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
Some simple and straight rules to not fall in the vicious cycle of debt and high interest payments
Retrieved on 20th July 2017 | Moneycontrol.com
Shopping or paying with cards is one of the easiest things these days. Thanks to the magic of all the apps and payment gateways, using a credit card is as simple as a few dabs on the mobile screen.
But even with all the ease and convenience, paying your credit card bills requires real money. The reason many people fall into a debt trap is because they do not realise that however long the credit cycle might be, one always has to pay every penny (often times more) that you spend.
To not fall in the vicious cycle of debt and high interest payments, there are some simple and straight rules that one can follow.
Be prompt with payments
There’s a reason why credit cards are called credit, because you owe the money spent on the card to the lender. Hence, don’t expect as leeway or grace when it comes to making payments. Credit card companies are very stringent about any delays and promptly impose late payment fees, etc. Also, any delay or missing payment is also reported to credit rating agencies like CIBIL or Equifax and impact the credit score. Hence, the need to make timely payments cannot be truly overstated.
Don’t burn the credit limit
So, your card gives you a high credit limit, say 1 lakh. Why bother with the spend? Burn it all and pay later? That is surely not a good idea, namely because the percentage of credit limit consumed every month is a parameter in accounting the credit score. Hence, you are not considered to be of sound profile, if you use up say 90% of your card every month. Also, in case you track up a big bill each month, there is a possibility that you might land in financial tight spot.
Number of credit cards
People love to flaunt the cards. There’s a common belief that the more credit cards one has, the better financially networked he or she is. Well, nothing could be further from truth. The more the number of cards, the higher the possibility for over-spending. Also, each time, a credit card application is made; it is registered in the CIBIL records hence, it is best to have 2 or maximum 3 cards. In case, you desire upgrade your card to a higher one.
Typically, there is an interest-free period on credit card purchases, which can even go up to 45-plus days. To avail this benefit, the outstanding amount has to be nil. So, if you roll over certain amount to next month’s billing, there’s no interest-free period on the new purchases.
Cash withdrawals on your card do not come with an interest-free period. There could be a one-time fee plus interest charges that start from day one till you repay the amount. Given the interest rates charges and so on, withdrawing cash from credit cards should be strictly avoided, unless there is an urgency.
In the end, the simple mantra of happy credit-card-living is simple; spend less, pay all. With prompt payments and credit management, the credit card can be a nice tool that can aid you in everyday life, right from paying for your cabs or buying a new shirt. So, follow these steps and enjoy a stress free life.
Adhil Shetty | Dec 19, 2016 | Deccan Herald
If you’re applying for a loan or a credit card, your lender would look into your credit history. A CIBIL score of 750 or more is considered desirable by most lenders. If you’ve been prompt in repaying your credit card bills and other loans, you should have a sturdy score.
But every now and then, people get a rude shock with their CIBIL score which prevents them from getting a loan product of their choosing. This means that their loan application may get rejected, or they may be offered a loan with a high interest rate.
Your CIBIL score could be low for broadly two reasons — Data in your CIBIL report is incorrect, and that you have defaulted on a loan or have been irregular with your repayments.
The first step towards ascertaining the details of your CIBIL report is to get a copy of it. You can do this for a fee of Rs 550 from the CIBIL website. Your report will be generated instantly and its details will be shared with you on your email.
Now, let’s dive deeper into these two issues.
Incorrect reporting of personal and credit history
*Check personal details: Your CIBIL report carries your personal details such as name, PAN number, contact information, employer’s address, employer information such as salary and occupation.
Next, it carries details of every credit card account or loan account you’ve opened with regulated entities such as banks and NBFCs. Any discrepancy in this data needs to be checked and challenged. Ascertain that the details in your report pertain to you and your own credit history. If you’ve mistakenly been assigned someone else’s credit history — especially an adverse credit history — your credit score would suffer.
*Check repayment details: Next in your report, go through the details of all the borrowing accounts you’ve opened: Credit cards, personal loans, home loans, car loans, etc. You also need to check the monthly repayment details of all these accounts. The CIBIL report would reflect any delays in repayments (as ‘days past due’), defaults, settlements, write-offs, value of collaterals offered, etc. Ascertain that all the details are correct and that these accounts actually belong to you. This data is reported to CIBIL by your lender. If any detail has been reported in a way that adversely impacts your borrowing history, your credit score would suffer.
*Raise a complaint: CIBIL allows you to challenge incorrect reporting through its website. You can also contact them through post. When you access the online copy of your report, you can go over your personal and financial details. Any details that you want to be corrected need to be reported to CIBIL, which will then contact your lending institution for amends. This process may take up to 30-45 days. If the lender accepts the corrections, they will reflect in your report. If the lender refuses to accept your corrections, you will have to get in touch with them directly. This is because CIBIL prepares your report from information received from your lender. Therefore, CIBIL cannot directly change the contents of your report.
Defaults, Delays In Repayments, Credit-Hungriness
If you have neglected repaying your loans, it would hurt your credit score hard. Let’s take a quick look at your options to address this problem:
*Repay loan balances on time: Whether you have loans or credit card dues, always aim to settle them as per your repayment plan. If there are difficulties in repayment, always keep your lender in the loop so that the lending terms may be made easier. With credit cards, always pay the full due amount rather than the minimum amount.
*Don’t be credit-hungry: Don’t apply for too many loans or credit cards, especially within a short time. With application, the lender will check your credit history. Too many queries into your credit history would reduce your credit score since you will be seen as a credit-hungry person. Also, having too many loans at the same time means you will have to manage several EMIs every month, which would adversely impact your liquidity and could lead to default.
*Increase credit limit on card: Try and spend no more than 20% of your credit card limit. For example, if your monthly spending limit is Rs 1,00,000, restrict your spending to Rs 20,000. It means that your credit utilisation ratio (CUR) is 20%, which is ideal. A frequently high CUR would portray you as being in constant need of short-term credit.
Asking your credit card provider to increase your spending limit, or having multiple credit cards, can help reduce your CUR. For example, your increased spending limit could be Rs 2,00,000, whereas your monthly spending is Rs 20,000, thus bringing your CUR to 10%. Also, if you have multiple credit cards, you could divide your spending between them, thus maintaining an optimum CUR on all cards rather than increasing the CUR on a single card.
*Don’t settle: If you’ve defaulted on your payments, your lender may offer you an option to ‘settle’ your loan. This means paying a percent of your principal and interest due, and considering the loan account closed. Taking this option would reflect in your CIBIL history and it would adversely impact your credit score. Any lenders you approach would see that you were unable to repay your loan. Therefore, do not take the settlement option if you can settle loans in full.
*Repay a mix of credit: You should have a history of repaying a mix of short-term or unsecured credit such as credit card balances and long-term or secured credit such as home loan. The timely repayment of a mix of credit instruments would reflect well on your credit history.
(The writer is CEO at http://www.BankBazaar.com)
Tania Kishore Jaleel & Sunita AbrahamSunita Abraham | Last Modified: Mon, Feb 01 2016. 01 46 AM IST | LiveMint.com
Understand and manage your credit behaviour to protect yourself from a low credit score
You know by now that big brother is watching your credit behaviour. One misstep in how you meet your financial obligations and your credit score will feel the effects for a long time. The credit score is a number based on your credit report—which is a summary of your past and current borrowings and your repayment history—that a credit bureau agency prepares. Currently, there are four such companies in India—Credit Information Bureau (India) Ltd (Cibil), Equifax Credit Information Services Pvt. Ltd, Experian Credit Information Co. of India Pvt. Ltd and CRIF High Mark Credit Information Services Pvt. Ltd.
A good score will help you get credit and loan facilities easily and on better terms, while a bad score will harm your borrowing interests. However, it is easy to make errors and have oversights that pull the score down.
“There are specific elements from one’s credit report that shape the scores; these are called credit score factors. These include amounts owed by a borrower, type of credit in use or the total number of credit accounts maintained, appetite for credit through credit inquiries and the number of late payments,” said Mohan Jayaraman, managing director, Experian Credit Information, and country manager, Experian India. It is important to understand and evaluate these factors, since an increase in these could result in one’s credit score being lowered.
It is good to know what may harm you if you want to protect yourself from the ills of a low credit score. Here’s what you can do about it.
Validate credit report
Check your credit report at frequent intervals to make sure that there are no errors or mistakes in the data, which may, in turn, be affecting your credit score. For example, there may be errors in your personal information. The balances reported on the loans and credit cards may be incorrect or may not reflect the repayments you have made. All of these have the potential to needlessly pull down your credit score.
To avoid that you just need to periodically purchase your credit report for a nominal sum, and if there is any disputed information, you should give an application for correcting it. The cost will vary across credit information companies. For instance, Experian charges Rs.399 for a credit score and Rs.138 for your credit report. Cibil charges Rs.500 for your credit score.
The credit bureau will make the changes after the credit institution confirms the error and provides the correct information. “It is recommended that one checks her score and report once a year. This is because it is good to know where you stand and also if there are any discrepancies,” said Aparna Ramachandra, founder director, http://www.rectifycredit.com, a credit repair and advocacy firm.
Delay or default
Delaying or defaulting on making loan payments and other obligations reflect poorly on your score. While even a one off case of delay or default will have an effect, frequent delays or defaults will indicate financial difficulties or lack of discipline and an inability to meet repayment obligations. Have systems in place, such as automated payments, to make sure that you don’t inadvertently miss a payment, if funds are not an issue.
Use credit in moderation
Just because you have been approved a high credit limit on your credit card or some other type of a loan doesn’t mean you take on the offer. Using a high percentage of the credit facility that you have been sanctioned, or a high credit utilisation ratio, may indicate a lack of control over spending habits and the risk of not being able to service the debt.
“Taking too many loans may be depicted as being credit hungry while applying for no loans means that a borrower will have no credit footprint on the bureau. Neither of these scenarios augur well for someone who plans on taking a loan,” said Jayaraman.
“Credit information companies consider consumers who apply for several new credit lines in a short period of time to be at a higher risk and hence adjust their credit scores accordingly,” he added.
Closing a line of credit, such as a credit card or an overdraft facility, while a financially prudent step, may also push up the credit utilisation ratio now that the available credit has gone down without an equivalent reduction in credit usage. Consider the impact of any credit related decisions, like applying for more credit, closing credit lines, or increasing usage.
“Taking too much credit, especially if it is unsecured credit, has a higher negative impact on the credit score. Lenders always look at debt in relation to the income for a more balanced view,” said Kalpana Pandey, chief executive officer and managing director, CRIF High Mark Credit Information.
Go slow on new enquiries
Each time you apply to use a credit facility, the credit institution will access your earlier information and this is recorded as an enquiry in your records. Too many enquiries reflect negatively on your credit score. “Space out your credit applications and limit making several applications close together as lenders may see this as a sign of financial stress,” said Pandey. It also indicates an inability to live within the available income and lenders may view this as a risk to your ability to meet repayment obligations.
Ramachandra said that a particularly big red flag in the eyes of a lender is if one makes regular enquiries about a particular type of credit. “This shows that you cannot live within your means,” she said.
Build a credit history
While a clean slate may be good news for your overall financial situation, it can hinder your ability to get a loan or credit facility in the future. Some lenders may look for evidence of responsible repayment behaviour before they lend, and not having a credit history works against the borrower in such cases.
Similarly, if you are considering reducing the number of credit cards that you hold, then retain the older credit cards in which you have a disciplined payment history, and close the newer ones. This will strengthen your credit score.
Monitor guarantees and add-ons
Standing guarantee for a loan, and holding and giving add-on cards may seem harmless but they can have an impact on your credit score. If the primary borrower defaults on the payment obligation, then as a guarantor it will be your responsibility. Similarly, whether you have given an add-on card or hold one, a default will reflect on both parties’ credit reports. Regularly monitor these obligations to make sure that there is no default. Else, you could be penalised for no fault of yours.
Since it’s difficult to avoid credit or loans, protecting the credit score should be a priority. “The most important factor to improve a credit score is to clear all outstanding credit card dues and then start paying back outstandings on your loan regularly (month on month). Once a borrower pays all her outstanding instalments and has started paying regularly, her score will improve,” said Jayaraman.
Close unused credit accounts if you no longer need them. Lenders take into account the credit limits available to you, and not just what you currently owe.
Have an emergency fund in place so that loan repayment obligations are not affected if there is a fall in income. It will also help pay for expenses such as medical situations, which may otherwise push you into additional debt.
To improve financial discipline, take simple steps like automating debt and bill payments, keeping contact details updated so that there is no missed information, periodically checking credit report and signing up for intimation by SMS or email for payment obligations.
The consequences of a poor credit score may not be immediate but it is an expensive mistake that you will pay for a long time. It will also take a long time to repair.
Source : http://goo.gl/oRVsfj
ADHIL SHETTY CEO, BankBazaar.com | Nov 13, 2015, 06.58 PM | Source: Moneycontrol.com
Closing a credit card is as important an event as opting for one. You have to follow the due process, to ensure that you do not suffer in future.
A credit card is a handy financial product that not only facilitates the buy-today-pay-tomorrow paradigm but also aggregates all your payments and acts as an emergency credit line should such a need arise.
However, if you need to cancel your card, there are certain considerations to grapple with. You also need to know that, if done the wrong way, it could adversely impact your personal finances and affect your credit standing.
Three essentials when closing your credit card
If you have decided to cancel your credit card, use this 3-step approach for an effective close.
1: Communicate with the bank: Communicate with the bank that you plan to close your credit card. You can get in touch with their 24/7 helpline and determine the balance that is due on your card. Send a written communication to your bank informing them about your card cancellation request. This can be useful should any dispute arise between you and the bank at a later stage.
2: Clear all your dues: After confirming the due amount on your card, you can choose to repay the dues as per your billing cycle. It is up to you whether you want to settle your dues as a onetime payment or in installments. The thing to remember here is that if you choose to pay in installments, your balance will continue to attract interest and you will be able to close the card only when it is fully settled.
3: Follow up on your card cancellation request: Do not stop at paying your dues and requesting for card closure. Many cardholders may incorrectly assume that their dues are fully repaid, while, in reality, they may still owe the bank some money. Make sure that you are at the same page with the bank and seek a no due certificate from them.
Importance of a no due certificate
After you are done paying your dues in full, do not overlook the importance of getting a written acknowledgement from your bank. Should there be any dispute between you and the bank, the no due certificate is eventually the deciding factor. Do not rely on verbal commitments; instead, opt for a no due certificate without fail.
Credit card cancellation may affect your credit score
Before you go ahead and cancel your credit card, know that cancelling a card can impact your credit score.
When you close one of your credit cards, you are also reducing your overall credit limit. This means your credit card utilization numbers will go up with the existing cards. Banks and card issuers may take this as a signal that you may be more likely to default on your future payments, thereby making you a riskier customer.
As an illustrative example, let us say you have two credit cards with a combined limit of Rs. 1 lakhs, each card having a credit limit of Rs. 50,000. Let us assume that you are spending Rs. 50,000 on both your cards collectively in a month. Therefore, your credit utilization is Rs. 50,000 out of a possible Rs. 1 Lakhs, which comes to 50%.
Now, if you close one of your credit cards, your credit limit is reduced to Rs. 50,000 only. If you spend the same amount as earlier, your credit utilizations is now 100%.
Effectively, this increased credit utilization with one card seen negatively by credit score calculators, as they will consider you as a person depending more on credit. This will impact your overall credit score.
Disputes with banks regarding closed cards
If you do not close your credit card in the prescribed way and get a no due certificate from your bank, do not assume that your card is closed automatically. There have been cases in the past where card holders have been embroiled in disputes with card issuers as they come to know only much later after “closing” their card that there are still dues on their card. In reality, not only would there have been pending dues, but also the card issuer would have charged interest on the same. Most such disputes may have resulted from miscommunication; nevertheless, these will affect your credit score badly.
Closing a credit card is just as important as opting for one. Always follow the right protocol when opting for a credit card closure and check its impact on your credit score once done.
Source : http://goo.gl/5QxgpM
Harshala Chandorkar | Updated On: June 09, 2015 12:58 (IST) | NDTV Profit
Before you start reading this article, please take this quiz:
- What is the three digit score which is one of the key factors that decides your access to loans or credit cards called?
- What is the range of this score?
- What is generally considered a good score by banks and credit institutions for approving loans and credit cards?
While most of you, who have taken a loan or credit card in the past, may answer this quiz quickly, some of you may still need help. This 3 digit number is your CIBIL TransUnion Score which ranges from 300 to 900. This score is calculated based on your credit history as reflected in your CIBIL report. Today an individual’s CIBIL TransUnion Score is one of the important factors that banks and credit institutions review before granting a loan or a credit card. An individual’s CIBIL TransUnion Score provides a credit institution with an indication on the likelihood of the individual paying his loan or credit card dues on time. Higher the score more favourably the loan application will be viewed by a credit institution. Most banks and credit institutions today lend to individuals, who have a credit score of 750 and above.
Therefore, it is essential to maintain a healthy credit score by following a disciplined credit behavior. Here is a list of 5 harmful credit behaviours that can hamper your CIBIL TransUnion score and derail your financial future:
1. Missing payments on loan installments: Most loan EMIs get auto debited on a set date each month from your linked bank account. Default on the monthly payment will occur if sufficient fund is unavailable in your linked account. Defaulting on loan EMIs is detrimental to your CIBIL TransUnion Score. So ensure you pay your loan EMIs month on month and have adequate funds in your bank account for the loan EMI debit.
2. Delay or default on credit card bill payment: Forgetting to pay your credit card bill on the due date or not paying your credit card bill at all can hamper your credit score drastically. Ensure you set up payment alerts on your credit card bill and make the payments before or by the due date.
3. Settlement on a loan or credit card: Making a settlement on a loan or a credit card is a harmful credit behaviour. If the customer has partly paid the dues and settled a loan or a credit card then the status will reflect as “settled” in the credit report. It is important to understand that though there will be no impact of the “settlement” flag on the customers CIBIL TransUnion Score, his credit history will show a “settled” status in his CIBIL report and there will be days-past-due reflecting on the report since the payment on the loan has not been timely. Each bank has its own policy of viewing at a “settled” status and will decide on the consumers future loan applications accordingly. Therefore it’s best to not ever get into a loan settlement.
4. Exceeding or reaching the limit of your credit card: Spending more than the assigned limit on your credit card or spending close to the limit on the credit card may affect your credit score to some extent. Therefore ensure that you spend well within the limit on your credit card.
5. High credit exposure: The total size of your debt reflects on your credit report and has an impact on your CIBIL score. Having many loans or credit cards increases the total amount of debt you owe and increases your credit exposure. High credit exposure may impact your score. If you have many loans running ensure that you close some of them so that your total credit exposure is reduced, before you apply for new loans.
A disciplined credit behaviour will automatically ensure that your financial future is safeguarded and you are “credit ready” at any point in time.
(Harshala Chandorkar is Senior Vice President-Consumer Services and Communications at CIBIL)
Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of NDTV and NDTV does not assume any responsibility or liability for the same.