your data which may be not be included in your credit score but may show your repayment patterns and credit worth. Though it is not included in your credit score, but the lenders may be willing to take a risk and give you a loan despite your bad credit.

Saturday, 24 January 2015

How does Balance Transfers affect your credit score?

Balance Transfer is when the credit card company gives you a service for a limited period of time, where you can transfer your debt to a new credit company which has low or zero interest. Balance Transfer is basically the bank giving you time to pay off your loan and not be held down by high interest rates too.

But the main question is- whether balance transfer affects your credit score? The answer depends on how you go about the process and how you use it. Depending on many factors, it can either hurt or help your credit score.If balance transfers are used responsibly, they can help you reduce your debts and even give a boost to your rating. And though it does help you in saving money, we should consider the overall impact of it on your credit score.

When you apply for multiple balance transfer cards with low interest rates, you can negatively affect your credit score. Applying for several cards means several “hard enquiries” against your report. Hard enquiries stay for 2 years on your report and can take your score by several points. They also reduce your chances of approval and indicate that you may be a lending risk. Do proper research and then apply for one card than multiple cards. Also compare the balance transfer cost and the long term cost of keeping that high interest debt,

Average credit account age: 
Credit history of your account forms 15% of your credit score. The longer the lengths of your accounts, the higher your score. When you open a new balance transfer account, since it doesn't have a long credit history, the average age of your credit accounts comes down. Also most people tend to close their old accounts after balance transfer, which further decreases their average age and in turn the credit score. So even if you opt for balance transfers, keep your old accounts open- they’ll help you in the long run.

Credit utilization rate:
Credit utilization rate forms 30% of your credit score. The lower your credit utilization rate, the higher your credit score. When you open a new balance transfer account, since you will be using all of the account to pay off your debts, your credit limit is fully utilized which will lower your credit utilization ratio and then your credit score. So it is better to get an account which has a credit limit more than what you need for your debts. Don’t close your old account, it’ll keep the available credit more and won’t let your credit utilization ratio go up and thus won’t decrease your credit score.

Friday, 23 January 2015

What to choose- Credit Card or Debit Card?

Credit and Debit Card both are very similar in their usage; the main difference being that in debit card, the money is used from your account where you deposit your money, while in credit card the money is used from your line of credit which you have to repay at the end of each month. So which card gives better benefits than the other? Check the reasons below to find out:

Building Credit Score: 
It is common knowledge how a credit card is very useful in improving and maintaining your score. The only criteria is that you should keep your credit utilization ratio low, preferably below 30% to demonstrate responsible use of credit. While a debit card is obviously not a credit account, therefore it can hurt or help your credit score.

Protection from Fraud:
The liability for fraudulent charges is fixed in a credit card. If your card or card number gets stolen, fraudster cannot steal money beyond a certain limit while in a debit card, the liability is unlimited, depending on how fast the fraud is reported. Your whole account balance is at a probable risk.

Protection during purchases:
During purchases, if you are unsatisfied with the services or products of the seller, the credit card allows you to reverse the purchase charges that have been charged on your card. So that is why in large purchases, even if you can use cash go for a credit card. You can use the cash later to pay off the credit card bill. In debit card, there is no such protection. Money once charged from your account cannot be taken back. Your debit card cannot save you from a poor customer experience.

Perks & Rewards:
Credit Cards offer various perks and rewards for using the card like air miles, purchase points, travel points, gift cards etc. So even if the credit card does charge you an annual, the rewards would overpower the fees any day. While in debit cards, there are very few cards which can offer such rewards and even if they can offer rewards the rewards aren't of much par with the debit cards.

Thursday, 22 January 2015

Does paying off an instalment loan early affect my credit score?

You may be paying off your loan early to save money and free up some of your debts. But if you are hurrying up, in hopes of increasing your credit score then you may be on the wrong path. Just paying off the loan early won’t increase your credit score. Though it is known that paying off debts increase your credit score, you need to know that you should use credit accounts in order to maintain good credit.

Paying off an instalment loan according to the term of loan can benefit your credit extent.

Shortened Credit History:
Credit History is one of the factors in calculating the credit score. The longer credit histories you have, the better it is. That is why open accounts work in favour for your credit history. When you pay off the loan early, it shortens the average length of your credit history and may work against your credit score. A history of on-time payments works greatly in favour of a good credit score.

Closed Account:
Paying off a loan early means your account will be closed off earlier than before. Closed accounts don’t mean much to your credit score. Credit scoring models weight open, active accounts more than closed ones. If you are paying monthly payments on your loan diligently, you are maintaining a good credit score.

Mix of Credit:
Having a mix of credit is one of the factors for a  good credit score. You need to show a positive credit history and timely payments for both, instalment loans as well as revolving credit accounts(Credit cards & other lines of credit) Paying it off early will shorten your credit history and it won’t show up to indicate that you have a good mix of credit for your credit score.

Making timely payments each month than closing your account indicates to the lender that you know how to manage credit responsibly. That is why making timely payments and paying off the loan in its terms has more benefits than paying it off early.

Wednesday, 21 January 2015

How to stay safe from Credit Card Fraud

Consumers have been warned multiple number of times to guard their financial information very diligently, with the number of credit card fraud cases increasing day by day. Your credit card information is usually at risk for theft, which is why consumer should take steps to stay from scams and avoid credit card fraud. Identity theft forms the path way to Credit card fraud.

Cut old credit cards and shred papers where you have written your credit card information:
You may be aware of credit card fraud by dumpster divers where thieves dive into trash cans and take out information from thrown away receipts and statements. Therefore it is advisable to shred such statements and receipts into pieces rather than tossing them in the dustbins to save your credit card number from getting in the hands of the dumpster divers. Also cut your expired/cancelled cards and put them in different bags to thwart thieves from putting it together again.

Avoid sharing your credit card information on-line or phone: 
Many thieves posing as credit card issuers and banks may call you or email you asking for your credit card number. Though they may look or sound genuine, beware of such people they are scammers. Even while paying something on-line, be careful and check if it is secure website before giving out your credit card info. Check for a lock beside the URL to see if the website is safe.

Don’t sign empty receipts:
Always verify the amount before signing the receipt. Also check for any blank spaces on the receipt, if there are- then draw through them as the cashier could write an amount there and get the money from your credit card issuer.

Keep your credit card in safe places:
Always keep your credit card in safe places, tucked away in your purses and wallets properly. Specially take care of them in crowded places and always check your credit card is with you before you leave from a shop where you have used your credit card to pay.

Report stolen/ lost cards immediately:
Report your stolen card to your bank as soon as you can, to save yourself from fraudulent charges made from your account. The faster you will report to the bank, the faster will they freeze your accounts, thus saving you from any further losses.

Review your monthly statements monthly:
Reviewing your reports regularly will make you aware if any unauthorized charge have been made from your account. Even though the charge may be small but it’ll make you aware and you can report it to the bank and avoid credit card fraud.
Identity protection packages are there to protect your identity and avoid credit card fraud.

Tuesday, 20 January 2015

Can you get a car loan with bad credit?

It is wrong to think that with a bad credit you won’t ever be able to buy a car, but this also doesn’t mean that you think you’ll get a car loan as per your own terms and within your monthly budget. Getting a car loan with bad credit is not impossible; it is possible but not always on your terms. You’ll have to compromise on some of the terms of the loan. It also depends on how bad your credit is, like if it borderline some lenders might still see you as a prospect and would be willing to take the risk.

Checking your credit report: 
It is not uncommon to have errors in your credit reports. So it is better to check your reports beforehand to see if there are any errors which may have reduced your score. If there are any inaccuracies, correct them before you apply for a loan. This can save you time as well as money.

Improve your credit score:
Some people are on the borderline of good credit and bad credit. In such situations it is better to wait and improve your score before applying for a loan. You can also request credit reports from other credit rating agencies to check if there are any differences in your score.

Have realistic expectations:
You have to realize that though you’ll be able to get a loan, you are likely to pay more due to higher interest rates than a person with a higher credit rating. Accept your situation and aim for cars which are not out of your financial league. Also accept that since you have a bad credit, you are obviously going to miss on some attractive loan offers so it is advisable to go for less expensive cars which are in your budget and wouldn't lessen your chances of getting a loan.

Payments paid off:
Having unpaid payments is always a bad idea before applying for a loan. Even though the lender is willing to give you a loan despite your bad credit, the unpaid payments won’t go well with him. So clean up your payments records by paying it all off in the months preceding your loan application. Your payments records should be clean at least for 6 months before you apply for a loan.

Check your options:
Since you are in a bad place with your credit, you are obviously going to get loans with higher rates but accepting and settling with the dealer financing your loan without looking at options may prove to be harmful. Yes, the dealer does want to sell his car but he may also be looking for profit in the financing you are likely to get a higher rate with the dealer. Check out with financial institutions, credit unions, your bank and the loans they offer. Compare their interest rates and other terms and choose which would suit you the best. It is better to secure your finance in advance, before you go to the showroom.

Monday, 19 January 2015

What is Credit Counselling and how does it work?

When you are in debt, lots of advices are thrown your way to improve your credit score. So how do you know what advice to follow and which advice would work.  People are always in a dilemma to follow what advice and what to do in such situations. This is where credit counselling comes in- to guide on the right path to become credit healthy.

 Credit counselling is basically professionals i.e. certified counsellors showing you the right paths to clear your debts and get a good credit score. Credit counsellors analyse your total financial situation including your credit obligations, to carve out a plan to successfully pay off your debts.

Credit counselling can be a positive experience, only if you are completely committed to the process and determined to pay off all your debts and work towards a good credit score. The counsellor will only be able to help you if you are willing to get help. The first and foremost thing to do is find a trustworthy credit counsellor with whom you can share your financial situation comfortably. You need to be forthcoming about your financial situation, clearing stating what you owe and the paying off period for the debt you are given. You also need to be up front about your present incomes and expenses so that the counsellor knows how much money you can have available for the payments.

Credit counselling is not an action, only an advice. Credit counsellors won’t pay off your debts for you. They’ll only analyse your credit reports to chalk out a plan for you and advise you on how to pay off the debts. In the end, it will all come down to how well you follow that advice and plan and how determined you are to improve your credit score

Saturday, 17 January 2015

Factors affecting business credit score

You don’t only have a personal credit score-If you own a business, there is something known as a business credit score too. It is on the basis of your business credit report that lenders determine whether to give credit to your businesses.

Managing credit for your businesses is very challenging for small business owners. Lack of knowledge makes them commit various mistakes like using personal credit cards for business transactions, missing out on small business credit opportunities etc. thereby affecting the credit worthiness of their business.

Don’t close your old accounts: 
Unlike how it is said in personal credit to close unused accounts, in business credit it is recommended to not close unused accounts. In business credit score, the more accounts (even if they are unused) the better. The more accounts you have, the more credit you can borrow in future. Closing unused accounts reduces the amount of credit you have available therefore reducing credit utilization ratio and also your credit borrowing limits later in future.

Keep your financial accounts updated:
Though this factor doesn't directly affect your business credit score but if you have applied for any credit, lenders may seek your balance sheets and check whether there are any differences in the actual revenue and the revenue you claimed in your application. This can have an effect on your credit limits and in some cases even the loan amounts.

Evaluating your company’s structure: 
Though sole proprietors firms and partnership firms are the easiest firms to create but they have the most financial constraints. You have to keep evaluating the structure of the company as it may affect your credit score.  

Don’t apply for multiple credit obligations:
Your business credit score can be negatively affected if you apply for multiple credit cards or loans in greed of discounts and increasing your credit history. Too many applications will give you the ‘credit hungry’ tag by the lenders and more credit checks i.e. ‘hard enquiries’ will be done against you, thus hurting your credit score.

Balance transfers:
As said above the more accounts you have the better. But managing multiple accounts become a little hard and sometimes balances remain on some cards. Try to pay off all your balances and if you can’t there are some banks which offer transfer balances at 0% for a certain period of time to pay off the balances.

Friday, 16 January 2015

How does defaulting affect your CIBIL SCORE?

A loan default is basically not making the required payments on your loan to the lender. A loan default is associated with a lot of financial problems. Even if you met all the conditions of the default, your credit score will drop and you will find it hard to get another loan in the future.

There can be many reasons why an individual may have done his payments, but when a certain time passes without you making the payment, it becomes a part of your credit history and would be included in determining your credit score. When this default is added to your credit history, it stays there for 7 years thereby affecting your credit score for a long time. Therefore it is important that your avoid turning your late payments into defaults, to not hurt your credit score.

Default can occur with all types of loan. Default in loans like home loans, vehicle  loans can have the lender take repossession of your home or vehicle.

Default is not the same as deferment as in deferment the payment is postponed mutually after an agreement with the lender while in default there is no agreement that you will get your payments even in the future. Default indicates to the lender that there is far more and deeper problem in the individual’s finances.

If you cannot avoid a default, you can at least reduce the impact of it. The best way to reduce a default is to contact the creditor as soon as you can. If you are late with only a few payments, you can work out some way with your lender for a payment plan. You can also consider various options for refinancing. If you can before declaring on your default, you could sell your car or house on your own or and repay the lender than going to a re po agent. This saves the lender time and money as it is more cost-effective way.

If your debt problems are much deeper than you thought, there are credit repairing agencies which can help you restructure your payment plans.

A default cause more problems than help- it is better to restrict your expenses for a little time than default on your loan.

Thursday, 15 January 2015

How to Get a House for Rent with Bad Credit

Nowadays, many people face the problem of bad credit. And with bad credit comes several problems from getting a job to financial transactions, to renting a home rather than buying a house. Credit score is not just looked at when you go for buying a loan but also when you go out to rent a house. But unlike when you go for buying a house, renting a house with bad credit is still manageable, if you know what you are up against.

For getting qualified to rent a house, you need to prove to the owner that your bad credit in no way would disqualify you as a bad tenant. So make sure that you prepare your credit before applying for renting a house.

Be prepared beforehand:
Try to clear up your credit as much as you can. Try to give the lender as much documentation you can to show you are now trying to improve your credit score. Try to establish a record of regular bill payments.

In the market for a long time:
Try to search for a house which has been in the market for a long time. These properties are usually in low demand for them being not in good localities or they are in need of renovation. Such low demand properties have less strict terms for renting and you can lend them easily.

Be honest about your bad credit status:
Naturally, we think that our bad credit won’t let us get accepted for the tenancy but there is no point in hiding your financial past for this, it would only backfire. If later on the owner finds out about your bad credit, he may look at you like you are a risk since you are hiding stuff. Be honest to the owner that you have a bad credit but try to make him believe that you are now changing and striving to improve your credit score.

Large Deposit:
Always save beforehand for a large deposit. Since you have a bad credit, the lender might see you as a lender’s risk and ask for a hefty deposit. If not, you can use the same amount to make him take the decision in your favour. You can also use this deposit as a few months advance rent.

Research & Reference:
Search for an owner who doesn't run a credit score check. You’ll usually find such landlords in local classifieds as they are private and not big management companies. Get references from your previous landowners who could write good feedback about you and then you credit score won’t matter much. If the present owner sees good feedback about the duration of you stay, your payment record then it would add value to your rent application despite the bad credit.

Wednesday, 14 January 2015

How does closing a credit card account affect your CIBIL score?

Most consumers know about credit scores and strive to maintain a good credit score to get better loans and interest rates. Even though we all know the main factors which will affect our CIBIL score, we still wonder how our credit scores would be affected if we close down old credit card accounts and apply for new ones.

It is known that closing old accounts can help you avoid identity theft and unnecessary fees that may pile on. But at the same time if you are not careful at the time of closing your account, you may end up hurting your credit score. So what are the things we need to take care of when we close our credit card account?

When you close/cancel a credit card, there are two factors that may impact your credit score – one’s effects can be seen in short term while the other’s in long term.

Short Term:
The bright side for the impact in short term is; that it is quite manageable and you can even close the cards where you have to pay high fees, without hurting your credit score.

Credit utilization ratio is the short term factor which may impact your credit score if it is not managed in time. Credit utilization ratio is basically the total credit used in all credit cards as a percentage of the total credit limit of all the credit cards. Higher the rate, the more it will affect your credit score. So you need to maintain a lower rate in order to help your credit score.

If you have two cards, and you close one card with the balance still on it, your credit limit will go down but the total credit used will be the same. And the result would lower your credit score as the credit utilization rate will go up.

What you could do is, if you want to close your credit card first pay off the balance on your card completely and then try to keep your credit utilization a little low for the few months.

Long Term:
In the long term, your credit history and average account length gets affected. After you close a credit card, it takes 10 years for it to get deleted from your credit history. It just means that in 10 years’ time, it disappears from your report and shortens your credit history and also the average length of your accounts. This will hurt your credit score and bring it down.

But this can be avoided too, if you play smartly like get a new card or loan & be credit responsible, then you can ensure that this drop in score doesn't happen at all.

If there are very high fees and interest rates, it is better to close down the card but if the card has a long credit history it is better to avoid closing and risk hurting your credit score.

Tuesday, 13 January 2015

Bad credit can affect your psychological health

When you are in urgent need of a loan, a credit score is a very important aspect as it determines if your loan application is going to be accepted or not.
Repairing a bad credit or recovering from a bad credit report is do-able over a particular period of time but still many aspects of your life suffer from this poor management of your finances and low credit scores.

Every aspect of your life can be virtually affected by a low credit rating. Whether you are late on your loan payments, or maxing out your credit card limits, low credit scores make purchases virtually impossible and will lead to various roadblocks in your lifestyle in the form of limits.

Bad credit can affect your employment opportunities. Many employers especially in the finance sector look at the credit scores before giving out a job. They feel if you can’t handle your own finances how will you handle their company?

If you are looking for a home loan, you’ll have to settle with mortgage. If you have a good credit score, you’ll get a lower interest rate thus lowering your monthly payments and helping you save money. While a person with a bad credit score is likely to get a very high interest rate.The same rule applies if you go to buy a new or even a used car. In fact with a bad credit score, you’ll have to pay more money, even for the used car for which you have decided to settle instead.

If you are looking for renting a home, even for that landlords and owner run checks on your credit reports. You can be denied housing if you have a bad credit score. Even if you are allowed housing, the lenders see you a credit risk and may not give out utilities in your name as you have a history of not making payments in the past.

Credit card debts and loan payments are mostly the causes of bad credit. If you have very high debts and interest rates, almost your whole lifetimes goes about only in paying your debts.

Thus, credit score affects almost every aspect of your life including employment, housing, vehicle etc. It tends to affect the psychological health of the person as he is not able to provide financially for his family. Financial worries may lead to stress and then stress would lead to mental or physical health problems. And that is why a good credit score is necessary as it may, indirectly or directly may affect an individual’s lifestyle one day. There are many credit counselling services which may help an individual to overcome this mental stress and go on a path to improve his credit score.

Monday, 12 January 2015

How does Refinancing affect your CIBIL score?

People are always concerned about what actions affect their credit score.  And if they do affect the credit score, whether it will be a positive or a negative effect?

Refinancing is basically replacing one debt obligation by another- it can be for better interest rates, debt consolidation, reducing monthly payments etc.  So does refinancing affect your credit score? Let us see how it affects the CIBIL score:

Refinancing probably won’t affect your credit score unless you a serial finance i.e. you keep refinancing multiple times. When you apply for a refinance, the lender would request for your credit report which would be taken as a credit enquiry against you thereby affecting your score. When there are multiple hard enquiries against your account, it will negatively impact your credit score and give a ‘credit hungry’ image to your lenders, thereby reducing your chances of getting a refinance loan.
But remember, people with deeper credit histories will be less affected by the refinance enquiries than people with limited credit histories who may see bigger impacts on their credit scores. So a person having a better credit score would get have better chances at good refinance loans than a person with bad credit.

When you go for refinancing, your old account gets closed as a new loan comes in its place. But as we know closing old accounts have a negative impact on your credit score as the established credit history benefit of your older account is lost.

When you refinance, and it comes up in your credit report as a ‘new loan’, it would be seen as a new credit obligation than if you had just changed the terms of the existing loan. If you pay the monthly payments on your refinance loan on time then it will have a positive impact on your credit score.

Therefore always calculate whether getting better interest rates or a longer period will affect your credit score and also if you are saving money in the long run or not.

Saturday, 10 January 2015

Improve your CIBIL score after bankruptcy

When you file or declare yourself bankrupt, not only your finances but even your credit score gets affected. Your CIBIL score is negatively affected and it does stay on your report for a long time but that shouldn't be a deterrent for you that you won’t ever be able to qualify for a loan or buy a house, vehicle etc.  This is actually the first step to get become credit healthy. You will be very surprised to hear that people who have tried to rebuild their credit after bankruptcy have been able to qualify for loans just after a few years. It solely depends on your financial behaviour, on how your credit score will be affected after bankruptcy. These are the few steps which can help you rebuild your CIBIL score after bankruptcy:

Get your Credit report: 
The first step would be to get your credit report. Check your credit report thoroughly for any errors or inconsistencies and solve them. Analyse your credit report and decide what score you are aiming at from this point.

Pay your bills on time: 
Your credit score reflects your ability to repay a loan. When you don’t pay your bills on time it lowers your score. Payment history makes 35% of your credit score. So when you pay your bills on time, it increases your credit score and makes your application more attractive to potential creditors. It is the easiest way to rebuild your credit score after bankruptcy.

Get a Credit Card:
After your bankruptcy, you may not be comfortable using a credit card any more in fear of debts piling up again. But remember borrowing money responsibly and carefully is a quick and effective way to rebuild your credit score. When you are comfortable enough, get a credit card – most preferably start with a secured card where you have to give a deposit as collateral.And then keep paying off the balances at the end of each month. If you are regular with your payments at the end of each month, it is a very effective way to rebuild your score.

You don’t need to charge very high balances on your credit card to increase your score, borrowing some and then paying off that amount is enough. This will keep your debts at a manageable level and won’t allow your interest fees to pile up. In fact charging very high balances could actually lead to increasing your credit utilization ratio which will lower your score.

Don’t close your accounts:
Closing your old accounts does more damage than help as it lowers the amount of credit you have, thereby reducing your credit score. If you still think you have too many cards, then close new accounts rather than old ones. If you are tempted to spend, hide or cut your cards. But preferably it is best to keep your credit lines open to not harm your CIBIL score.

In all of this you have to remember that after bankruptcy, your credit score is not going to increase overnight. You have to be patient; years off responsible credit behaviour will finally improve your credit score and also remove the bankruptcy from your credit report.

Friday, 9 January 2015

How do enquiries affect CIBIL score?

When thebank or the creditor or even you access your credit report to verify credit, it is called an enquiry. An enquiry is basically a notification on your credit report that somebody requested for your file.

There are two types of enquiries which affect the credit score differently:

When you apply for loans or credit card, financial institutions like the banks or the creditors often request for your credit reports to analyse your credit and verify whether you qualify for the loan or not.On the basis of this enquiry they decide whether your application shall be accepted or rejected. Such enquiries are called hard enquiries. These enquiries may lower your score and stay on your credit report for almost 2 years.
That is why it is advisable not to apply for too many credit cards or loans at the same time. Cause multiple applications will lead to multiple enquiries and thus will get you the tag of “Credit Hungry” from the creditors and put a big dent in your credit score.

Soft pull enquiries are basically enquiries which won’t hurt your credit score but will be shown in the credit report. These enquires are when you check your credit score, or you are pre-approved for credit cards , or background checks by potential employers. This type of enquiry is called promotional enquiry. There are myths that when you check your credit score your credit score is affected but you should that it is just a soft enquiry and won’t affect your score.

Thursday, 8 January 2015

Ways to get out of a Credit Card Debt trap

Many people opt for credit cards, nowadays to improve their CIBIL score. And thus people get too many credit cards, without understanding how to handle them and thereby add to their debt pile. Credit Cards are very easy to use but hard to understand.  Without understanding what credit card would be right for us, how many credit cards are needed- we get a credit card and even before we know the interest rates gets to us, the debts pile up and we are stuck.

The holiday season just went by, and as much fun as we must've had splurging, the shock will much more than that when we will be seeing the credit card bills at the end of the month. If you are shocked seeing the bills and don’t have that much money to get out of this credit card debt trap here’s what you could do:

Acknowledge the problem and make a list of the creditors:
First and foremost, understand the problem you are in and take stock of the situation. If you default on your payments and become a defaulter it will have a negative impact on your CIBIL score. To keep It intact, handle this problem as soon as possible. One late payment wouldn’t take much time turning into a larger debt. Make a list of all your creditors and what debts you owe them. Compare the interest rates and then decide which of them to pay first. You could clear off the smaller debts off first or the ones which have very high interest rates.

Stop accumulating more debt and go the cash way:
Cut, hide your credit cards or do anything to stop using them. Budget your expenses in such a way that you use cash for those transactions and if your cash gets over, stop spending. Don’t accumulate any more credit to add to your debt pile and fall deeper into the debt trap.

Tackle one at a time:
The monthly payments you have, pay off minimum payments for all the other debts and the maximum income you can in the one debt you want to eliminate. After that debt gets eliminated you have that extra disposable income which you gave to that debt and which now can be used in eliminating the next debt and then so on.

Balance Transfer:
You can transfer your debts to one account which has lower interest rates. Many banks nowadays offer balance transfers to help borrowers pay off their debts. Some banks offer fixed duration balance transfers while some have lifetime duration balance transfers but with higher interest rates.

EMIs and cheaper loans:
You can convert your debts into monthly instalments if you don’t want to transfer from one card to another. But understand that if you miss an instalment the bank will revert back to the same interest charges and you’ll be stuck again. The other way is you could get a loan to pay off your debts. The advantage in this will be that you’ll have a lower interest rate than the interest rates of credit cards. You can get loans on gold, securities and even FDs.

The last option if this any of these doesn't work is going and talking to you bank and making them believe of your willingness to pay and negotiating with them to give you a lower rate of interest or a more flexible repayment pattern in accordance with their bank policies.

Wednesday, 7 January 2015

Debt-to-income ratio affecting loan eligibility

Credit score plays the most important role when your loan application is being evaluated. We have time and again, been told that- keep your credit score high if you want a loan or credit card in future. Then why are people’s loan applications rejected, even though they have good CIBIL scores.

When lenders or banks are evaluating the loan applicant’s financial fitness; besides the credit score, the applicant’s ability to pay off the additional debt is also taken into account. It’s the debt to income ratio which paints the true picture of your financial life in front of your lenders. It doesn’t cost anything, just a few minutes of your time to calculate your Debt-to-income ratio which could give you a fairly accurate understanding of your financial picture. By improving your ratio, you increase your chances of getting better mortgages, loans and better rates for credit cards.

What is Debt-to-Income ratio (DTI)?
DTI is basically the percentage of one’s gross income which goes into paying off their debts. In simple words, it is the amount of debt you have i.e. credit card debt, mortgages, loans to your total income. DTI measures the individual’s ability to manage his debt repayments. It is calculated by adding all of your monthly debt obligations, more commonly referred to as recurring debt and then dividing it by your gross monthly income.

When you apply for a loan, besides seeing your credit score the lender will look at your credit report and see what other loans and liabilities you have. Then they calculate your debt-to-income ratio and decide whether you are capable to handle an additional loan on your income or not. Most banks have a 40% DTI limit for sanctioning loans. A low DTI shows a good balance between your debt and income.

If you have a very high DTI try clearing out your debt burdens and using cash lump sums for clearing out any existing loans-this will help him in managing his credit situations better and also improve his borrowing power. A lower DTI is more appealing for lenders and it gives you an advantage of negotiating the loan amounts or the interest rates, if the other factors like credit scores, length of time of your job etc. are not in your favour. Though DTI doesn’t create as much buzz as a CIBIL score but it is equally important for determining if you qualify for a loan or not.

Tuesday, 6 January 2015

How does Marriage affect your CIBIL Score?

Getting married is a very happy moment in life, but it can have an effect many things, including your credit score. Most couples want to build their financial future together. But if newly married couples have different credit histories, merging finances can be hard and also in some cases, inadvisable.
If one of you in the marriage has a good credit score and other doesn't, it is important for you to understand how your spouse’s credit history affects you, how can you protect your credit, and how both of you can help each other’s credit record.

No Joint Credit Report:
This is a myth that the credit reports are merged when you get married. While this fact is very untrue as credit scores are tied to single social security number and have an unique identity. Therefore your credit reports remain separate and won’t reflect that you are married. Even if the wife changes the surname after marriage, her credit report still remains separate as the social security number is still the same. If a new file is made after you change the name it is an error, and you should contact the credit bureau as soon as possible.

Spouse’s bad credit affects Joint Credit:
Almost all lenders, employers, landlords take into account your credit report before making up a decision. If one of you has bad credit, it surely is going to affect your credit worthiness if you jointly apply for a loan, a rental home, insurance, or vehicle loan together. Both your credit reports are taken into account and your chances of getting accepted is reduced due to your spouse’s bad credit. Even if it is accepted, you are more likely to pay a higher interest for the loan than if one of you didn't have bad credit.

So what should be done in such a situation? Apply for joint credit or individual credit by the one who has a good credit score. Both the sides has its pros and cons and it would depend highly on how you want go about together in your financial practices before you make a decision.

Individual Credit:
If you do apply for individual credit- your individual assets and income should be enough on their own to qualify for the credit. It usually is harder top qualify only on one partner’s income for bigger loans like mortgages.  Also if you apply for individual credit for a vehicle and home loan, you are responsible for the debts. If you spouse takes away your house or you get a divorce, you get stuck in the debts alone.

Joint Credit: 
When you apply for a joint credit, it is a risk- firstly your chances of getting the loan are reduced due to his/her bad credit. Also the interest rates become higher if you are accepted. Even after all this, if your spouse still hasn't adopted healthy credit habits and is defaulting in the loan’s payments , your credit score is likely to get affected too. If your spouse adds you to his/her account, his bad credit history gets reflected on yours too so make sure you check their credit reports before going in for joint accounts.

The other side of this can be seen is that- you can help your spouse rebuild their credit score on the back of your positive credit score. Opening a joint account with them and being credit healthy there will help your spouse’s credit score in a positive way and in turn make both your credits healthy and future financially secure.

Monday, 5 January 2015

How can your CIBIL score be affected by being a loan guarantor?

Having a good credit score strengthens your chances of getting a loan or credit card in the future.Credit score is determined on the basis of an individual’s credit history and his payment history. But is keeping only your credit and payment history ‘clean’, enough? Can other’s payment history impact our score too? The answer is yes! If you are somebody’s guarantor for a loan or a credit, his defaults in payments can affect your CIBIL score too.

When your friend asks you to be the guarantor for his loan, don’t go overboard with emotions and say yes. Do a thorough background on your friend and check his past repayment patterns. Remember that when you sign as a guarantee, you become responsible to repay the loan if your friend defaults. It would even show up on your CIBIL report, just like any of your other accounts for which you have been liable. If they default on their debt, it will have a negative impact on your score too. Your credit worthiness and score would not only be affected if the borrower defaults, but also if there are repeated delays in payments.

By becoming a loan guarantor, your loan taking capabilities reduce to some extent. If you want to take a loan in future, it is not advisable to become a guarantor. As by becoming a guarantor your own loan eligibility comes down as compared to when you were not a guarantor. This does not mean that because of this reasons the banks will reject your loan, but it just means that they will become extra cautious while assessing your repaying abilities.

Also if you are going to become a loan guarantor, make sure to go for short term loans than longer ones. As in short tenure loans, not only will your responsibilities will be shorter and end sooner, but also the value of the loan will be less than in a long term loan. But there is an exception to this rule too- Long term loans like home loans. In these type of loans you don’t have to pay if there is a default. The money on the default can be recovered from the asset. But  in those cases where there is no collateral, the bank may ask the guarantor to repay the loan and in some cases recover their debts from the guarantor’s assets too.

That is why those who become guarantors for their friends and colleagues must be careful as the repayment pattern of the borrowers would define their credit-worthiness too and also have a negative effect on their credit scores too.

Saturday, 3 January 2015

Choose the Right Credit Card

Credit Cards are very good financial tools for credit creation and a big part in building your credit score. But if used carelessly, they can do too much damage to your credit score. Credit score is factored by credit utilization ratio which depends on credit cards. So that is why you need to choose the right credit card which won’t have a negative impact on your credit score.

Don’t ask which the best credit card is; instead ask which would be the best credit card for me?Think of the reasons why you want a credit card and then choose the one which will be useful for your needs. Choosing the wrong card could prove to be an expensive mistake.

Check your credit report:
 The first thing to do is check your credit report and credit score and analyze it before applying for a credit card. Determine your credit worthiness or perceive it from lender’s point of view to understand what cards would be available to you. Good credit score would get you better perks while getting a credit card so if your credit score is low; improve it if you want better interest rates and other additional services.

Do an introspection for what reasons you want the card:
Ask yourself why you want the card. Are you looking for a card for consolidating your debts? Or  are you looking for a card for your high spending habits? For debt consolidation, look for cards with low interest rates. Many banks also help you in debt consolidating or balance transfers on your card by offering interest rates as low as 0%. This way till the time you pay off the debts you won’t have interests piling up on your debts.

If you have very high spending habits look for a card with high rewards and limits for more than what you spend. Having a higher limit than what you spend will help you keep your credit utilization ratio low and not negatively impact your score. And you will get more rewards since you spend so much.
Some cards offer rebates for specifically some types of spending, if you spend on a certain type of commodity look for such cards.

Don’t limit search too early- look out for all the credit card options available:
Credit cards come in various forms- different interest rates, fees, rewards, miles, prepaid debts cards etc. Check out for all the options after you have understood the reason on why you want a card and then select.  If you get a good deal and you select the card without looking at the option you could've missed an even better credit card deal for your needs.

Also check out with you bank- Some banks offers good deals and lower interest rates for long term customers of theirs. Your long term association with a bank could prove to be good to you when you are getting a credit card and could get you a better deal.

These are things to be kept in mind before you choose the RIGHT credit card for you! But be sure not to give too many applications or enquiries. Multiple applications and enquiries could damage your credit score. Think before you choose the right credit card for you!!

Friday, 2 January 2015

Credit Utilization rate and its effect on Credit Score

Credit utilization rate is the amount of all outstanding balances on your credit cards as a percentage of the sum of the credit limits of all the credit cards. The lower the credit utilization rate, the better your credit score as it shows that you are using only a small part of your limits. It is said that preferably your credit utilization rate shouldn't exceed 30%.Credit utilization shows, how people use credit cards and how disciplined that person is in using his credit.

How the credit utilization rate affects your credit score: 
The credit utilization rate is an indicator for the creditors of an impending lending risk. It is a sign for the creditors that the borrower may be experiencing financial difficulty and hence could be a credit risk. People who constantly go over and above their credit limits, spending all the money they can may tend to be bigger risks when it comes to the time of payments than the people who use their cards responsibly i.e. well within their credit limits.

Due to the different score models, it’s a little hard to calculate in exact terms how the credit utilization rate will impact your credit score. But there is a strong correlation between the credit score and credit utilization rate. Except the ones whose credit utilization rate is at 0%, people whose utilization rate is lower in averages have better credit score than the ones who use up the full limits on their cards.

People with only one card and less credit history would get more affected by high utilization rates than people with several cards and a long and a very good credit history.

How can you reduce the utilization rate?
Paying your credit card payments once at the end of the month is not enough. Credit card issuers can send the data of your account to the credit rating agencies at any time, not necessarily at the end of the month after you have paid the balance. Your balance could have been high at the time when the data was sent so that is why it is recommended to make your credit card payment more than once in a month so your balance never gets too high.

If you have multiple cards try not to use only one card but use different cards for different transactions. This will lead to, rather than having one card with high utilization you would have many cards with low utilization.

The other option would be to try to increase your available credit limit. If you have got an income increase or a good credit history it doesn't hurt to ask for a limit increase. This will help you spend more and still have a low utilization rate since your limit has increased.

Thus credit utilization rate has an important part in your credit score. So keep your credit utilization rate and have a good CIBIL score!