There are many easy ways to quickly improve your credit history and score. But if you are not careful, these measures may even jeopardise your financial security
Shaikh Zoaib Saleem | First Published: Mon, Nov 27 2017. 12 37 AM IST | Livemint.com
If you need a loan to buy something you cannot fund immediately, you approach a financial institution—typically a bank or a non-banking financial company (NBFC). When you do that, the financial institution runs a background check on you, from its own database (if you are an existing customer) and also from a credit information bureau. The credit information bureau is authorized by the Reserve Bank of India (RBI) to gather information on loans and borrowers from banks and analyse it to arrive at a score of creditworthiness of an individual. If your creditworthiness is good, you would get a loan relatively easily and at better terms. If not, either the loan will be rejected or you will be charged a higher interest rate. This is especially true in case of personal loans. The institutions’ decision to lend is based in large measure on the credit score and the credit report.
What is a credit score?
It is a number based on your credit report, which is a summary of your past and current borrowing and repayment history. If you were regular with repaying loans, including your credit card bills, your credit score is likely to be higher. This score helps banks assess your loan repayment capacity and your chances of defaulting on it. “Credit score is derived from the credit history of an individual. A consumer needs to have a minimum of 6 months of repayment track record on a loan or credit card or closed credit accounts less than 2 years old before a credit bureau can generate a credit score,” said Hrushikesh Mehta, vice-president and head of direct-to-consumer business, TransUnion CIBIL. A credit score is created as your lending and repayment relationship with financial institutions evolves. However, if you are new to credit, here are some ways you can quickly start to build a credit score.
Credit cards or personal loans
If you are new in the workforce, you can start by getting a low-limit credit card from the bank where you have a salary account, said Sumit Bali, senior executive vice president and head-personal assets, Kotak Mahindra Bank Ltd. “Based on their income, banks can give them a card with low limit. Use that card sensibly and build a credit history,” he said.
In the past, people considered taking personal loans to build their credit score. However, with a personal loan you will necessarily have to spend your money in paying the interest, whereas with credit card repayments within the stipulated time, you do not have to shell out extra money. For slightly older professionals, about 35 years old, credit history is not much of a worry if their bank account status and average balance are good, and investments and tax returns are in place. They “don’t really need a credit card to prove credit worthiness. Any bank would sensibly look at it and take a call,” Bali said.
Peer-to-peer (P2P) lending platforms are an emerging option for creating and enhancing your credit history. The RBI has recognized these platforms as special category NBFCs and has mandated them to share lending data with credit information bureaus. “Once the P2P lenders receive their licence, they will be able to begin data submission. Once that happens, P2P lending will become a viable option in helping one build a credit score,” said Mehta. However, in this case too, you will have to pay an interest on the borrowed amount.
In some cases, especially where customers have a long relationship with their bank, the banks may also look at own data to determine creditworthiness, Bali added. “Credit score by and large is a good indicator but it may not be the only indicator,” he said.
Alternative credit scoring
Evaluating someone who has never taken a loan can be difficult. This is where alternative credit scoring comes in. Here, instead of relying on a credit score, lenders consider your transactions and behavioural data like bill payments, online buying behaviour and information from your social media platforms to understand your repayment capacity.
“Often people are refused big-ticket loans like a home loan for the lack of credit history, even if their finances are in order,” said Abhishek Agarwal, chief executive officer and co-founder, CreditVidya, a credit advisory that also works on alternative credit scores.
While the RBI-regulated credit bureaus are currently not allowed to use alternative data for credit scoring; in other developed markets parameters like utility bill payments, insurance premium payments have been used for credit scoring (read more on it here.
However, financial institutions including top public and private sector banks and NBFCs in India, have started using alternative data in multiple verifications and validations across the credit value chain, Agarwal said. “Innovative offerings like pre-approved offers or instant loans are leveraging alternative data from multiple sources to provide seamless customer experience,” he said, adding that leveraging alternative data for credit risk assessment of secured loans is still distant. Banks use the alternative scores “in conjunction with other things, like data that you have about the customer. This is happening for personal consumption products like credit cards and salaried personal loans. We are putting it to use but what is the outcome from that, it is too early to say,” Bali said.
While credit cards and loans help to build a credit history and score, caution needs to be exercised. If used carelessly, these can put you in a debt trap, and ruin your credit history too.
Not just that, you should also keep your digital and transactional behaviour in check, as going forward more and more data could be used to assign you a credit score.
Source : https://goo.gl/m7Ns7g
Rajiv Raj – CreditVidya | Aug 22, 2016, 02.26 PM | Source: Moneycontrol.com
Your CIBIL score is a measure of your own credit worthiness that does not get merged with your spouse’s after marriage. There are several myths about CIBIL score and some of them are related to marriage.
Marriage is a big decision that brings together two persons for life. Just like two individuals with completely different backgrounds with regards to education, lifestyle and career choices remain the same even after marriage, so does one’s CIBIL score. Your CIBIL score is a measure of your own credit worthiness that does not get merged with your spouse’s after marriage. There are several myths about CIBIL score and some of them are related to marriage. Today we will debunk some of these myths and also tell you when and where your spouse’s credit score matter.
Myth: CIBIL score drops after marriage
If you are marrying someone with a relatively less CIBIL score then it does not bring down your CIBIL score. Of course if you have taken a huge amount of debt on your credit card to fund a lavish wedding or an exotic honeymoon and are unable to repay it as stipulated, your CIBIL score may take a hit after the marriage, but that has to do with your credit behaviour and not with the act of getting married by itself.
Myth: CIBIL records get erased after marriage
If you are a lady who has decided to change your surname and take on your husband’s family name after your marriage, you do not need to worry as your CIBIL records do not get erased automatically if your name changes. Once you have changed your surname officially you make the changes to your official documents and pass on the information about the same to the bank. The bank in turn makes the changes internally and passes it on to CIBIL with your updated record. However, to be sure that the changes have been carried out as per your official documents, do check your CIBIL score and report after about a month or so of having updated your name change information with your lenders.
Myth: All your spouse’s debt becomes yours after marriage
Surely you have taken vows to be with each other through thick and thin, but getting married does not mean that all the debt burden that your husband or wife carries is automatically transferred on to you and you need to share his or her burden as it will impact your CIBIL score otherwise. The loans or credit card debt that your spouse is servicing continues to remain with him or her. Of course you may choose to assist him in meeting his debt commitments, but doing so does not have an impact on your own CIBIL score.
Where your spouse’s CIBIL score really matters
You only need to be concerned about your spouse’s credit score if you are making a joint home loan or any other loan application together. If either of you have a poor CIBIL score, the chances of your getting a loan may get thwarted as the bank will not look favourably upon one person shouldering all the load. Thus it is recommended that you work together to bring up both your scores to the level of 750 and keep it at that by maintaining good credit habits to prevent the rejection of a credit line when you are in need of it.
If you are newly married and have just come to know that the CIBIL score of your partner is not so flattering, do not fret as it has no impact on your own CIBIL score. Nevertheless, put your heads together to find out the problem areas and help each other to come up with solutions that will rectify the situation.
Your financial compatibility will be put to test through trying times. The basic thing is to stay put and work hand in hand to achieve a common goal of bringing up the CIBIL score. Just like with everything in life, being there for each other is what matters the most and that is what you should decide to do.
Source : http://goo.gl/4Xx0SL
Currently, an individual has to shell out Rs 550 for a report and a onetime credit score in the PDF format from CIBIL
BS Web Team | Mumbai | July 22, 2016 Last Updated at 10:53 IST | Business Standard
The Credit Information Bureau of India (CIBIL) has decided to provide individuals with one free credit report a year, the Reserve Bank of India chief Raghuram Rajan said.
“Going forward, by the end of the year, the Credit Information Bureau of India will start providing individuals with one free credit report a year, so that they can check their credit rating and petition if they see possible discrepancies,” Rajan said.
Currently, an individual has to shell out Rs 550 for a report and a onetime credit score in the PDF format from CIBIL.
Most Indians are unaware of their credit score and have never bothered to check their credit report either. Consequently, they may not know that there may or may not be issues present in their report.
Financial institutions, including banks, check the credit worthiness of an individual before extending credit or loan, through these credit reports. “When an individual knows that a default will spoil their credit rating and cut off future access to credit, they have strong incentives to make timely payments,” Raghuram Rajan said at a seminar on ‘Transforming Rural India through Financial Inclusion’.
Other than CIBIL, there are two other credit bureaus in India — Experian and Equifax. But at the moment, the governor has only talked about CIBIL providing a free report.
Praising the credit bureaus further, Rajan also said: “Credit information bureaus have helped tremendously in solving both the information and incentive problem in retail credit.”
Rajan also pitched for the need to expand the reach of credit bureaus in rural India, even bringing borrowing under Self Help Groups (SHG) into their ambit.
By Saloni Shukla, ET Bureau | Jul 07, 2016, 03.37 AM IST | Economic Times
Mumbai: Bank of Baroda for the first time is set to offer rating-based lending to retail mortgage loan seekers, which involves giving loans based on credit scores and not a uniform rate irrespective of the credit quality.
“We have internally switched to scoring-based pricing based on the CIBIL score,” PS Jayakumar, MD, Bank of Baroda, told ET. “With this, we can identify the right kind of borrower, our due diligence becomes easier, and the probability of a default will be minimal.”
Historically, Indian banks charge corporate customers based on their credit rating, but haven’t extended this policy to retail borrowers. Customers with a good loan repayment track record and strong financials may end up availing loans which are at least 50-75 basis points cheaper than a customer with a bad credit score.
The move is expected to improve the quality of bank’s retail portfolio as they will now disburse loans based on the customer’s credit profile. It will also provide an opportunity to the customer to maintain a consistent credit behaviour and increase his credit score to get the benefit of lower rates.
Banks have used credit information companies to reduce risk in their retail loans but failed to pass on the advantage to customers.
Between fiscal 2011 and 2014, while the total gross non-performing assets in the corporate sector grew by 300 basis points, non-performing loans in the retail segment fell by over 170 basis points, indicating that the use of information bureaus were one of the key drivers of retail non-performing assets.
Credit information bureaus such as CIBIL in general assign rating between 300 and 900 points. Low rating is assigned to individuals who are the least trustworthy and high rating is assigned to blue chip customers.
“It will remove subjectivity in decision making because it is a far more objective parameter,” said Jayakumar. “The adjusted pricing that the customer pays is more or less constant because lower scores have higher risk and higher scores have lower risk.” Home loans contributed to nearly 9% of Bank of Baroda’s total advances at Rs 24,975 crore.
Other retail loans, which include personal loans, contributed 7.64% to the total book at Rs 21,463 crore.
Source : http://goo.gl/EOWbLc
Rachel Chitra | TNN | Feb 15, 2016, 01.08 PM IST | Times of India
CHENNAI: India with more than 380 million internet users has emerged as the third-largest internet user. And nearly 60% of this user base make purchases online – a user base, whose credit history and risk profile is still unknown.
And credit rating agency CIBIL hopes to step into that gap and maintain credit scores for users of e-commerce websites just as it is currently doing for clients of India’s banks, car dealers and non-banking financial institutions. CIBIL said on Wednesday that it is in talks with the Reserve Bank of India (RBI) for bringing e-commerce customers of online payment processors like PayPal, PayTM and Citrus Pay in the loop.
The rating agency, which has been collecting and maintaining records on individual’s payments on credit cards and home, car, corporate, agricultural loans, etc, plans to now profile online customers as e-commerce picks up pace in India. Simply put, if CIBIL succeeds, then Amazon, Flipkart, Ebay and others will know the credit profile of their buyers and can plan their strategy for payment on an instalment basis and payment by cash.
CIBIL currently puts out reports based on the inputs it received from member banks and credit institutions on a monthly basis. The decision to extend its reach to e-commerce sites will bring with it challenges in terms of confidentiality of information and setting up a network with the current players in the online payment space, said Satish Pillai, CEO and MD of CIBIL.
“Thanks to the way we keep a tab on a person’s spending habits and credit history, payments and loan sanctions have become a lot faster. If you are sitting at a car dealer and waiting for the EMI amount to get clearance – real-time clearance will happen if your credit score happens to be good. So CIBIL’s credit scores make for faster risk assessment and less due diligence from the credit giver – making for faster sanctioning on loans. We are now hoping that to add additional layers of information to our existing database,” said M V Nair, chairman, CIBIL.
CIBIL also said that it is in talks with the regulator for extending this facility for customers of utility companies and telecom providers. “We are seeing a real need in this area. Say your postpaid bill with a mobile service provider has a credit limit of Rs 500 – if CIBIL scores come into play in that arena – and say your credit history is good – then it could be instantly raised to Rs 2,000 without any need for a check from the service provider. CIBIL scores would make for seamless transaction with greater ease and smoothness,” said CIBIL’s Pillai.
“The current system of sending a person to come and verify the address, customer profile and authenticity of documents will get outdated. It costs time, labour and money. With CIBIL, the utility or telecom provider would have all the information that they would need a click away,” he added.
Source : http://goo.gl/H06Kss
Rajiv Raj, Director & Co-Founder of CreditVidya. | 07-01-15 | Morning Star
In the world of finance, credit plays an important role in meeting our wishes. Be it the dream of owning a car or a house of one’s own or simply making improvements in your house. You name it and it gets realised with the help of credit from various financial institutions. Even owning an expensive smart phone has been possible for most due to availability to cheap and easy credit. But getting loans easily is not true anymore. Lenders no more look at your earning capacity alone but also factor in your past repayment track record in the form of a credit score before making any kind of decision. In such a scenario associating one’s name with a bad credit score may prove to be disastrous.
How do banks and lenders decide on whether or not to sanction a loan?
Credit score takes into account the credit history of the individual and predicts his willingness to repay the loan on time. Banks and lenders evaluate customers based on their ability and willingness to pay. Ability is your pay cheque, while willingness is your credit report and score. A higher score implies better chances of getting credit from the lenders.
Having said that, it is up to individual lenders to decide their acceptable level of risk. Depending on their risk appetite, they decide their credit score cut-off for accepting a customer’s loan application. Also, what may be considered as a bad credit by one lender may be perfectly acceptable to another. So a loan approval by one lender might require the minimum score to be 750, another might settle for 700 or even lower. So if one lender does not accept your application on the basis of your credit score, don’t give up. Approach others. But bear in mind that lenders offering loans at lower credit scores generally offer loans at a higher rate of interest. Hence a lower credit score may still get you a loan but it could work out to be a costly affair.
How many credit bureaus are there?
When it comes to credit score, the CIBIL score is what comes to mind. In reality, there are other three credit bureaus in the country. Apart from Credit Information Bureau of India Ltd., or CIBIL, there is Equifax, Experian and Crif High Mark. As of now, almost all of them provide scores ranging from 300 to 900. But the fee to access the credit scores differs across bureaus. For instance, to access a CIBIL report and score, you will have to dish out Rs 470, but only Rs 400 for the same from Equifax. The latter also provides an option of accessing its credit report four times a year for a payment of Rs 1,000. Experian, on the other hand, makes the credit report available at just Rs 138. The payment options range from demand draft to NEFT, which is the online bank payment.
Does an individual need the score from more than one bureau?
At present, the lenders report the credit history of their customers to all the four credit bureaus but access only the CIBIL report to make the decision. That’s because the bureau was launched in 2004 and has credit data on individuals from then on. The others started operations only in 2010. This could change in the future as lenders start accessing credit scores from more than two credit bureaus to make their decision regarding loan approval. Therefore, it is important to access your credit score from multiple bureaus. If your credit score is high across different bureaus, it will act as a double confirmation that you are a disciplined and a good customer and, therefore, worthy of a loan at an attractive rate of interest.
In case you do come across any discrepancies in the reports generated by the credit bureaus, you can raise a dispute resolution with them.
As the new year begins, get hold of your credit score from all credit bureaus. It will help you in the long run and prevent you from dealing with end moment rejection from lenders.
Source : http://goo.gl/DjcuqT