Thursday, 30 June 2016

Know the classification of debts

Debt, in simple words, is the money that you owe to an individual, financial institution etc. There are different kinds of debt and not all debts are the same. The most common kinds of debt include home loan, credit card debt, education loan and car loan. Debt is used by people for making big purchases which they may not be able to afford under normal circumstances. Lending institutions expect borrowers to repay back the borrowed sum by a certain period of time, along with interest. Different creditors use different means of getting their money back. Hence, it is important to understand the terms and conditions as well as the power a creditor holds.

Debts can be classified into secured and unsecured. Secured debt is a debt that is secured by a collateral, such as a home loan or a car loan. This kind of debt brings down the risk that is associated with lending. The lender has every right to take over your collateral, such as your home or car, if you fail to repay back the loan. You will never become the full owner of the asset tied to the secured debt until you have managed to repay back the loan. It is important to remember that home and car loan aren’t the only kind of secured debts. Secured credit card is also a form of secured debt. A secured credit card is a kind of credit card where your savings account will serve as a collateral on the credit available. There are a number of different issuers in the market offering secured card to clients. Most of the people opting for a secured credit card are doing so as they believe it is one of the answers to how to improve CIBIL score. If you are looking at different ways on how to improve CIBIL score, getting a secured credit card may be a good option.
Unsecured debt is a debt that has been extended to a borrower without a collateral. Credit card debts (excluding secured credit card) tend to fall under this category. If you have opted for an unsecured debt, your property cannot be taken away if you are unable to repay back the money. However, financial institutions may take other actions against you for failure to repay back the loaned sum. They can either take you to court or hire a debt collector, who may force you into paying back the money. They will also report you to the credit bureau so that the delinquent payment status will be shown on your CIBIL report.

Debts can also be classified depending on the time period for which money is borrowed - short term, medium term and long term. A short term debt is one that has to be repaid within three to nine months from the date of borrowing. Intermediate or medium term debts are those that have to be repaid in five years or so; and long term debts are those that may be taken for ten years or more and is used to meet the long term needs. Debts can also be differentiated depending on how you decide to pay every month - revolving or instalment. Under the instalment debt, you would have to pay a fixed amount each month eg. home loan. A revolving debt, on the hand, does not have a fixed monthly payment. Credit card debts are the most common kind of revolving debts.

The manner in which you handle your debts, play a big role in building your credit image among the financial institutions. Making timely repayments is one of the solutions to how to improve CIBIL score. It is of utmost importance that you pay all your outstanding dues and have nothing left pending. Avoid missing any payments as these get listed on your credit report. Also, balancing out your debt portfolio is another way on how to improve CIBIL score. If you must keep unsecured debt, try and maintain it at 20% and the rest 80% in secured debt. Lastly, if you have several debts try and consolidate them. This helps to keep track of the payments, thereby bringing down the chances of missing any. Now that we have looked at the different ways on how to improve CIBIL score, it is important to put them into practice at the earliest. Remember, the way in which you manage your debts speak a lot about well you can handle finances. It is one of the first things creditors want to learn about you. So make it a good one!

Thursday, 23 June 2016

Understand Your Credit Report Can Help Raise Your Credit Score?

It is very important to understand your credit report when you wish to have a good score and enjoy credit facilities offered by modern banking system. To maintain a good credit score is not a rocket science but requires financial diligence and discipline. You need to have a good credit history of paying out your loans and bills on time on the credit information report (CIR). Let’s understand in detail how knowing your credit report helps you raise your score.
Your credit report contains detailed information of your credit accounts. It does not contain anything regarding your savings and investments. All secured loans and unsecured loans such as home loan, auto loan, credit cards, personal loans and overdraft facilities are reported in the CIR. You can access your report online using CIBIL consumer login.
A typical credit report has following sections:
1. Credit Score
This section shows your credit score. For example your CIBIL Transunion Score would range anywhere from 300 to 900. Score above 700 is considered good. About 80 per cent of people with such good score tend to get their loan application approved. The credit history of your loan accounts and enquires would basically drive the score calculation.
2. Personal Information
This part has your personal information like name, birth date, gender and ID numbers- PAN, passport and voter ID number.
3. Contact Information
Here, contact information including up to 4 addresses and telephone numbers are mentioned.
4. Employment Information
This section mentions your income as reported by banks. When you apply for loan you share your income details and the member banks report that data to CIBIL and other bureaus every month.
5. Account Information
This section shares vital information regarding the credit accounts on your name. It details about names of banks and financial institutions, types of loan (such as auto, personal or higher education loan) and credit facilities used by you. The account and ownership detail including account numbers, date of opening, date of last payment, credit amount, current balance and monthly payment record for 3 years are precisely mentioned here.
6. Enquiry Information
Your report also shows enquiries made by banks when you apply for loan or credit card. The credit history with too many enquiries show that you need funds desperately and marks a bad flag.
Knowing your report by heart basically helps you assess your current credit worthiness. You get to know your current balance, what you can currently afford to pay back and how much credit you can apply for, all at one place. Practically acknowledging your current financial status you can definitely work to improve credits core.
It would be righteous to say here that your credit report helps you repair the credit score. As credit history reported on credit report holds importance so does its correctness. Without checking your report, you cannot figure out errors, if any emerge on your report. If there are errors in your current account balance or repayment history it would directly stumble upon the score. The credit score would fall without your knowledge.
Although CIBIL allows you to start a process to dispute the error to the concerned bank and as the error is corrected and reported to the credit agency the score improves. The process however may take more than a month’s time. Watch out for following common errors on the report:
1.       Computer errors regarding personal information, contact information and employment details. These need to be corrected for validating your identity.
2.       Errors on account details should be immediately reported to the bank. This may adversely affect your entire history.
3.       Unknown enquiries if spotted on the report shouldn’t be ignored at any cost. This could be a warning sign as someone else might be misusing your personal information to draw credit. You need to report it as soon as possible and stop the call and identity theft attempt.
4.       These can certainly hamper the growth of your score.

Thus it is advisable to check credit report several times a year. By checking your report you ensure that there are no errors pertaining to your personal information or account information. Also, knowing your report, you basically know your credit score and credit worthiness. All in all, knowing your report is the first step to raise the score.

Thursday, 16 June 2016

Common Credit Mistakes by the Common Man

“Common Man”, or the idiomatic “Aam Admi”, does not refer to a gender but to a socio economically average person who is also a hard working tax payer and is generally considered gullible. His dreams of the future are better than the history of the past. What would such a person want? Perhaps lower taxes, better education, better healthcare and a peaceful family life. Since, “getting loans at low rates of interest” does not ordinarily feature on a “Common Man’s” list therefore he is bound to be negligent towards his CIBIL score. Such a mistake can cost him time, effort and a great deal of money.

Here is a list of some common mistakes that people make without realising its impact on their credit score. Avoiding these mistakes can help your score stay in a favourable zone and help you stay out of any credit related anxiety.
1.       A wallet bursting with credit cards – There may be no real need for it yet sometimes we apply for credit card because we are attracted to the various offers and end up signing for more cards than we need. Firstly, these cards may come at an annual charge of which you may not be aware. Secondly, having too many cards can affect your CIBIL report poorly. When a banker reviews it, he or she is likely is to assume that the person under review has an insatiable appetite for credit. Do note neither the credit report will justify nor the bankers will seek any clarification on why you have so many cards with you? A lender will simply reject your loan application for having irresponsible credit behaviour.

2.       Shutting down old credit cards – Now that you know too many cards could be a problem, rushing to shut them down can pose another. It’s best to not sign up for credit excessively. But now that you have, cut down on your cards at intervals. Begin with the most recent ones as they will have the least negative impact on your score. It is a common tendency for people to get rid of their old cards. Well, that is a big no! When you shut down an old card you also shut down the good old credit history. All of its credentials will be removed from the report.

Your credit utilization rate is also affected with every cancelled credit card.  Utilization rate is the percentage of credit used vis-à-vis the total available credit limit across all credit facilities. For example, if you have used only Rs. 10, 000/- out of a limit of Rs. 1, 00, 000/- it means your utilization ratio is only 10%. Whereas, if you have used Rs. 10, 000/- out of a credit limit of Rs. 50, 000/- then your utilization rate goes up to 20%. Though your usage has remained constant the impact on your utilization rate is due to the drop in available credit limit. Either ways, a higher utilization rate means lower credit score.

3.       Guaranteeing loans or becoming a co-applicant to help a family member or friend – Remember, lenders ask for a co-signee or a guarantor only for those borrowers who have a risky profile and are not eligible for loan otherwise. By standing in as a guarantor you may have helped someone else wriggle out of a tight spot but it means now the loan repayment is as much your responsibility as it is of the primary borrower. All these details will be recorded in your credit report and any missed or delayed payments will have an equal negative impact on your score. This also adds up to your credit exposure. So be doubly sure before you sign on that dotted line.

4.       Building a debt pile – A habit of charging without restraint and maxing out your cards can lead you to drown under a pile of unmanageable debt. This means you should be sure of what you want to purchase and have a plan on how you will repay your advances, only then you must use credit to make payments. Another sure shot way of building up a cliff of debt is to make only minimum payments due at the end of every credit cycle. This means, that all roll over balances will attract a high interest rate and cast an exponential effect on your outstanding bill amount. Also, avoid constantly seeking low interest rate balance transfer to make existing payments.

5.       Being indifferent towards delayed or missed payments – This certainly has the most devastating effects on anyone’s credit. A delayed payment implies you do not have enough resources to fulfil your financial commitments on time. It not only leads to a declining score but also makes you seem to be hard pressed for cash and being irresponsible with credit. No lender would ever want to partner with such a person.

6.       Not using credit even though you have access to it – This is one damaging factor. Any credit score has to be calculated upon your good or bad credit history. If there is no history of credit usage, there will be no score for you. Not having a score means, a prospective lender will not be able to make any judgements about your credit behaviour and thus may not extend any credit to you. So, make a charge every month, for example: let your mobile phone bill be paid through your credit card and be sure to pay it back on time and in full. This way you will be able to maintain a healthy and positive credit score.

7.       Not checking credit report – Experts have asserted that you must check your CIBIL report atleast once a year to be sure that all information provided is accurate. Also, you can look out for red flags such as unauthorised enquiries on your report or an unidentified loan account in your name. This could indicate a case of identity theft. You must immediately raise a CIBIL dispute to highlight it and get it resolved. If the case is resolved in your favour then it can help your score to escalate some points.

Money makes the world go round. But in today’s world, its credit that makes the world go round. For not just a credit card, but even buying a house, a car, completing an education etc. You need credit to meet any of these financial goals. Since credit is of critical essence in fulfilling your worldly desires, it is only common sense to look after all things related to it like, your credit score. Be conscientious & fulfil your financial commitments in a timely fashion, check your report regularly, make conscious efforts to maintain a high score & don’t go for irrational credit shopping.
Happy Credit to youJ

Friday, 10 June 2016

7 Reasons when you may require to take loans

Easy availability of credit helps you improve life. You can practically buy you dreams with available funds. You can support your education, start a business, build a home, plan special life events such as marriage and travel across the world! There is nothing that you cannot get a loan for. Here is a list top 7 reasons for getting loan.

1.       To Buy Your Dream Home
Whether you want to buy a new home or get a renovation done for your existing abode, you have ample choices to bring forth the credit. Home loans are one of the most popular credit products available. For all kinds of needs pertaining to your home, credit is available. Besides regular home loan to facilitate buying of a residential property, you can draw special loans for repairs, loans for extension, top up loans, EMD, reverse mortgage loan as well as loan against a property.

With plenty of offers on interest rates and affordable EMI plans, most people seek home loans when buying a property. However it is important to keep CIBIL score calculation in mind before you apply for a home loan.

2.       To Drive a Luxury Car
Auto loans are always in demand. These are usually secured loans, available till 100 % finance with very attractive car loan rates and payment options. In case of default the vehicle acts as a collateral and can be seized by the bank. Whether you want a new car, or a second hand one you can easily get credit to make the purchase. Besides you can also get loan against car.

3.       To Meet All Kinds Of ‘Personal’ Needs
Personal loan can meet maximum needs of a borrower. You can travel, throw a party, indulge in luxury or meet an emergency expense, using with this fund. There is no check, whatsoever on the usage of personal loan. It is an unsecured loan where your credit history plays a very crucial role otherwise a very high interest rate is levied on loans for bad credit score. If you need a loan for short term with minimum documentation, personal loan is the choice for you.

4.       To Add Wings for Success With Education Loan
Education loan is like a silver spoon in the mouth of the one who lacks funds for pursuing higher studies. You can fund your entire fees as well as related expenses via education loans. This future investment is available at 100% financing, attractive interest rates for the best of universities and institutions with the least documentation and processing issues. More offers are available with co-applicants and collateral. The repayment is usually started after the completion of the study program.
5.       To Start Or Grow Business
If you want to start a small business or expand your existing venture, look no further and apply for business loan. It is an unsecured loan and available in a very wide variety. Your credit history will predominantly define the terms of your business loan. Special deals are available for premium customers.

6.       To Buy Electronics, Gadgets And More
Name it and you have it! Yes, you can get loan to meet practically all of your needs. From LED TV to refrigerator, to washing machine to laptop, from air-conditioners to mobile phones, tablets and camera, you can buy all this and more with the help of a consumer good loan. Many of these products come with 100 % financing options and easy EMI offers. Truly speaking credit improves the way you live today.

7.       To Shop And Hop!
Spending plastic money is a total fad these days. Whether you want to shop for your favourite brands of clothing, jewellery or shoes; or for that matter, pay for a meal outside and/or at gas station, just pay with your credit card. At the end of the month you just require to pay the bill with processing charges. However plenty of benefits such as cash backs and discounts are offered on card buying. So you need not carry cash to buy. You can borrow instantly via your credit card for your purchases.

The list of reasons for building credit can continue forever. Banks and financial institutions offer all kinds of loans for different needs. All you need to do is, clearly know your needs and choose the right option. It is equally important to plan repayment at the same time.

Thursday, 2 June 2016

Having High Credit Score is as good as investing in Provident Fund

Provident fund is a term that spells financial security and to an extent a kind of sanctity also in the financial parlance. All working individuals compulsorily contribute to the provident fund (PF) right from the first pay cheque they get and continue to do so till the day they are working. The provident fund occupies a kind of financial reverence because no individual wants to touch it till they have exhausted all other options of funding and want to use the PF only in case of extreme urgency. Something else can also offer you the same financial safety despite it not being a saving option; in case you are wondering what it is, we are referring here to the credit score.

Similarities between a Good Credit Score and Provident Fund:
We discussed a little about the PF above, now let us have a brief look at what a credit score is. Credit score is a three digit number that is calculated based on a person’s credit history and credit behavior. There are various factors and variables that contribute to this score which is also known as the CIBIL score in lay man’s language. This score is the first step to getting a loan, without a healthy score the application could be rejected outright and a good score could also get you better loan deals.  Just as one focuses on keeping their provident fund safe they should also concentrate on how to keep the credit score healthy and if required concentrate on how to increase CIBIL points too? So why are both important for an individual?

*      Offers Financial Security: In case one requires emergency funds for a medical condition or sending one’s child abroad for education then a good CIBIL score could come to your rescue. One could use a personal loan or education loan for abroad to access funds that can help them in fulfilling their dream. Without a good CIBIL rating borrowing from organized channels might not be possible and one might be forced to dip in their savings of which PF is one staple option. Both CIBIL rating and PF come to your financial aid when required most. Soon a healthy credit score could also be a must for getting a job in the financial sector or higher management levels.

*      Help in Fulfilling Dreams: Everyone has dreams for themselves as well as their families too; both PF and a good credit score can help one in fulfilling them. So if one is looking for home construction loans or auto loans then a good credit score is a must. Saving through a life time can sometimes not be sufficient to buy a house as the costs also go up with time; in such a scenario one might be forced to borrow from their PF. This is where a good score comes in; with the help of a healthy credit rating when could easily take a home loan without having to touch the PF and can get a good deal on the loan too. So the dream of a car, fancy holiday or to own a house can be fulfilled with either the PF or a good CIBIL score.

*      Independent of one’s income levels:  Irrespective of how much one earns a PF or a good CIBIL are both viable options. As said earlier PF contribution starts with the first pay cheque whether one earns 10000/month or 1 lakh a month. Similarly a good CIBIL score has nothing with how much is the income level of a person; a person with modest income levels could be credit healthy and one with very high disposable could be struggling with low scores due to being an irresponsible borrower.
So be credit healthy, it is as essential and as useful as your provident fund when required. Both are great tools that offer financial security and help in fulfilling one’s aspirations.