Why You Should Keep Your Credit Utilization ratio within 30-40%

Since years we have been listening to the saying, that spends only that much, how much you can earn. However, over the past few years, he thought has been changing. With credit cards coming into the picture and the availability of them have made it easier for many people to spend even when they do not have that much cash on hand for that moment. Credit cards have made it easier for people to access money when in urgent need. But, there are few asterisks (*) that comes with whatever we peruse. And when it is a credit card, the credit utilization holds the biggest asterisks. Even though the card has a given limit, it is never a good practice to use all of it!

With credit cards comes the credit utilization ration. But that? And what it? Let’s understand this with an example. Suppose the credit limit of a particular card owned by someone is 1,00,000 Rs; then it is advisable to use 30% to 40% I.e. 30,000 to 40,000 Rs max. Credit utilization is basically the amount that is spent on the total credit that is available to an individual of their card. And, the credit utilization ratio is the amount used divided by the total available credit limit. Now, the next question that arises is: why to maintain the ration? When the limit available is more, then why not use more.

A credit score is an answer to that. With many criteria that have their effects on credit score, this one also plays a role. The reason behind is, more the usage, more the debt. More the debt, more it seems that the person is in need of credit. And more the need of credit shows more debt burden. So its a huge chain of logic that have been eventually considered after studying many of the cases. The irony is if you have more than one cards, and collectively if you spend, and exceeds the total limit, 40% would still be okay. So, taking the above example, if there is one more card of the same limit, 1,00,000. and if one uses, 35,000 each card, i.e. 70,000 in total then it is okay. As the total credit limit available is 2,00,000. But, using 70,000 from single card shows credit hungry behavior. Of course, this does not mean that one should keep applying for the cards and use it. Everyone should always check the amount which they would be able to repay if spent before then paying.

Credit score a tricky concept. But easy to understand. More the usage of the credit card will imply that the cash in hand is unavailable. When the credit card is given, an individual’s salary or bank account is checked if they are either salaried or self-employed respectively and only then the card is offered or approved. But many, misuse it. And hence the credit bureaus check the credit utilization ratio. What to do if the usage is more and the limit available is less? Simple, as mentioned earlier, apply for one more card. But, one should not apply for too many cards. Even that states that it is a credit hungry behavior and one is in bad need of funds. Similarly, closing the older credit cards also would impact the score as the older accounts shows the credit behavior one has over these years. And account history is also one of the factors which comprise the credit score. Also, if one does not want to apply for new cards, they can always make the payment more than once a month. When the usage seems to exceed 30%, make a payment and revive the credit limit!

The moral to all this is, anything used on average is good. May it be the credit that is available! Using 30% to 40% of the total limit available over the credit card shows a responsible behavior. And that also maintains the score!

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Use Secured credit card to Repair CIBIL score

If you have recently ordered your CIBIL report and found that you have a low CIBIL score, it is time to take charge of the situation and work towards improving it. Banks and financial institutions avoid issuing credit cards or lending money to individuals with a bad credit history. They pay a lot of attention to a person’s credit worthiness to avoid any risk of defaults. So a good CIBIL score plays a crucial role in the lending approval process. Many banks have cut off limit of a score of 650 -700 below which they reject the loan application.

In order to repair CIBIL score, one needs to prove that one can handle credit responsibly. For this one needs to make timely payments of loan instalments or credit card bills every month. But with a low CIBIL score, it would be hard to find a bank that trusts you with its money, or is ready to take the risk of lending to a person with a bad credit record. At such difficult times Secured credit card is a way out of this vicious cycle.

A secured credit card, works like any other card offered by numerous banks. The only difference here is that it requires one to keep a fixed deposit with the bank. The deposit amount then determines the credit limit that the bank offers on the card. So essentially, the bank does not face any risk of default. If the card owner does not pay his credit card bills, the deposit amount kept safe with the bank can be used to recover the amount.

Let’s look at some more features of a secured credit card

  1. Usually you do not earn any interest on the fixed deposit amount. You cannot close the FD till the time you are holding the secured card. Foreclosure of FD leads to cancellation of the card along with payment of applicable fees. After a year or two of responsible payment patterns, one can request a conversion of secured credit card to a normal card.

  1. There is very little documentation required to get a secured credit card. Generally all you need is an ID proof.
  1. The difference between a secured credit card and a debit card is that the secured card activities are reported to the bureau.

How does using a secured credit card repairs CIBIL score.

Timely payment of card bills is the most important prerequisite that is needed to build your credit score, through this process. The bank reports the payment behaviour to all the three credit bureaus. The payment details get recorded in your credit report and that forms a basis of your score. Since the payment history makes up 35% of your score, working on this aspect definitely gives a big boost to your score.

Remember, not using a secured credit card responsibly can bring down the score even further. So make sure you do not make any late payments, and do not default on them either. Do not use more than 30% of the available credit limit. A high credit utilization ratio pulls the score further down.

A secured credit card is a good option not only for people with a low credit score but also those whohave just started their journey of building credit. People with a lower monthly income, than the minimum income set by bank for issuing credit card can also use a secured card. Various banks like HDFC, Axis Bank, ICICI Bank, Dena Bank provide this facility. These banks allow a credit limit of 50% to 100% of the fixed deposit amount. But before you apply to any one of these banks for a secured credit card, remember to set your expectations right. You will not see overnight results. Just like all efforts take time to yield results, building a score also requires patience. It may take a few months before you start seeing any results. So you need patience and determination to start your journey. All the best !

How fast can my credit score increase

We are in an ear where everything that we want is instant. Instant is good. But it creates a lot of anxiety, impulse, and impatience. Everything instant is not good. Despite getting the results too soon, it’s always not necessarily perfect. There are many instances where the perfection or accuracy is not maintained at the speed of achieving it. While speaking over credit score and it’s rate of increasing or decreasing often has many myths. Let’s get those busted. There is no magic that can happen and would get your score to optimum great over a day or month. Also, the speed of increase also depends on the score which is currently. If the score is 450 and if the score is 650, definitely the time required to get 750 which is considered optimum best, differs. The one which has 650 will take lesser time compared to the one which has 450.

A CIBIL Score is a three digit number which is determined by payment history, the amount owed, new credits, credit mix and length of credits. Where, 35% is comprised of payment history which means how one has been making payments over the tenure of credit accounts opened. Credit consists of the credit card usage and the loans taken. 30% is for the amount owed. The total amount that has been taken, I.e. the credit limit one has for the credit card and the loan amount taken also has a major role in making the credit score. Length of credit history is 15%. How long have been the credit accounts are open, is the factor that is also considered. Rest both, new credits, credit mix are given 10% each. New credits are the one which is applied. But, if there are multiple attempts for opening new credit accounts can drag the score down. As it makes the creditors think that one is in dire need of funds which is also called credit hungry behavior. Credit mix is the combination of a secured and unsecured type of credit along with the fixed and revolving type of credits. These are the parameters and the weightage of them.

Now, on individual history, these scores are made. Any mistakes in these parameters will mess up with the score. The details information is mentioned in the CIBIL report. How long have been the account open, how and when are the payments made, any defaults, missed or delayed payments are all mentioned in the report. Also, the inquiries made for applying the credit are also mentioned. The first score is established after 6 months of an active account. Then the score is updated almost every month. Credit utilization is also a factor which affects the score. This is specifically for credit cards. One should not use more than 35% – 40% of the total credit limit of the card one has. To increase the score, the first and the foremost thing which has to be done is rectifying the old mistakes. There may be any missed payments, default accounts, unpaid dues, etc. work on them. Talk to the banker, tell the issues you had. Try clearing all those first. Then, use your credit card upto 35% of its limit. If your usage is more, apply for a new card. And use the mix. As you apply for a new card, new credit factor is also considered. But yes, do not overdo! Try taking a secured loan, say a gold loan or secured credit card. This will be a good of credit mix as well.

Once this is achieved, make sure you do not miss any more payments or delay in payments. Organize the payments. Keep reminders. Do not miss the repayment dates. While you follow this practice for over few months, a good credit score is no far! Again, there can’t be any finite time that is calculated to get a 750 score, but it is always achievable if the above mentioned points are taken care of!

What error  you  can  avoid while  building a credit score

A good credit score can be the ultimate key you can hold to unlock the best financial opportunities in life. Not only a good credit score can help you with various loans and credit cards, it can also help you land on your dream job. It can act like a boost when your future landlord conducts background verification on you. A good credit score can help you in many ways you cannot imagine.

What many of us do not know is that, building a credit score is equally hard as maintain the score. Unfortunately for many people who were starting on this epic credit journey a decade ago had no idea on how to start and how to dodge the blind spots when it comes to credit scores. Fortunately, today you have all the information you need at your finger tips when it comes to starting your journey to build a good cibil score. You have different websites as well, which helps you with free cibil score check to make better credit decisions. With all the information you need, are you still confused? Are you not getting the right gateway to start your credit journey? Are you still on the grey when it comes to identifying the blind spots of credit report?

Today we will help you understand and avoid the most common errors and also tips to build your credit score,

Apply for a credit card

What better way to start your credit journey other than having a credit card in hand. A credit card is one type of unsecured loan which you can use. You will have to make the payment of the credit limit used within 50 days of time. A credit card if managed properly can help you with financial marvels like reward points, add-on cards; you can even apply for another credit card on the basis of your primary one. On the other hand, if you default any payment, you can take a serious hit on the cibil score which will stay on your report for at least seven years.

Apply for a consumer durable loan

If you are denied a credit card because of no credit score, you can apply for a consumer durable loan. A consumer durable loan is the best and easiest way to enter the credit world and it can also help you build your credit. There are a lot of vendors who are entering the consumer durable market as the market has potential. When purchasing a product, you have multiple choices when it comes to lending options.

Avoid getting into debt

Once you open a bank account and start transacting on the same, you are on the financial radar. You will receive a lot of calls from different company’s telesales department who will offer you various loan options. Avoid them and take a loan only if needed. Just because you have an attractive offer in hand, does not mean you will have to take a loan. Many people make such mistakes and end up being in debts. A healthy tip would be to avoid such calls and if needed a loan contact your primary bank branch for loan options. Some banks provide you pre-approved loan options towards your account considering your financial transactions.

Be patient

As we all know, Rome was not build in a day. Similarly you cannot expect your cibil score to go up in a very short span of time. You will have to be patient and gradually see your score go up. Like explained in the earlier point, you can opt for credit cards and other financial options to get your score up eventually.

If you are still not sure on how to start building your credit score, you can always seek professional help. There are companies dedicated for such tasks which can help you build a healthy score for future financial transactions. No process is hard if you know how the process works, be educated about credit facts and start your credit building journey with ease.

Mistakes to Avoid When Building Credit History

If you want to be responsible towards your financial security, then it’s important that you build a high credit score with the help of good credit history. However, in that endeavor, you want to be careful with your actions and avoid the common mistakes that people commit only to hurt their score. These are:

1. Closing Old Accounts

It’s true that with few bank accounts and credit card accounts you can manage your finances easily and get the desired results faster. However, if you have to close a few accounts, then picking the old ones can do more harm than good.

Here is the thing- the length of credit history plays a huge role in your credit score calculation. In other words, your oldest accounts make a bigger contribution towards your score in comparison to your recent accounts. So, if you have to close an account, it’s best to choose one that’s relatively new.

2. Late Payments

Late payments, whether we talk about personal loans or credit cards, are never good for your credit rating. In fact, the majority of top credit bureaus such as TransUnion CIBIL, Equifax, High Mark, etc. give the highest weightage to the payment history when calculating your credit score. So, if you miss only a few payments, then your credit history will stay good. However, if you fail to make the payments on time more often than not, especially in multiple accounts, then you can expect a huge damage to your creditworthiness.

3. Increasing Credit Utilization

You may have a reason to believe that increasing credit card usage i.e. credit utilization can help to build a high credit score faster. On the surface, that seems logical, after all. However, that’s not how the system works.

Higher credit utilization doesn’t have any impact on the credit rating growth. In fact, if it’s above 35%, then it can easily cause damage instead. This is because the credit rating agencies associated high credit utilization with “credit hungry” behavior. In other words, they are led to believe that the user isn’t financially reliable which is why they are utilizing a large portion of the credit available at their disposal.

4. Carrying Credit Card Balance

A lot of people don’t know exactly how the “minimum payment” feature of credit cards work. They just assume that everything is fine as long as they make these payments.

In theory, minimum payments are a good option. After all, you don’t have to pay any fine and so your credit score shouldn’t be hurt either, right? Wrong!

It’s true that by making minimum payments you can prevent the penalties and/or extra charges. However, you may still suffer in the long run. This is because when you make a minimum payment, your balance amount is carried over to the next month and becomes debt. So, if you continue making minimum payments again and again, your total debt will increase which not only gives rise to financial challenges but also impacts your credit score calculation.

5. Failing to Monitor Credit Report

When people want to increase their credit score, they often to their friends and relatives for guidance. If they are lucky, they get some valuable insight and tips such as expanding the credit variety, timely payments, the option of secured credit cards, etc. However, a lot of times they don’t get to learn about the significance of credit report monitoring.

If your credit report has discrepancies, then the credit rating agencies will continue to give you a poor score even if you are making all kinds of efforts. Plus, you can’t monitor your progress unless you monitor your report and actually measure the impact of your actions.

All the credit rating agencies in India are required to provide every user a free credit report once every year. Thus, there is no reason for you to not get yours.

Building a good credit history isn’t too complicated or difficult. However, having sound knowledge of the same is the key. In that regard, the mistakes explained above can be of great help to you. Good luck!

5 Steps to Clear Old Debt from Your Credit Report

It’s nearly impossible to enjoy a perfect financial life in which you don’t miss a single loan EMI or a credit card bill. Most people make a slip at least once in their life. However, the good news is that your bad debt or past financial mistakes are automatically removed from your credit report over time.

If it’s been a long time and your old debt hasn’t been removed from your free CIBIL report, then you can take the following steps:

1. Compare Multiple Credit Reports

There are many credit rating agencies in India but only 4 of them are at the top and referred to by the majority of traditional banks and NBFCs. These are CRIF High Mark, Experian, CIBIL TransUnion, and Equifax. You can compare them to identify the one that’s showing the old debt.

2. Contact the Concerned Credit Agency

Now that you know where the problem lies, you can contact the appropriate crediting bureau directly. Fortunately, all the top credit rating agencies allow the users to raise disputes through their websites in a convenient and simple manner.

3. Contact the Bank

You must also contact the bank which submits your financial details to the credit rating agency. Sometimes, they submit wrong information which results in a poor score or a bad remark on your report. In this case, they may fail to report that your old debt has been cleared.

Taking the case up with your lender can easily resolve the issue if they find out that the fault was on their side.

4. Approach the Upper Management (Optional)

If you have obtained a satisfactory resolution with your bank, then you can skip this step. However, if they haven’t done the needful or are simply unresponsive to your concerns, then you can send an email to the head branch. You can visit the official website of your bank and raise the issue there.

You also have the option to pay a visit to the banking ombudsman which acts as a quasi-judicial authority that was created to provide resolution of the complaints of banking customers.

5. Wait for the Changes

After the mistake has been acknowledged, the changes will be visible over a period of a few weeks. This is because the credit rating agencies update the records periodically. In most cases, you shall be able to see the bad credit fix in your report in a month or so.

Preventive Solution for Old Debt Damage

If you want to protect your credit score from unwarranted damage due to carelessness on your bank’s end, then it’s important that you check your credit report from time to time. This will allow you to check for issues like old debt, wrong repayment information, discrepancies in personal details such as name, address, bank account, etc.

All the credit rating agencies in India are required to offer the customers one free credit report every year. So, there is nothing stopping you from getting your free CIBIL report today! You can simply visit CIBIL’s official website, create an account, answer a few questions for verification, and that’s it! They will send your report to your email address within minutes!

Monitoring your credit report is also beneficial for the following reasons:

Identity Theft and Frauds

Identify thefts and financial frauds are still rampant in India. The main reason behind it is the lack of awareness. Most people realize about these only when it’s too late. However, by monitoring your credit report on a regular basis you can identify anomalies such as unrecognized bank accounts or credit card accounts, unfamiliar loan inquiries, etc.

Healthy Credit Score

By checking your credit report, you can monitor your credit score changes. So, if you notice your score dropping, you can take appropriate measures to bring it back to the normal level again.

Discrepancies

Mistakes in your personal information and credit information can lead to a poor score. However, by identifying these mistakes and getting them corrected, you can easily prevent the damage.

When it comes to credit management, then the majority of problems can be averted or resolved by simply knowing the right plan of action. In that regard, this blog can be of great help. Good luck!

 

How Does Different Credit Bureaus Work

Before jumping to the main topic, Let’s know that what is the credit bureau? And what mainly does it do. A Credit Bureau is an organization who generates and maintains the credit score and credit report of any individual. These both are nothing but a direct reflection of how credit responsible any individual is. There are various factors which these bureaus determine while generating, updating, and maintaining the score and the report. Various algorithms are working on the credits and the repayments of credits any individual has taken and is repaying. It also majorly depend upon the banks or the NBFCs who update them with anyone’s proceedings of the credits. If in case, a bank or an NBFC fails to do so, it directly affects the score.

Everyone who has dealt atleast once with credit score or credit report knows what do they both mean. A score is a three-digit number between the range of 300-900 which is obtained by calculating various factors and report is the detailed information about the accounts. Where are the credit bureaus and how many of them will know the information? In India, there are 4 credit bureaus viz. TransUnion CIBIL, Equifax, Experian and CRIF HighMark. The first ever bureau was TransUnion CIBIL which was established in 2000 with the association of TransUnion, An America based Credit Bureau. CIBIL stands for Credit Information Bureau India Limited. Over the next few years, other bureaus came and established themselves. In 2010, RBI(Reserve Bank of India) passed a mandate that each and every bank or an NBFC(Non-Banking Financial Company) has to update any information regarding the credits which includes any type of credit card or loan of an individual to the credit bureaus.

Credit score consists of 5 parameters.

• Payment History

• Amount owed

• Length of credit history

• Credit Mix

• New Credit

Check the following table which determines the weightage of each of the above-mentioned parameters in respective credit bureau.

TransUnion CIBIL

Equifax

Experian

CRIF HighMark

In Percentage(%)

Payment History

35

35

35

35

Amount Owed

30

30

30

30

Length of Credit History

15

15

10

10

Credit Mix

10

(Inquiry) 10

15

(Utilisation)15

New Credit

10

(Accounts in Use) 10

10

10

Now, as per the details mentioned above, the 65 percent of any credit score comprises of the payment history as in how responsible the person has been over past years in making the payments of the credits s/he had been taking is considered. The amount owed is how much is the total credit anyone has taken, this includes the credit card limit as well as a loan. And the rest three factors revolve around the total length of credit history i.e. from how long has an individual be taking credits, credit mix i.e. what kind of credits one has. Secured or unsecured and revolving based on fixed credits. New credits are the new type of accounts (not be mistaken by bank accounts) or the credits which one opens. In here, Equifax has a different name as Credit inquiry which is the number of times one has inquired about any kind of loan or a credit card. The loan would be any of the loans like, home loan, education loan, car loan which are basically unsecured types of loan. And the accounts that are in use. Also, CRIF HighMark considers the credit utilization instead of credit mix.

There is no much difference between any of the factors which determine the score. There is hardly 5 percent change. So when the credit score is calculated is more over the same with just 20-25 points change. There can a major difference when a bank would not update any of the bureaus about a transaction. That can happen sometimes, that a particular bank would update the information to 3 bureaus and skips one or there is no tie up with any of the individual bureaus. When anyone checks the detailed report, it can found about which information is missing. Majorly if there is any change, it would be of 50 points maximum and shouldn’t we worry about, as taking the above points into consideration.

But, one should always be responsible for his/her credits and should not take them casually. The weightage may differ in any of the bureaus of the parameter but, an individual’s behavior would make the creditworthiness better or worse. So, one has to be mature enough in taking the credit repayments seriously!

Learn How to Read Critical Information from your Credit Report

All credit bureaus in India are required to provide a free credit report once a year to anyone who asks for it. This means that you can access your credit report free of cost four times a year since there are four credit rating agencies in India. However for these reports to be useful you should be able to understand the relevance of the information contained in them, especially the critical part. So here we take a look at the critical information that a credit report contains what it means and why you need to focus on it.

What is Critical in Your Report?

So let’s say you got your free credit report, now you need to know what is contained in each section and how it impacts your credit score. As we all know credit scores are all about your debt history so all information about all your credit cards and loans.

The credit score definitely is the most important thing in your CIR. A good score is important for you to get loan applications sanctioned and is also an indicator of your credit health. A score above 700 is considered to be good.

The accounts section is the most crucial part of the report and the information contained here impacts the score to a great extent. Information about all open loans, closed loans and credit cards is included in this section. Thus you should first make sure that all the loans and cards that are mentioned in the CIR actually belong to you. Though unlikely some loan or credit card that may not belong to you may be mentioned in your CIR. It could be just an error or sometimes a case of identity theft in either case it is very important that you take immediate action on it.

The next thing you need to understand is the account classification of each loan. Each debt is classified as per their payment status. Thus if you have been paying regularly then your loan would be classified as STD. If a loan is classified as anything other than STD then it means that you have not been paying regularly and it is not good for the score. So make sure that no loan is classified as a non-std asset by mistake. It may happen that the borrower may assume that his EMI’s are being debited on times while it may not be happening due to some error or oversight.

You should also check your repayment history, this will let you know if you have paid all your dues on time in the past 36 months. DPD means day past due; thus DPD of zero for all credit cards and loans is a good sign for the credit score. Anything beyond zero DPD signifies that the payment has been delayed which will lower your credit rating.

Also ensure that all loans that have been repaid by you fully are reported as closed. Even if you have repaid all the dues from your end but the loan reflects as an open loan then you need to get in touch with the lender and get a NOC or complete any other pending formality as required.

When going through the CIR also check details like the total loan amount, unpaid amount, tenure, interest etc. This will ensure that you have all your facts straight and there are no errors on the part of the lender or you have not missed any important detail.

Other Aspects That Require Attention Too:

While what is mentioned above is critical in your report, there are other aspects too that require careful consideration. Some facts that you need to check are:

  • Personal Information section contains details about the DOB, PAN, and driving license and so on. Make sure that all information mentioned is accurate

  • Contact Information section has details about individual’s current address and also past addresses (if any), email address, telephone number, mobile number etc. Again the accuracy of this information is important.

  • Employment Information section has details about the current occupation, work place details, name of the company (for salaried) duration of employment etc.

  • Enquiry Information sections details about all enquiries made by lenders and this also has a bearing on your credit score. So do make sure that the details mentioned here are accurate.

So get your CIR and understand what it means, it will help you stay credit healthy.

How to Plan Your Dream Wedding Without Spending Your Savings?

Life is but a long sequence of good and bad moments. However, some moments are more special and important than the others, one of which is your marriage.

It’s true that you don’t tie the knot every day. Plus, it’s a special occasion because it’s the beginning of a new chapter, or rather a new life. Thus, it’s understandable if you want to organize a lavish and festive wedding, with no concern for the expenses. However, is using your savings for the same a good idea? Let’s find out.

Weddings in India

Indians weddings are known for their grandeur and plush display. However, to make arrangements for these, a massive amount of money is required. This is the reason why many young professionals turn to their savings for help. They liquidate their fixed deposit accounts, bonds, and other long-term investments to fund their weddings. However, this is not recommended by the finance experts for the following reasons:

  • After you get married, many new expenses may need to be taken care of, such as home loan, new furniture, travel, car loan, etc. However, if you have spent all your savings on the wedding, then you won’t be able to clear these expenses.
  • You must always have an emergency fund for financial security. For instance, if for any reason, you lose your job or develop a serious illness, then you should have enough money to handle the situation without needing money from anyone else.

What’s the Solution?

A personal loan is the best solution for funding your dream wedding because of the following factors:

 

Peace of Mind

The biggest and most important reason to get a personal loan is that it gives you the peace of mind when you know your savings safe and untouched. So, you can enjoy planning your wedding without a worry and pay for all expenses easily.

With a personal loan, you also don’t need to go through the inconvenience of selling your mutual funds, bonds, etc. to get the money. Instead, you can give your full attention to the most important event of your life i.e. your marriage.

Fast Disbursal

The approval process for a personal loan isn’t as complicated as a home loan or education loan which require an excellent cibil report and often a loan guarantor too. There are also few formalities and minimum waiting period.

These days, many banks offer special loans which are designed for exclusively for marriages. So, you can also look into them to get the money even more easily and quickly.

Competitive Interest Rates

Thanks to the large number of NBFCs and other financial institutions that have emerged on the surface today, the interest rates and perks offered on the personal loans are extremely competitive. So, if your timing is just right, and your CIBIL report is impressive, then you can easily get an attractive interest rate that will help you repay your loan quickly.

How to get a wedding loan?

To get the best possible loan for your wedding, be sure to do your research and compare the interest rates online. Other than this, you must keep the following things in mind:

  • Wedding Budget: A wedding comprises of various kinds of expenses. However, when you take a loan, then you have to make sure that you have as accurate of a budget as possible. This is to avoid a situation in which your loan is way smaller than your actual expenditure.
  • CIBIL report: One of the most important things you need to do to get a low interest rate is to improve your credit report. This is because all banks decide the interest rate and the terms of the loan on the basis of this important document only.
  • Loan Documents: Make sure that you have the appropriate documents to apply for the loan. These include your ID, proof of income, bank statements, etc.

In Conclusion

Weddings are meant to be thoroughly enjoyed and cherished, there are no two ways to it. However, you can’t let your emotions come in the way of your discretion. So, spend as much money you feel comfortable with, but don’t splurge your savings when a personal loan is a much safer option.

 

Does Credit Score Retires?

Credit rating is a continuous process that begins with the first loan or credit card one takes in their name. Subsequent to that all information related to cards and loans keeps on getting updated in the credit report. The credit score is calculated based on the cumulative information on each loan and card. There are five basic parameters that determine the credit score of an individual. So does credit rating have validity? Does a score retire after a specified time period?

Understanding Credit Scores:

Before we understand whether a credit score retires or not it is important to understand the calculation process for it. Repayment history, credit utilization ratio, loan tenure, credit inquiries and credit mix are the five factors that influence the credit rating.

Repayment records about all loan dues and card dues is reported in the CIR, this is done month on month so as long as a loan is running or a card is active, information on them will keep getting updated. Regardless of the fact whether a loan runs for 15 years or 5 years the record will keep getting updated for that duration. So what happens when the loan is repaid? After that repayment record are not updated but the loan status whether closed or settled is reported in the CIR.

The same applies to the credit utilization ratio too, this information is also continuous as the card would be used on an ongoing basis and this information will also be updated monthly and the score would reflect that too. Hard enquiries (when a prospective lender asks for an applicant’s score) would be reported in the report as and when an enquiry is made. Information about credit mix and loan tenure is also dynamic in nature and would depend on the individual’s treatment and nature of their debt.

So Do Credit Scores Have Validity?

No, credit scores per se do not have any validity and they do not retire. Credit rating calculation is a dynamic process and gets updated as and when there is a change in parameters (that impact the score) whether positive or negative. However the information that is part of the score calculation has a specific validity and will cease to impact the score after a specified time frame. Repayment history for 36 months is included in the report and only repayment records for past 36 month are included in the score calculation. The more recent information has more impact on the rating. Thus if a default or delay is made more than 36 months back its negative impact will not be felt after this time frame.

Hard inquiries for two years are included in the report however when score is calculated only inquiries made in the last year are factored in. So all inquiries made in the past year will have an impact on the rating; older enquiries will have no impact whatsoever on the score calculation. So anyone who wants to improve CIBIL score should avoid making loan applications without a sufficient gap between two loan applications.

Information about “settled” or “written off” loans stays the longest on a report and this account status must be avoided at all costs. Any “settled” or “written off” loan raises red flags for all future lenders as they may feel that you cannot be trusted as a borrower. This information stays on the report for seven years, thus the validity of this information is seven years.

As we discussed before, information related to loan tenure and debt mix is dynamic. If a loan runs for its full tenure then it is considered good for the rating as a deeper credit trail is good for the credit health. Secured loan and unsecured loan mix is also a factor when the rating is calculated, a bigger proportion of unsecured loans is not good for the score. So as and when the loan proportion changes its impact will vary on the score.

Thus credit scores do not retire and have no validity but some information that is used to calculate them may have some validity and may become redundant after a specified time period.