Friday, 29 January 2016

If you have a low CIBIL score, credit repair is a must!

A low CIBIL score while not the end of the world can indeed come in the way of some of your long cherished dreams such as owning a house or going on an overseas vacation. This is because when you apply for a loan – be it a home loan or a personal loan – or a credit card, the go-to documentation for any lender is the CIBIL report, which contains the CIBIL score.
The route to enhance your credit score may not be a quick-fix one, but with some financial discipline and budgeting you can repair your credit. Read on to know more about the impact a low CIBIL score can have on your credit health, and how you can better it.
What exactly is the CIBIL score?
A three-digit numeric representation of your creditworthiness, a credit score is typically ranked between 300 and 900. It tells a lender just how likely a borrower is to default on a loan repayment, or the probability of a loan going bad.
CIBIL is the oldest credit bureau in India, and hence a credit score is often colloquially referred to as a CIBIL score. Credit reports and the scores thereof are made available by any of the other three credit bureaus in the country as well. With CIBIL, a score of 750+ is considered to be a good score.
Credit score and its usage
Globally, lenders use a risk-based pricing model wherein the rate of interest is based on the credit score and this is where having a robust score helps immensely.
Further, credit scores are used to not just check a borrower’s repayment capacity when determining whether to approve a loan, but also in other areas such as insurance underwriting and by telecom operators before providing a new phone connection. Employers too check credit scores as part of the hiring process, especially where the role requires a high level of confidentiality.
In India, the usage of credit scores has not yet matured enough to cover the above scenarios, but it is being religiously used in lending. To bring home the growing emphasis on scores, it is interesting to note that the Reserve Bank of India (RBI) has recently mandated that all banks and other financial institutions necessarily need to be members with all credit bureaus.
Loans and a low CIBIL score
While availing of a loan for low CIBIL score is not altogether impossible, the chances of your being offered the loan or credit card at less competitive terms are unfortunately greater. This is because higher the score higher is the likelihood of a loan with the best interest rate. Naturally, over the long term this helps you save a significant amount of money.
Let us take an example.
Both Borrowers A and B have approached the same housing finance company for a home loan for a 20-year tenure of Rs. 1.0 crore each. Borrower A has a CIBIL score of 800, while Borrower B has a score of 700. Let us see how the EMI differs as a result of the difference in interest rates. Borrower A is offered the loan at 10.40 percent, which makes his monthly outgoing approximately Rs. 99,000 while Borrower B has to pay about Rs. 1.13 lakhs per month, at an interest rate of 12.50 percent. Hence, over the tenure of the loan, A will save a large amount of money compared to B. Hence in this instance while both Borrowers A and B will wind up owing their dream home, the acquisition cost for Borrower B is much higher – a situation that may have been sidestepped with a better score.
However, on the other hand, the likelihood of your application being rejected also exists. Keep in mind though that the credit score is not read in isolation, a lender also takes into account other parameters such as your income, other monthly commitments as well as any other debt you may have availed of.
It just doesn’t end here. Over a lifetime, you may choose to avail of a loan or credit card more than just the one instance. With a poor score, you may just be closing the door to future debt, even when you require it the most. A case in point is an education loan, which serves a specific purpose at a specific time. If you cannot avail of this loan at the crucial time of your child’s education it defeats the purpose. And unfortunately, a low CIBIL score can lead to precisely such an eventuality.
On a more personal note, a poor score can also affect the relationships that matter the most – when you marry someone, while your spouse’s credit history does not get tagged on to yours and vice versa (until you avail of a joint loan), carrying a burden of unpaid debt from the past can seriously put a strain on the strongest of relationships.
While not directly then, a poor credit history will also have an effect on your physical health. Owing to sheer stress brought on by mounting bill payments, high interest rates it is possible that one might additionally suffer from ill health, apart from being financially unhealthy to begin with.
In conclusion
It is never too late to take corrective measures and work to enhance credit score. The first thing to do would be to avail of the services of a credit health management company such as Credit Sudhaar that can work with you to better your score.
Remember there is no reason to lose heart, but that said credit repair is a must. Don’t let your financial (and possibly personal) life suffer on account of a low credit score.

Wednesday, 27 January 2016

Reasons for a Home Loan Application Getting Declined

Home loan requests are accepted after careful analysis and scrutiny of the application and documents.  The financial institution before accepted a home loan application would like to be sure about the borrower’s financial health, his identity and of course about the property for which the loan is being sought.

Why are Home Loan Applications Declined?
There are various factors on which an application is accepted or rejected.Below we discuss a few probable causes that can get a home loan application rejected. Remember this is not an exhaustive list and there may be other reasons too:
  • Default on Past Payments: Repayment history whether for loans or credit cards is one of the crucial factors the lenders consider when scrutinizing any loan application. Thus any defaults or delays in making payments in the past whether for loans or credit cards considerably reduce your chances of getting a new loan sanctioned. This is reflected in your CIBIL score too; any CIBIL dispute can lead a financial institution to decline the loan application.
As a matter of fact, lower home loan rates get offered to individuals with good CIBIL score.

  • A High Debt Burden: When a bank extends a loan they want to be sure about the repayment; for this they would like to assess the financial soundness of the applicant. If the prospective borrower already has other loans then his/her ability to servicing another loan are seriously compromised. Ideally the debt to income ratio should not be more that 35% or maximum 40%. A ratio higher this can cause the home loan application being rejected. You can use home loans EMI calculator to know if you can service the loan you seek.
  • Instability in Employment: If you have ever looked at the online loan eligibility calculator; the FI seeks to know the person’s employment status and how long the person has been employed.  Stability in job ensures steady flow of income which enables the borrower to repay his dues. Thus a stable job where a person has been working for a while is more acceptable to a lender. An applicant who changes jobs frequently, is new to an organization or is not employed at a reputed organization may find it hard to get his/her loan application accepted.
  • Problem with the Project/Property: Home loans are secured loans which mean they are backed by an asset which in this case is a home. Since home loans are usually huge amounts the lender would like to be sure that the project or the property for which the loan is being extended is free from any disputes. If the property does not have all the required approvals from various concerned authorities or is involved in any legal dispute then loan for such a property will be denied.
  • Guarantor to a Bad Loan: Often due to a low credit score or the applicant not complying with the income eligibility he/she may seek a guarantor’s help. However the guarantor needs to know that any default in payments by the principal will have a negative impact on the credit score of the borrower as well as the guarantor. Thus if the loan applicant has guaranteed a loan which is not being serviced properly than the chances of his/her loan application being accepted are reduced. Guaranteeing a loan also diminishes the borrowing capacity of the guarantor.
  • Not Filing Returns Regularly: Income tax returns of past years are required when an applicant applies for a home loan. In case the applicant has not been regular in filing IT returns then the bank may not accept the loan application. For somebody seeking a home loan it is important to file returns regularly at least two years in a row ahead of the application.
  • Documentation Not Being Complete: FIs have a list of documents that are required along with the application. However due to oversight or lack of understanding if some document is missed out the FI will reject the loan application. There might be instance when an additional document may be required due to special circumstances like the residential status of a seller, transaction by a POA holder etc.
Hopefully the above discussion can come in handy when you are seeking to apply for a home loan; you could say away from these errors.

Friday, 22 January 2016

Steps to rectify a low CIBIL Score

A CIBIL score is the key to every individual’s financial fitness and cannot be ignored. A good score indicates a person’s creditworthiness and is looked upon positively by every lender. With India slowly advancing towards a risk-based lending system, the relevance of credit scores will only increase given time.
What is a CIBIL score?
A CIBIL score is nothing but a credit score, generated by India’s oldest credit bureau, namely CIBIL. Given the association, a credit score is often referred to as a CIBIL score by people. Ranging between 300 and 900, the higher your score better are the chances of your being offered credit at the most competitive interest rates and other terms. This is because a lender is able to determine both the ability as well as the willingness of the borrower to repay any debt they may avail of.
Based on a certain set of parameters, the CIBIL score is the first piece of information lenders consider when extending credit, be it a loan or credit card. Hence it is imperative to maintain a good or high credit score.
What constitutes the credit score?
The below mentioned parameters are what all bureaus consider while arriving at a credit score. While individual scores across bureaus may differ slightly, the factors taken into account remain constant.
The payment history, or repayment track record as well as the amount outstanding constitute a significant part of your score, so make sure you don’t slip up.
Help! I have a low CIBIL score. What do I do?
Relax, and don’t hit the panic button just yet! While having a low CIBIL score is not ideal by any means, there are measures you can take to enhance the credit score. Given time, not only would your score improve, but you will find that getting a credit solution for all your needs also eases out.
Here are some tips you can follow in order to rectify a low CIBIL score:
Make timely payments – When your loan EMIs are due or your credit card bill comes in, ensure that you make the payment promptly. Any delay in payment – or worse, skipped payment – is likely to result in significant damage to your credit score. The longer you delay payment, more severe is the impact.
If you tend to forget payment dates owing to other commitments, consider setting up payment alerts on your smartphone. Banks and financial institutions also offer various convenient payment options including ECS mandates and standing instructions from your bank account. Avail of these to make your life simpler, and never miss a payment deadline again.
Have a healthy credit mix – Relying heavily on one type of credit (secured loans such as home and auto loans, or unsecured loans such as credit cards or personal loans) indicates a dependency on debt, when a lender evaluates your credit report. Hence, be sure to have a healthy mix of credit that will reflect well on your credit report.
If you believe that the debt is indeed tilting heavily towards one loan type, consider making changes to your credit mix.
Debt consolidation – One such option is to consolidate your debt, and reducing your existing debt burden. For instance, if you have multiple loan accounts open and are finding it difficult to service them all, consider availing of a personal loan to clear off all outstanding dues. That way, not only do you save on finance charges and steep interest rates but also have just one single loan to focus on – and which you need to clear steadily.
Credit limit utilisation – With your credit card comes an inherent credit limit, and while it does open up your avenues to make purchases, tread cautiously and be prudent in your spending. A high limit may tempt you to spend more, but remember that at the end of the day, your money will go towards paying off these bills. Hence it is recommended not to exceed 30 percent of the credit limit across cards. This will ensure that you do not fall into a continuous, downwards-spiralling debt trap.
Credit history – Seeing how much the length of credit history also matters, ensure you are able to offer a better long-term financial picture to a prospective lender. Having an old account open – one that has been consistently serviced well – can prove to be advantageous as it indicates your creditworthiness.
If you do not have a credit history, consider availing of a credit card and using it wisely. This will help you build your credit history, which will then be the stepping stone for measurement going forward, when you do require a loan and apply for one.
New credit – Do not avail of a new credit card purely because the initial offers on joining are irresistible. While it may seem good, not only will you have additional dues to pay over time, but multiple ‘hits’ or enquiries on your credit report also tend to make your score dip.
In conclusion
The first step towards rectifying a low CIBIL score would be to call for a copy of your credit report. If your score is indeed low, speak with a trained credit counsellor at a reputed credit health management company such as Credit Sudhaar. Over a period of time with budgeting and making wise financial decisions, you can enhance credit score and move to a healthy credit life.

Tuesday, 19 January 2016

Paid off dues to collection agency. Know the next steps

It is quite easy to access credit these days, with a lot of lenders wanting to get good creditworthy customers who borrow and repay money on time. So if you have been making a continual attempt to improve CIBIL score, there is no going to no dearth of options when you need to access credit. But at times in life, because of an unforeseen situation, you may not be able to repay your debt on schedule.
This is when, a lender may send a collection agency representative or a collection agent who may come to your home or office to collect your dues. You may work hard and rustle up the money to re-pay the collection agency, because you are already under stress and are feeling immensely guilty about the fact that you have not been able to meet your repayment commitments on time, but just paying off your dues to a collection agency is not enough. You need to further pursue too see that your dues have been settled and ensure that you have your chance to increase CIBIL score. Here is a step by step guide about what needs to be done after your dues have been paid off:
Keep a proof of the settlement of your dues
If a collection agent has been sent to your place to collect your dues, do not be so overcome by guilt that you forget to do the needful. First up, do not agree to pay him unless he is carrying some identification and is not ready to give you a written document stating that your dues have been cleared. You should save this document safely to ensure that you can furnish it at a later date if anything goes amiss. There have been cases when a borrower has settled his dues with one collection agency, only to be contacted by another agency later, at which point of time he discovered that the previous agency was a fraud.  
Ensure that your payment has gone through
Your responsibilities do not end, once you have handed over your cheque to the collection agency. You must make a note of your cheque number and ensure that the cheque has been cleared by your bank. If you have made a debit card or an online transaction, ensure that you check your savings account to see that the payment has gone through and your account has been debited accordingly. If necessary, make a call to your lender (with whom you have settled your dues) to be doubly sure that your payment has gone through and that you have no outstanding dues.
Check you CIBIL report
Your CIBIL score will have gone down, because of non-payment of your dues on time, but the good news is your CIBIL score is not etched in stone, and your efforts to improve your CIBIL score will show up after you have paid off your dues. Don’t however check your CIBIL score immediately as it is not possible to increase CIBIL score overnight, and the efforts you have made to repay your dues will not reflect immediately. Wait for a month or two, and then pull out your CIBIL score and report. If you still see that the changes are not reflecting on your score, you will have to raise a CIBIL dispute. After raising a dispute, CIBIL will forward your request to the concerned lender who will make the necessary changes and re-send the correct information to CIBIL. Only after the rectified information comes to CIBIL can it make a change in your CIBIL report that will ultimately reflect in you CIBIL score. However, do bear in mind, that this is a time taking process and may take as long as 30 days.
Build a contingency fund
Once you have settled your dues with your lender and brought up your CIBIL score to a satisfactory level, you can heave a sigh of relief. However, the efforts you have made to settle your dues may have proved to you that life can take an unpleasant turn quite unexpectedly and you must be prepared for the worst. In the modern times that we live in today, it is of utmost importance to make an attempt to keep your CIBIL score high and make continual efforts to enhance credit score at all times.
Therefore, if you are servicing debt of any kind, make sure that you build a contingency fund that can take care of your financial commitments including repayment of debt for a period of three to six months. That way, even if life does throw a spanner at you at the time you least expect it, you do not have to worry about your debt repayments on the impact that non-payment will have on your CIBIL score. By building your savings kitty little by little you will realize that it pays to be prepared at times such as these!

Friday, 15 January 2016

Facts on Debit cum Credit Cards

When the amount of plastic you’re toting in your wallet becomes one too many, it’s time to consider cards that blend the functionality of credit as well as debit cards in one! Of course, before you decide to make the switch, let’s take a closer look at what these cards are about, and the features they offer.
Traditionally, we are used to the concept of debit cards being independent of credit cards, and one with a dual function was almost unheard of. Until recently, that is. 

 What are these cards all about?
To combine the flexibility of both debit and credit cards, this card will automatically switch to credit mode from debit mode when your account runs out of cash to make the transaction you are attempting to carry out. Simply put, these cards are in actual fact nothing but credit cards, but provide an overdraft benefit to the cardholder. Let us say you make a purchase at a store, and exhaust the balance in your bank account. The card can then be used up to the limit pre-assigned to you, in addition to the account balance – similar to the way a bank overdraft functions.
What are the features and benefits of these cards?
A debit cum credit card typically carries the same benefits and features that your debit card does, including the option of being able to withdraw money at an ATM. You can use it at merchant establishments too. In addition, as with credit cards, you can make purchases irrespective of the balance in your bank account. Further, you would also get reward points for using the card, which can later be redeemed. The card also carries insurance coverage in case of loss or misuse of the card. Of course, do check with the issuing bank for the complete list of features and benefits, as they may vary from bank to bank.
How does one apply for credit card that also doubles up as a debit card?
Well, the first thing to do would be to check on the credit card companies that issue such cards. A relatively new entrant in the market, some banks are yet to provide this facility to their customers.
Various banks consider different criteria when assigning this card to their customers, primary among which is the parameters on which the credit limit is set. Typically, it is up to three times of the customer’s take home (or net) salary. Another option that a bank would consider is the amount of fixed deposits maintained with the bank, or it can be security-based, on bonds or schemes like the National Savings Certificates.  In most instances, this facility is extended to the bank’s salary account holders, as in the event of a default, there is a regular salary being credited to the customer’s account and this amount can be used to adjust the limit being assigned to the customer.
What are the fees and charges for this card?
Typically free – that is with no processing fees or other charges associated with it – the card stays as such when you are utilising it as a debit card. Once you use the credit limit however, you would need to pay interest on the amount used, which is calculated on a daily basis but charged monthly.
Unlike a credit card, when you use this card to withdraw money at ATMs, you do not have to pay any additional cash withdrawal charges. Further, with standalone debit cards, using your card at another bank’s ATM more than five times a month attracts charges – which this card does not.
The interest rate on this card is also lower than what most credit cards offer. While these are low interest credit cards, remember that the interest is applicable on the overdrawn amount from the day that the credit limit is used, which means that there is no interest-free period like what a credit card gives the user. Interest therefore is charged on the entire usage period.
Should one opt for these cards?
As with any other card, go through the features and benefits in minute detail. Compare these with standalone debit and credit cards before you make your decision.

Tuesday, 12 January 2016

Denied a loan? What happens now?

“Most of the important things in the world have been accomplished by people
who have kept on trying when there seemed to be no hope at all.”
– Dale Carnegie
How apt is this quote for those who have recently faced a rejected loan application. Just imagine that you are in the process of buying your dream house and you apply for home loan. But unfortunately the loan gets denied. Now what?
This situation can be really disheartening, for both financial and personal reasons. You have paid for booking the property and now living into your dream house seems to be a far-fetched dream. It not only leads to shattered hopes and plans but it also leaves prospective customers feeling helpless and clueless on where to go? What to do? Well, for starters the good news is not all is lost. Credit solution is available for you. You can do the following to make headway once again.

  1. A lot of people are travelling in the same boat. The first question that you must ask your creditor is “Why”. It is important to find out why was the loan rejected? It is possible that you lack some essential documents or are not eligible for the sanction amount that you have asked for. There could be many more reasons that may be difficult to understand. But there is nothing to worry. Once you have found the reason for rejection, you can work around to resolve the hindrance.

  1. One of the most common reasons for rejection is your credit report. In such a case, you may be directed to contact CIBIL to find out your report. It is advisable that you check your credit report at least six months before you apply for a loan. But if you hadn’t done so, not to worry. Do it now. Ask for a copy of your report from CIBIL. Find out your score and other information provided about you. You can certainly spot the reasons that are pulling down your score and work upon to improve CIBIL score. If there is misinformation that is affecting your score then raise a dispute with CIBIL to get it rectified.

  1. Raising a dispute with CIBIL and working on improving your score may help. But if it seems that everything else in your report seems good, then do not hesitate to ask more questions to your creditor. Sometimes you may not be meeting their minimum eligibility criteria for picking up the loan amount you may have asked for.

  1. Banks are interested in giving loans to customers and a rejection affects them as much as it affects you. Loans are part of their asset stream. Their business grows with more loans sanctioned. All banks and financial institutions have different internal policies and parameters while considering a loan application. Sometimes the reason for a rejection may be as small as a missing document or the mortgage offered is not in accordance with the policy of the bank or financial institution. By arranging the required document or accepting the lower loan amount for now you can move ahead. Arranging a guarantor for your loan may also help. You may ask the lender to re-evaluate your mortgage or you could offer some documents in support of it.

  1. Banks have a standard procedure of verifying all details that you may have mentioned in your application.  A failed verification attempt, like wrong address, wrong employment details etc can also lead to a rejection. You must be careful of what you mention in your application. Correcting such errors and reapplying may help you to get your loan approved.

  1. You can rephrase your loan application after you have examined it from a bank’s point of view. Check your credit report before applying, be certain that your details are spot on, all your documents are ready and your income limit is in accordance with the amount of loan you are seeking.

  1. Furthermore, you can get a second opinion. You can apply to non banking financial institutions if no bank has picked your loan yet. It is possible that you may have to pick your loan on a higher rate of interest. But you could negotiate although since there is not much competition from banks, it may be difficult to negotiate on the rate of interest.
You must explore the loan market and apply to other banks or other non banking financial institutions and keep looking for a loan that would suit your need. But you must not do it without preparation. Please do bear in mind that too many rejections will adversely affect your credit score.
Do your due diligence before applying for a loan, make sure the details entered are correct and verifiable, always observe financial discipline and be credit responsible is our best suggestion to you.
Happy credit to you ☺