Three sure shot tips to improve CIBIL score

Anil Mehta had been grappling with his credit card dues for a while, after which he spoke to the credit card issuer and a payment settlement was amicably arrived at. This made Anil happy, and all was well financially until Anil applied for a home loan. This time, his application for credit was rejected because his credit score was low – a direct fallout of the issue with his credit card payments and subsequent settlement. Hence, Anil now had to put off purchasing his dream home and instead work on repairing his credit score, a task which while not impossible, did put his plans on the back burner for some time.

Getting a good credit score might not be difficult to begin with, but to maintain it can be quite a challenge, especially for those with even a slight lack of financial discipline. However, with all lenders across the country today checking the credit score before extending any credit facility – be it a loan or credit card – it becomes even more important to not only have a good score but to enhance it as well. With a poor or low score, the borrower tends to lose out on the best, most competitive loans especially with regards to interest rate, leading to potential loss – their opportunity to save money over the long run with the best interest rates diminishes.

What is a CIBIL score?

CIBIL is India’s first credit information company or credit bureau. As a result very often, a credit score is referred to as a CIBIL score colloquially. However, a credit score obtained from any credit bureau measures the same parameters, even if the score itself differs slightly.

How to improve CIBIL score

Remember, much like physical fitness, you need to work at staying financially healthy. Let us then take a look at three sure shot ways in which you can improve your credit score.

Make payments on time – While getting a loan or credit card may not be very difficult, there are always monthly obligations that go with it, in the form of either EMIs or bills that need to be paid. Not paying bills on time not only means you shell out extra by way of finance charges, late payment fees, steep interest rates and applicable service taxes, but it also can mean a decline in your credit health. Ensure that you have your finances sorted to make these payments on or before the due date, as every delayed or skipped payment can be a nail in your credit coffin.

A fair number of people tend to skip making payments not because they wilfully intend to default, but because they tend to forget the payment due dates. If you fall under this category, in today’s technological times, it is easy enough to keep track of your payments. Download apps onto your smartphone or tab that help you with this task, set payment reminders and opt for payment alerts from the concerned financial institutions.

Further, making full payments also helps maintain financial discipline as rolled-over payments only attract heavy interest charges and fees. While it may not affect your credit score directly, the tendency to consistently roll-over payments may just land you in a debt trap, if you are not careful. And that is a payment behaviour that can land you in trouble.  

Use credit wisely – When you receive a credit card, it comes with a pre-set credit limit, one that determines how much you can spend on the card. While it is always thrilling to see a high credit limit, there may just be a downside to that: a higher limit may tempt you to spend more than what your means to repay are. Hence, it is always recommended to stay within the credit limit, and not over-extend yourself. Remember, when the card bill comes in at the end of month, you will need to repay it. And while the available credit limit may be high, the means to repay (your income) is finite and overspending can therefore kill any budgeting you might do.

On the other hand, having a high credit limit can be useful if you keep your credit utilisation low, as it means you have a lot more credit at your disposal.  The recommended usage, i.e. the credit utilisation limit across all your credit cards is 30 percent, constantly exceeding the same may be asking for trouble.

Retain ‘good’ old debt – If you have a credit card that you have been servicing well over the past few years, do not close the account. Maintaining this account can prove to be a boon, as it shows your reliability as a borrower, your ability to repay bills on time and can work as a good measure of your credit behaviour to a prospective lender.

Old debt creates an impression of longevity, and helps boost your credit score – something that every lender takes into account when approving a fresh line of credit.

Of course, to maintain an impeachable record, do ensure that you pay all outstanding bills on time and do not rack up any overdue amounts.

In conclusion

The first thing to get started with is to call for a copy of your credit report. This will help you understand what your current credit score is, and how you can better it. Given time and some financial discipline you will be able to enhance your credit score successfully.

What Collection Agencies Will Never Tell You

When you’re neck deep in debt, the only possible thing that you would do is to look for a way out, one of which is debt settlement wherein you ‘settle’ or pay off your debt for less than what you actually owe to a lender. While this may sound like a fantastic deal, it may not be the case in reality. There are pros and cons both to debt settlement and before you choose to avail of this option as a seemingly easy way out, stop for a moment and consider the pitfalls and consequences.

What is debt settlement?

Simply put, debt settlement involves pay off or ‘settling’ an outstanding loan or credit card amount by paying whatever is financially possible to the lender or credit card issuer. It need not be the entire amount due but in fact can be significantly lesser.

The obvious pro in favour of debt settlement is the fact that it is a one-time payment that clears off your dues that you can afford. And if the settlement proposed by you is accepted by the lender you will pay much less than what the original amount is, sometimes even as much as 50 percent less of what is owed.

There are two ways you can go about debt settlement – either you negotiate with the lender personally, or engage the services of a credit counsellor to negotiate with your creditors and find a middle path, or a mutually acceptable way out.

Debt settlement differs from debt consolidation in that with consolidation, you avail of a new loan to pay off the ones you already have. The new loan is likely to have a rate of interest lower than the existing ones and this may ease your finances considerably each month.

The negatives of debt settlement

For those who choose to go via the route of hiring the services of a debt collection agency, it is likely that the fees you pay to the agency are substantial – so not only do you wind up paying less towards your outstanding amount, but utilise that money to pay the collection agency instead.

Further, if you engage the services of a debt collection agency, you will be required to stop paying the lender or credit card company directly and instead route the money via the agency. The money is then paid out to the creditors once a sizeable chunk has been credited to your settlement account. Until such time, know that your account continues to show as delinquent and that your CIBIL score keeps plummeting until such time that the money is paid towards the outstanding amount.

Typically, debt settlement applies to unsecured loan products; hence any secured loan such as a housing or auto loan is likely not to be covered under such a programme.

When it comes to reporting this information to credit bureaus, lenders categorise these accounts as ‘settled’, instead of ‘paid in full’, unless the terms have been carefully negotiated with the lender. This can again have an adverse impact on your credit score, as a settled account is not viewed very positively – the reason being, you are paying off what you can afford and not the entire amount, which clearly signals solvency issues to a lender. Hence while you have eventually (and possibly with a lot of effort) paid off whatever you can, when you next look to avail of a loan, a lender may look at your settled account less favourably and may deny you a loan or credit card at a future date.

Further, when you are looking to settle debt, you need to pay off money in one go. So while this may mean that your financial woes ease out in two or three months, it also implies that you need to fork out a sizeable chunk of money all at one. When you are already in a financial bind 9and hence looking to settle a loan), this in itself may be difficult.

Impact of debt settlement on the credit score

Debt settlement while offering temporary relief from your debt burden in the long run can be anything but healthy. This process can often leave individuals with damaged credit scores that can take a long time period to repair, or sometimes drive them deeper into further debt.

In conclusion

However, at the end of the day if you have no option left to you but to opt for debt settlement make sure that you approach it in the right manner. If you choose to avail of the services of a debt collection agency, make sure you run a check on the agency first to authenticate that you are not likely to fall prey to a scam.

Ultimately, to stay credit healthy nothing but a new fiscal diet is likely to work in the long run. Making timely payments on all outstanding dues, staying well within the credit utilisation limits on any cards you have and not applying unnecessarily for any fresh credit can all help to boost your credit score in the long run.

Given the importance of cibil scores in today’s times, it becomes important to remain credit healthy, so that a credit solution is easily available to you when you really do require it.

Guide To Choose the Relevant Home Loan Lender

Buying a home is a most sought after dream. Everyone wants a place of their own. Remember the time when we were children, how we would like to spend a night in a makeshift tent in our home or may be set up a small toy kitchen under the table and ask our mom & dad to come over for tea? Well, you could say that the seeds of owning a dream home were sowed early. It would not be an exaggeration to say that today you cannot buy a home without taking financial aid. Best home loans in India are provided by banks and non banking financial institutions to prospective buyers and home-owners. Here is what you can do to compare and see which lender you should pick:

1. A safe and secure background: A home lender would ask for some of your original documents and keep those documents with itself uptill the tenure of the loan ends. Therefore it is imperative for the borrower to know how safe would your original documents be with the lender. A check on its background would be sufficient to know about this. You must also try to find out how happy your lender’s customers are. This information can be sought online and it will help you evaluate how customer friendly is the lending institution.

2. Interest Rate: Lenders offer two types of rates – floating and fixed. A fixed rate remains fixed for the entire loan period and provides a sense of security against rising interest rates. Whereas a floating rate is a fluctuating rate that depends on market conditions and macroeconomic factors like inflation. It is advisable that a homeowner should select the rate carefully after analyzing the pros and cons of each type of rate. Your lender must offer you a rate that is linked to the base rate.

3. Fees and Charges: There are certain fees that the borrower has to bear like processing fees which are taken towards administration of the loan application. Other than this, lenders do levy charges for prepayment of loan, that is paying the loan before the tenure ends and also on part payment of loan, that is paying an amount more than the EMI. There can, perhaps, also be a lock in period during which you are not allowed to preclose your loan account. Then there is also a late payment penalty that may be charged incase you are not able to pay your monthly instalment on time. A creditor with lower fees and charges may be favoured.

4. EMI and its subsequent impact on your monthly income: Since EMI for same rate of interest across lenders will be same, it is yet vital to note the impact on your monthly budget post –EMI. For example, you may have narrowed down on two lenders. One is offering a rate of 9.55% while the other is asking for 9.68%. Both rates are floating rates.  For a loan amount of Rs. 50 lakhs, the difference in EMI could be more than 5, 000. You can make use of online home loan EMI calculator to aid your decision making.

5. Time taken to disburse the loan: Customers are mostly thwarted if they are subject to tedious procedures and too much documentation. Also, how much time a lender takes to evaluate your application and revert to you is another important consideration. For example, while some banks may claim to approve your loan same day of your application, others may take almost a month to do the same.

6. Number of branches: Incase you are in a job because of which you are constantly moving across cities, then having a lender on your side that has a widespread number of branches will be beneficial. Incase you would like to prepay your loan, pay your monthly EMI or need any information regarding your running loan then locating the nearest branch would be easy.

7. Services offered: Banks and Non banking financial institutions alongwith home loan also offer certain additional benefits like door step services, top-up loans, e-approval, balance transfer of existing loan etc.

There is so much joy attached to buying your home. You certainly do not want to mess it up because you did not make an in-depth analysis of your lender. Let your joys be doubled by partnering with the right home lender. Our final word of caution, one must read the fine print carefully before investing in any financial product. It is important to understand all the terms and conditions and clauses laid down in your loan.

5 Reasons that you should buy Term Insurance

Why do we buy insurance? We buy insurance to protect ourselves or our loved ones from financial distress which may occur in the event of an unfortunate event. That is insurance in the simplest and purest form whether for any asset, life or health. However when it comes to life insurance, we often like to combine insurance with investment and complicate things.  Keeping investment and insurance separate provides the insured with a safety net at affordable rates without the unnecessary frills and complications. Here are five compelling reasons for you to buy term insurance.

Provides Financial Security to Dependants:

As stated above the most compelling reason to buy a life insurance policy is to keep the dependants financially secure even after the demise of the insured. Depending on the lifestyle, number of dependents and the life stage, the size of term insurance cover should be decided. Term insurance can be bought by everyone by just contributing a small amount annually or quarterly etc. In case of the insured’s death you do not want the dependants to be left vulnerable without adequate life cover. If the sum assured is not fixed and is linked to some external conditions that it may not serve the purpose of providing sufficient financial cover when it’s most required.

Most Affordable Option:

When you compare life insurance policies, you will realize that term insurance policies are priced most economically when it comes to premium paid versus life cover offered. Depending on the age of the insured, the policy term and cover amount, the premium is decided and it remains fixed during the entire term. If the insured wants to discontinue the policy he or she loses only the insurance cover. Since there are no management or allocation charges unlike a ULIP plan the term insurance premiums prove to be much more affordable.

Easy to Understand:

Since term insurance policies are pure insurance products they are designed to meet that requirement only and do not confuse the insured with financial jargon which is common when trying to understand an endowment plan or ULIP. When the insured buys a product that combines insurance with investments a layman may find that it is complicated to understand how much of the premium is being used to provide him insurance cover and what is being invested on his/her behalf. In a term policy you are sure that for a particular amount of premium you a get a fixed sum assured which is not the case in other type of life insurance policies.

Helps in Financial Planning:

Terms insurance policies could also be used as a financial planning or a risk management tool. Depending on your dependants and your financial goals you could buy additional term cover or reduce it with time. In case of a housing loan instead of buying home loan insurance you could explore the option of buying a term plan that coincides with the loan duration and the loan outstanding amount. The term plan can also be customized by adding special riders like premium waiver or accidental death benefit or return of premium to get extra protection. Obviously these riders come at a cost which is quite nominal. Since the insurance premiums are comparatively lesser for term plans the insured has the option of investing his funds in other options which offer better returns. Thus investment and insurance can be kept separate which results in better financial planning.

Tax Saving Tool:

Though this cannot be the primary reason but it is definitely an incidental benefit of a term insurance plan. All insurance policies get benefit under Section 80C so this is not an exclusively benefit in term insurance plans. Since the premium for term plans is lesser than other options the difference can be invested by you in another tax saving instrument of your choice which helps in saving tax as well serves as an investment.

Flexibility in payments of premium is another advantage offered by term plans; the premium can be paid annually, bi-annually or quarterly. As the name specifies the policy is for a specified term which may range from 10 to 20 years; if the insured passes away during the term the nominees get the sum assured. If the policy holder survives the term nothing is paid to the insured. However term insurance gets expensive with progressing age, so it better to buy these plans at a younger age.

Want to use Credit Card on your trip abroad?

Any kind of plastic money does offer great convenience; while debit cards allow you to have access to the funds you have, credit cards allow you short term borrowing.  Despite the obvious advantages of using a credit card using it prudently especially when travelling abroad is advisable. Being sure when and how to use a credit card on your trip abroad and exercising a few basic precautions can help you stay safe and also make the best possible use of the card.

Check About the Acceptance Overseas:
Before travelling especially if you are going to country that you have not visited before check about the acceptance of your card there.  While some cards may not be accepted in some countries due to difference in the type of technology used, it might be possible that the country that you are visiting might not be the most favorable to use a credit card altogether. This could be due to reasons like preference for cash by the local population, presence of few merchant establishment or distrust for credit cards. This could also be due to a high incidence of charges. Card acceptance can be found out by getting in touch with the card issuer before leaving for abroad.

Be Sure About the Charges:
The convenience of credit cards can easily be overshadowed by the applicable charges. There are different types of charges and these may vary from company to company. They may be mentioned in the form when you apply for credit card but more often than not one tends to forget about them. There can be broadly three type of charges that credit issuers charge; these are:

• Foreign Transaction Charge: Most credit card companies charge a foreign transaction charge ranging from 2.5% to 3.5% of the transaction amount.

• Foreign Currency Conversion Charge: When you use credit cards abroad you will be bydefault be billed in the local currency while your balances are in the Indian Rupee. Thus this conversion from INR to the foreign currency attracts a conversion charge which may range from 1% to 2%.

• Cash Advance Fee: Even if one uses the credit card within the country for cash withdrawal a fee is charged which is usually exorbitant. When this cash is withdrawn overseas 1% to 4% is added to the already exorbitant fee making it super expensive.

When travelling abroad, you would carry the card with an intention of using it, so it does not make sense to not use it altogether because of the charges involved. Sometimes despite the charges the using the credit card may be the most prudent choice but it is important that you check with card issuer about the charges and have clarity on them.

Understand the Basics of Safe Usage:
Almost all credit card companies have put in place elaborate security systems to make card usage safe. PIN numbers, signature on the reverse, photograph on the card are just a few of them. However the cards are still susceptible to misuse especially when travelling abroad. Before making the trip inform the company about your travel plans so that the card is not blocked due to suspicious activity.

Exercise basic precautions like not handing over the card for swiping; always get it swiped in front of you. Some places you may be required to produce an identity proof in order to use your card so keep that handy with you. Know how to get in touch with the card issuer in case the card is lost and you need to block it. Always sign the card on the reverse in possible opt for a card that carries your photo. Do apply for alerts (mobile and email) so that you are aware of the transactions, this will help you in curbing any fraudulent transactions or wrong swiping of card.

Some card issuers may provide some kind of insurance cover for the card users, check about it before taking the trip. This could come in handy if one is travelling abroad and is caught in a tricky situation. When transactions are made in a different currency it might get difficult to keep a track of how much you have actually spent so do take care that you do not end up spending more than you intended to. Never rely only on the credit card, do have some alternative arrangement of funds too.

By Team Credit Sudhaar

How do I remove my name from the CIBIL defaulter list?

The importance of having a good credit score cannot be stressed enough; it is one of the primary yardsticks of an individual’s financial fitness. These days, no lender is likely to extend a loan (or approve a credit card application) without first going through the applicant’s credit report at length. An unsatisfactory report or a low score thereof is a likely reason for denial of credit.

Hence, to be able to obtain credit when you require it, ensure that your score is healthy and that nothing will negatively impact your score.

What then is a CIBIL score?

A credit report (and the score) is offered by credit information companies or bureaus the world over. In India, there are currently four bureaus operational, of which CIBIL is the oldest. By virtue of the same, a credit report and/ or score are often colloquially referred to as a CIBIL score. A score ranges from between 300 and 900, and the higher you are to 900; the better is your score. Most lenders look favourably at a score of 750 and above.

When you want to check your score, you can however request for a copy from any or all of the bureaus. While the score may differ slightly across each report, the parameters used to arrive at the numbers are similar. 

 

Case study

Mr. Desai had approached Bank A for an auto loan, and his application was approved at a high rate of interest. At the same time, he had also approached Bank B, where his loan application was rejected outright. Both these financial institutions cited a low CIBIL score as the reason for their decisions.

Had Mr. Desai’s score been good, chances are that his loan may have been approved at a lower rate of interest, saving him a substantial sum of money in the long run.

Wanting to understand the reason for the low CIBIL score, Mr. Desai requested for a copy of his credit report. Upon going through it in detail, he realised that there was a loan account wherein he was marked as a defaulter, which was weighing heavily on his score.

Let’s now see what you can do in such an instance.

What is a CIBIL default?

This can happen for a variety of reasons, including when a loan EMI or credit card payment is past due for 90+ days. It is also likely for example, that data is mentioned incorrectly in your report, such as personal information (name, date of birth) or information pertaining to your loan accounts.

Remember that not always is it a default owing to late or non-payment, but also on account of a human error.

Statistics show a leap in the number of willful defaults, however, in the span of one year.

What are the steps to take in case of a CIBIL default?

The first thing to do would be to obtain a copy of your credit report. Upon receipt of the same, identify the reason as to why your report highlights a default. 

 

Next, you would need to report this error/ inaccurate information to CIBIL, together with valid proof for rectification of these details. Let us take an example: Mr. Verma had outstanding credit card dues on his account, which had been subsequently settled. However, because this information was not reported to CIBIL by the credit card issuing company, Mr. Verma’s report continued to show a default. 

 

In another instance, Mr. Shukla identified a loan account that he had not availed of. This was a case of identity theft and corrective measures needed to be taken immediately.

Similarly, if you need to have information rectified on your credit report, bring it to the attention of the concerned bureau with requisite proof. For example, in case of account settlement you would receive a settlement letter from the concerned lender, which needs to be provided to CIBIL.

Remember, CIBIL itself does not maintain a loan defaulter list. It maintains the credit history of individuals as reported to them by the member institutions. Hence, CIBIL does not have the authority to modify any account information without confirmation from the concerned lender, as per the Credit Information Companies (Regulation) Act, 2005. Once the change is approved by the financial institution or bank and sent on to CIBIL, CIBIL will update its records accordingly, typically within 7 working days. 

 

Why is healthy credit history necessary?

Being on the CIBIL defaulter list can mean taking a hit on your financial fitness. It is prudent to keep track of your score at regular intervals and ensure your name is not on a loan defaulter list.

If your CIBIL score needs attention, consider contacting a credit health management company such as Credit Sudhaar to work on how to improve your CIBIL score – your key to a secure financial future.