Bank Pulling Your Credit Report? Wait, Don’t Freak Out

Unless you seek to borrow funds from your friends or relatives or from a lender who is not a part of the mainstream organized financial structure you cannot circumvent an inquiry into your credit score. Thus whenever an applicant applies for a loan or a new credit card the prospective lender will seek the applicants credit report to assess their credit health and then based on that they will decide whether to accept the application or not. Credit check is not only a part of the screening process used by lenders when assessing potential candidates but it is the first step in that process. So the borrower or an applicant can do nothing about a financial institution seeking their CIR when applying for credit. However is this a cause of worry?

Impact of a Bank Pulling Your Credit Report:

Banks or any other lender seeking the applicant’s report is part of the screening process and is beneficial to both the lender and borrower. Lenders can eliminate applicants who pose a threat of default as may be revealed by their credit score and for the borrower it means a more objective process of screening which is not based on subjective factors. So what happens when a bank pulls the CIR of an individual?

A credit report consists of various sections and each section has information related to that aspect respectively. There is a personal information section which will have details about name, contact details and so on for the person; the accounts details section will have details about home loans, personal loans, auto loans, all credit cards that a person may have and so on while the inquiries section will have details about the inquiries that have been made about the credit score of the individual. Thus which financial institution sought the report of the applicant and when will be recorded in this section.  There are five aspects that are taken into account when the credit score is calculated. Inquiries information is one of the five factors and each inquiry can cause the credit score to fall.

So is there a Cause of Worry?

Despite hard inquiries causing a dip in the credit score there is no reason to worry about it when a bank seeks the CIR. This is due to a couple of reasons; the first reason being that each hard enquiry will cause a dip of only five points or so in the score. The actual impact will depend on some other aspects also; if there are few accounts and the credit history is not very deep then the impact of each hard inquiry will be slightly higher. When there are a larger number of accounts and the credit history is deeper then each inquiry will have a comparatively lesser impact on credit score.

Though hard inquiries are taken into account when calculating the score but their weightage is only 10% thus their actual impact is very less when compared to other aspects like repayment history and credit utilization ratio. Thus if one has been responsible in paying their dues on time in the past and has also been a responsible credit card user their overall score is expected to be good. If there are missed payments, high credit utilization ratio and too many unsecured loans in the credit report then there is not much that can be done. In such a scenario a bank pulling your report will just worsen the score slightly.

So unless one makes reckless applications for loans there should not be a cause of worry.  When calculating the score only inquiries that were made in the past two years are considered which should reduce the stress level for any applicant.

When applying for a loan the applicant should ensure that they check the eligibility criteria of the lender so that they are sure of their application being accepted. Also stay away from applying for a loan or fresh credit unless absolutely necessary, this will save you from unnecessary hard inquiries and any impact on the credit rating.

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Employers Are Using Credit Checks for Hiring, Hope you are not missing on Good Jobs!

A CIBIL report is like a financial report card that keeps track of your borrowing behaviour. It details the loans that you have taken, your payment patterns and other details relating to your credit history. This information is for sure useful to the banks who use it to evaluate your credit worthiness before granting you loan. In fact the CIBIL score and report have become an integral part of most bank’s loan approval process. But is this information of any use to your prospective employers? It seems very unlikely that your employer would be interested in knowing such details. He should only be concerned about your education qualification, experience, skills and aptitude required to do the job successfully! Right? Wrong!

You may be surprised to hear this, but there are quite a few companies especially in the financial sector who check the credit history before hiring an individual. You may think that your financial health has nothing to do with your capability to perform a job well, but some employers think differently. So next time you go out looking for a job, you need to worry about one more thing apart from your resume and interview preparation; that’s your CIBIL score and report. This practice of reviewing the credit history as a part of employee background check was prevalent in many western countries. Slowly this is gaining acceptance in India as well especially in the financial sector. It will not be long when companies across all sectors will use this as a standard practice.

For what kind of roles is credit check more prevalent?

Positions with financial responsibility, senior executive positions and roles that require handling of confidential or sensitive data usually involve credit checks. Many private sector banks like IndusInd, Standard Charted and DBS bank check the CIBIL report as a part of the thorough background check that they perform before offering a job. Such checks are usually performed for hiring for sensitive roles in an organization.  The rationale behind these checks is that if a person has defaulted on loan payments or not settled credit card dues since long, he may not be considered suitable for handling customer’s funds. Employers use this data to judge how responsible and financially stable you are.

So if your credit report is not in good shape, now is the time to work on improving CIBIL score. As the job market is becoming more and more competitive, companies are analysing the candidates profile more deeply to select the most suitable person for the job. A low CIBIL score may hinder your chances of getting hired for your dream job.

A CIBIL report which shows 100% credit utilization, significant levels of debt, late and missed payments and delinquencies indicates the irresponsible attitude of the individual. If the report shows many settled dues, bankruptcy, foreclosure then you may be seen as an individual with bad intentions. Companies refrain from hiring such individuals as they believe that poor financial health of an individual will have an adverse effect on his or her performance levels at the job. On the other hand a good CIBIL score and report is associated with honesty, integrity and responsibility towards one’s obligations.

What and how can the employer check credit details

Your credit score and credit report are two different things. Your report does not display the three digit number. Your employer can only check your credit report and not your score. Secondly, they cannot do a credit check secretly behind your back. They can do so only after seeking permission from you. The employer will ask you to authorize him and give a written consent to allow him to have a look at your report. So when you sign the authorization documents, you will know that your credit profile will be evaluated. You may refuse a credit check, but then the employers may reject your job application on the grounds that they were unable to complete their screening process.

If you have negative information on your report what should you do?

If you have questionable items on your report, inform the employer before hand as to what they can expect. You need to be prepared with an explanation for the negative record. Companies would want to know how you took charge of the financial situation when you were faced with adversity. Explain what you did to rectify the situation.

Bottom Line

Having excellent skills for the job is no longer enough to guarantee a placement. Employers have adopted the practice of checking CIBIL report to analyse your trustworthiness and attitude towards your responsibilities. So keep a check on your CIBIL report and improve CIBIL score. This will improve your prospects of landing into a good job when you are competing against other equally qualified candidates.

The Bad Stuff Is Off My Credit Reports – So Why Didn’t My Scores Go Up?

Your credit report and score is a reflection of how responsibly you are handling your debts. If you are looking to finance a new car or home or just looking for better terms on a credit card, you will be evaluated against the yardstick of your credit profile. If your past spending habits and irresponsibility towards your debts have blemished your credit report, then it may become difficult for you to avail new loans.

At this juncture you may think of ways to improve credit score. Getting negative items removed from your report seems one obvious way to increase your score. You may ask for a goodwill adjustment or pay for deletion of entry from your report. Once this bad stuff falls off your report, you should see improvement in your score. But things aren’t so straightforward. Whether your credit score will improve accordingly or not will depend on several factors like the type of negative records (whether they are late payments, collection accounts, charge-offs, bankruptcy), age of these accounts and other information recorded in your report.

It Takes Time to update the credit records

Even if you have asked the creditor to remove the entry, it takes time to flow through the system. A company may take up to 30 days to send the updated information to the credit bureau. Only when the report is updated with new information will you see a change in your credit score. You need to make sure that the updation is done in all the three bureaus. If one particular bureau doesn’t receive the updated info, then you will not see any change in the score from that bureau.

Time of deletion

When a late payment, or a serious negative item like a bankruptcy or a foreclosure appears on your report your score drops significantly. But as time passes the impact of these items on the score starts decreasing. Your recent credit behaviour of on time payments can overshadow your past mistakes to a great extent. Though the older negative items continue to have an effect, it is only in small measure.

So if an old negative account is removed from the report it is unlikely that it will have a lot of positive impact on the credit score. As against this, if a recent collections account drops off the report then it will bring a big boost to your cibil score.

Another point to note is that simply paying off a collections account doesn’t bring any change in your score, it only marks it as paid. As logic suggests if an unpaid account is bringing your score down, paying it off should have a reverse effect of increasing your score. But it doesn’t work like that in credit scores. The fact that a collections record was present on your report is enough to bring your score down, whether it is paid or unpaid. Hence only when you request the lender to delete the entry once you pay, can you see a change in your score. Keep track of whether the collection agency removed the entry after receiving the payment or not.

Different scorecards

Different individuals are rated based on different scorecards. Based on the information in the credit report an individual accumulates points which determine his credit score. The type of scorecard used for an individual depends on the length of the credit history, number of credit accounts, presence or absence of negative records and many other factors. As the credit history changes with time so does the score card used for evaluation. A removal of negative information may result in a switching from one type of scorecard to another. The new credit score is based on different set of factors and the points gained on those factors may not necessarily show an increase from the previous score.

One needs to remember that credit score changes do not happen overnight. A lot depends on how you dealt with the negative account, timing of removal and how much the negative record was affecting the score in the first place. One should at least wait for 30-60 days, to see an improvement in the score once the bad stuff was removed from the report.

It is unlikely that you can get rid of all negative records on your report. If that was the case, everybody would have an excellent credit score. The lenders by law are required to report accurate information. So it is better to work on your financial habits, so that you don’t make credit mistakes in the first place. Take on a liability only if you are sure of repaying it as per the set timelines. Be responsible for timely payments of credit card bills and EMIs. Such good credit habits will always ensure an increase credit score.

 

Four Steps to a Healthier Credit Report

Credit scores are important as they are not only an indication of financial well being and discipline but it also a crucial factor in getting a loan application accepted or rejected. Thus it makes sense for you to be aware of what contributes to making a good or bad credit rating so that you can aim to have a healthy credit report. Here we look at a few aspects that contribute to a healthier credit score.

How to Get a Healthier Credit Score:

Five factors impact CIBIL score calculation and taking care of these factors will ensure that you have a good rating that will allow you to have access to credit if you so require.

  1. Ensure Timely Payments: This is the most crucial factor in the credit score calculation. Thus paying on time is the best way to a healthier score. So whether it’s the EMIs or credit card bills remember to always them before the due date or by the due date. This simple rule will go a long way in maintaining a good score. If you have not done this in the past it is never too late to remedy your ways. While paying on time going forward will not immediately improve the score but it will have a positive impact over a long period of time and the negative impact of late payments each month will reduce. Plus it’s a great way to get you off the loan defaulter list and better your chances of getting a loan approved.
  2. Use the Credit Cards Wisely: Credit cards come with a sanctioned credit limit; this is the maximum amount that the user can spend without paying the dues. Thus if your card has a sanctioned limit of Rs. 100,000 then this means you have access to credit up to Rs. 100,000 per billing cycle. However this does not meant that you actually need to spend an amount equal to the sanctioned limit. Actually it is good idea to keep the spending below or equal to 30%-35% of the sanctioned limit on a regular basis. A low credit utilization ration (usage/sanctioned limit) has a positive impact on the credit score and after the credit repayment history it is the most important factor when calculating the score.
  3. Eliminate Old Dues: If one is looking at getting a healthier credit report card then it is mostly a long term process. Improving the rating takes time but eliminating old dues is something that can have an immediate impact if done correctly. If you have pending dues that are reflected in your CIR then take care of them in the right way to see an improvement in the score. When you repay old dues remember to pay the entire amount and in case you do negotiate with the lender then do ensure that the lender does not report it is “settled”. A settled debt is never a good sign and would not improve the score and may have an opposite impact. Having said that paying an old debt does not mean that the delays and missed payment are removed from payment history but the debt will not show as an overdue amount in future reports which is bound to have a positive impact.
  4. Avoid Credit Enquiries: Needless to say one must apply for a loan only when one requires it! Each time one applies for a loan the prospective lender seeks the credit report of the applicant. This is known as a hard enquiry; enquiries are one of the five factors that influence the CIBIL score calculation. Even when one needs a loan and applies for it then make sure you make a thorough check about the lender’s eligibility criterion and the required documentation. This will ensure that there are no unnecessary credit enquiries and you apply to lenders only where you have a fair chance of getting the loan application accepted.

Staying credit healthy should not be something that one does once in a while and them forgets about it. Inculcating healthy credit habits and being financially disciplined ensures that one remains credit healthy throughout! Just like are financial and physical health we need to take care of our credit health too.

Buying Your First Life Insurance Plan? Here are Things to Keep In Mind

Life is the most valuable asset for anyone and we all shudder at the thought of losing someone we love or for that matter about the loss that our loved ones would endure in case of one passing away.  Though one cannot do anything about the emotional loss that befalls the family in case of death of a loved one but one can take measures to ensure that they do not suffer (especially in the case of dependents) any financial hardships. This is where a life insurance policy comes in; the right life insurance policy would make sure that the dependants are taken care of financially in the event of death of the primary or sole breadwinner. So what should you keep in mind when buying your first life insurance plan?

  • What Life Stage are You In?

If you are buying your first life insurance plan then most likely you are at a stage in life where you have started working recently or have just started a family. However there may be times when you may have missed getting an insurance policy then; better late than never. Each life stage has different requirements and since a life insurance plan is bought primarily to take care of the dependents you need to keep their requirements in mind. As life stage changes so does the number of dependents and the requirements of the family. Insurance needs will be different for an individual who is recently married, both partners are working and they do not have any kids as compared to an individual who has spouse and two kids to support. As the life stage changes so should the insurance cover.

  • How Much Life Cover Do You Need?

The amount of insurance one needs will be dependent on your life stage, your lifestyle and your liabilities too. It is possible that two individuals who are at the same life stage may have different liabilities and hence their requirements may vary. The rule of thumb says that the insurance cover must be ten times the yearly income but there are various methods of calculating how much cover one should have. If one has a loan to service then that should be taken into account when calculating the required life cover, the number of dependents, their education and other requirements etc also must be factored in.

  • Which Plan Suits Your Requirements

There are numerous plans available to take care of the needs of an individual. Term plans give high coverage at low premiums as they are pure insurance plans. Endowment or money back plans guarantee a saving corpus by paying regular premiums and they also provide insurance cover. ULIPs help in wealth creation, though insurance is also provided but the cover provided vis-a-vie the premium is pretty low.  Insurance premiums are dependent on the age, medical health and of course the amount of cover one seeks. Another factor that may impact the premiums is the CIBIL score! Based on the CIBIL score the company will calculate its own insurance score which will indicate the likelihood of a claim. Choosing the right plan based on your requirement is important; for somebody who has just started working and has no liabilities an endowment plan or ULIP could be an option but for someone who wants maximum insurance at lowest premium the Term Plan is the best bet!

  • How is the Claim Process?

As we said earlier an insurance policy is bought to serve the needs of the dependants in the absence the breadwinner. However the policy would be useless if the family is unable to get the funds when they require or the process is too complicated for the family members to follow.  Thus before buying the policy check about the claims process, what is required, how much time it takes and other important aspects related to filing a claim. Do not forget to check the Claim Settlement Ratio of the company as it will give you a fair idea about how the company is at processing claims; it obviously makes sense to choose a company that has higher settlement ratio.

So if you are looking at buying an insurance policy, do keep the above in mind. Also do not forget to try and focus on how to improve CIBIL score so that you can buy a policy without paying higher premiums. A suitable insurance policy is very important for every individual.

Why does the credit score differ between credit bureau?

What is a credit bureau? How does that work? Does that affect my day-to-day life? We are here to give you a proper insight on credit bureaus and their different styles of credit score ratings.

When you apply for a loan, the bank or the non-banking financial firm will try to pull up your credit report. The credit report will have all that is needed to understand you’re past financial history, your current debts. By having a thorough research on the same the bank then considers giving you a loan or any financial product like a credit card. But from where do the banks get the credit report?

There are four major credit bureaus in India; they are Equifax, CIBIL, Experian and Highmark. Majority of banks and Non-banking financial companies in India take assistance of CIBIL in terms of credit report of the customer.

CIBIL was established in the year 2000, Equifax, Experian and Highmark was granted a license in the year 2010 to enter Indian market and help with the credit rating system.

The scoring styles used by all these bureaus are different as they practice differently and do not want to collude with other bureaus.

 The Scoring System

CIBIL- the score ranges from 300 to 900, 300 being the lowest and 900 being the best. You can opt for a free cibil score from various Internet websites, but if you want a detailed report it will cost you INR 500.  It is not necessary to have a perfect 900 to get the loans sanctioned, every bank have their own protocols and you can avail a loan with a low CIBIL score as well but with a high interest rate. You can get the report within 7 working days once applied.

EQUIFAX- Equifax has a different approach when it comes to scores. Their score ranges from 1 to 999, on that 1 being the lowest and 999 being the highest, they more incline on the corporate side rather than individuals, the major services provided by them are Credit risk and fraud, industry diagnostics, etc. They take 10 days to generate the report. You can get it for INR 400.

EXPERIAN- Experian credit ranges just like CIBIL that is between 300 and 900, 900 being the highest and 300 the lowest. Experian on the other hand and more inclined to collection and money recovery, data analysis and customer acquisition. Usually they take 20 days, but with you a speedy process you can get it within 15 days. This will cost you INR 399 + Taxes.

HIGHMARK- the credit range in case of Highmark is a bit complicated, the score ranges from 300 to 850, but the scores are considered poor, if they are below 640 and are excellent when above 720. They specialize in verification, credit assist, data quality management etc.

The reserve bank of India has mandated all the financial institutions to access the credit scores to analyze if the individual is credit worthy.

You can increase your cibil score by fair practicing, pay your bills on time, do not hand on bad debts. With the perfect CIBIL score you can avail a lot of financial benefits, these credit bureaus also help you analyze how you could improve your credit scores. It only used to happen when credit report is used to determine loans, but now we are taking steps towards using it for every little transactions some sited like,

Screening for postpaid SIM card connections, Credit reports for online sellers, fixing insurance premiums, using the report to analyze prospective tenants, etc.

The credit score awareness is less among Indian people, hence they lack in credit discipline. Many people are unaware of the poor credit score and are denied loans. The bureaus play a vital role for banks for determining the credit worthiness of an individual.

Does What One Buy Affect Your Credit Score and Report

Your financial behaviour and the way you deal with your credit responsibilities affects your CIBIL report and score. The credit bureaus have all the information about the amount of debt you carry and the way you handle the payments. But do they also keep track of what you buy with your credit cards and from where you buy it? Is your shopping behaviour factored in during the CIBIL score calculation? It is important to know what does and what does not impact your credit report. So let’s have a look.

Even though the exact credit scoring process used by the bureau is not known to anyone, we know what factors affect the credit score calculation. The CIBIL report records detailed information of the amount of debt you carry on the credit card, but it doesn’t bother about what you have bought using credit line. The individual items bought are not taken into consideration, nor is the place where you have swiped the card. All credit reporting agency is concerned with is the utilization ratio (the amount of debt you owe as a percentage of the available credit limit), payment history (whether you have made on-time minimum payments on the account), length of credit history and the type of accounts.

Large purchases

Though what one buys does not influence the score, the amount of purchase surely matters. So if you are contemplating big-ticket purchases you need to know that your CIBIL report and score are influenced by the credit utilization rate. It is calculated by dividing the balance due on your credit card by the credit limit. If you use credit card to make a big purchase that utilizes most of your credit line, it will bring a sharp increase in the utilization ratio and result in a bad credit score. If you pay down the balance, the negative effect on the score will diminish. But if you make it a habit to max out your card you will have a low CIBIL score.  As a practice one should aim to stay below 30% utilization to maintain a good CIBIL sore. Whatever you buy within that limit does not affect your score. Large purchases using credit card that push the utilization over that threshold can cause your score to drop significantly.

Remember the timing of the payment also affects the CIBIL report. If you make a big purchase using a credit card but pay it off completely before the information is reported to the bureau(which is generally when the account statement of the card is printed) credit utilization will not get impacted.

A piece of advice: Make sure that the big purchase you are making with the credit card suits your budget. If you are not able to pay it off at the end of the month interest will start accruing and your debt will rise with time. Missing a payment will certainly affect your credit report negatively.

Buying a house or car by taking a loan

Buying a house, car or any other property in itself does not have any effect on credit ratings. However if you take a loan for the same then this purchase will affect your credit score for many years. Firstly when you shop for the best interest rates by applying to different lenders your credit score will get hit. The lenders will pull credit report and score to evaluate your loan application.  Each hard inquiry will cause a small drop in the score. But if you rate shop within a short period of time all inquiries will be counted as one. Each month, CIBIL report will reflect the amount of loan that is still due along with the payment patterns. Payment history is the biggest factor that contributes to credit score. By making on time payments you can ensure a high credit score. If you had previously used only credit cards then taking a home loan will improve your credit mix as well. By demonstrating responsible behaviour in handling both types of credit you can increase your credit score.

You now know that the credit bureaus do not keep track of what items you buy using credit card. As long as the credit utilization stays below 30% of the available credit limit, you have nothing much to worry. It is only when large purchases significantly raise your utilization rate does the credit score take a hit. You also now know how buying a house or car by taking a loan affects your credit score. So make timely payments and show responsible credit habits to stay on top of the credit score ladder.

Credit Monitoring and Age: Are They Related?

With a significant rise in the cases relating to data breaches, data theft and identity theft there is a pressing need to take precaution and protect one’s credit record from such malignant activities. Credit monitoring is a defensive mechanism that aims to prevent, detect and resolve such kind of credit frauds.

Credit Monitoring essentially implies keeping track of an individual’s credit history and identifying any suspicious changes or activities. There are many companies that offer credit monitoring services and also provide you with a free credit score and report.

They notify the person whenever there is any new information in any of the credit reports like a credit inquiry, addition of a new loan account or delinquency. Such alerts enable the person to verify whether the changes made are genuine and accurate or not. If such developments are not initiated or authorized by the person then he can take necessary action right away to sort the issue before it becomes out of control. It reduces the chances of identity theft or any other kind of fraudulent activity.  It is an easy way of keeping a check on one’s credit health and score. These services also help in resolving and mitigating the damage if your account is breached. They also come handy if one is trying to improve credit score. Many credit monitoring companies offer an additional service of providing loans for low CIBIL score. Investing in such services is surely worth it as protection from fraud gives one peace of mind.

But should you think of signing up for such services at a particular age. Well ask yourself; at what age do you think you will be vulnerable to become a target of identity theft. It could in fact be at any age. Young and old, both are equally susceptible to become victims of identity theft. Thieves do not have any age preference. They are only concerned with making profit by using someone else’s personal information. Hence monitoring credit is extremely important irrespective of one’s age. It will alert you if there are any signs of your personal information being compromised.

Let’s see how credit monitoring helps in the young age when you start building your credit. Credit reporting errors like incorrect spelling of name, address, incorrect payment transactions are very common. These errors can do a big damage to your credit score. It is necessary that you get these errors corrected. But without proper monitoring, you will not even know that such errors exist.

Credit monitoring services also help in credit repair. They grade you on each of the factors that determine your credit rating. This helps you to identify your weak areas so that you can work upon them and improve your credit score. They guide you about what financial approach you should take so as to improve your rating. They also provide you with free credit score , so that you can track your progress on a regular basis. So if you wish to take a loan in the near future you should definitely think about approaching a credit monitoring firm, whatever be your age.

In old age financial aspects start taking a backseat, and people become less worried about their credit standing. But beware, the older generation is an easy target for the identity thieves. With high savings, big assets and excellent credit scores the senior adults become the perfect targets for criminals. So they too need a protection from such crimes. Lackadaisical attitude can destroy their impeccable credit history that took years to build. If a thief opens a fake credit card account in their name and starts charging purchases to the card without making the payments their score will plummet. Without proper monitoring, they may not even notice such activities for many months or years. With credit monitoring one can be alerted each time a new account is opened in one’s name. This way one can sort out things before they go out of hand.

Maintaining a good credit standing will give you better access to loans in times of need. You can obtain the best credit card reward offers and interest rates. Hiring a credit monitoring company can also save you from becoming a victim of identity theft. Hence monitor your credit reports and scores on a consistent basis whatever be your age.

Importance of good credit score for Home loan

Buying a dream home is a dream every man cherishes till it becomes a reality. However the escalating cost of property calls for huge financial planning and investment. Most of us indeed opt for a fund lender in order to materialize this dream. Herein your credit score plays a pivotal role.

Your credit score is the score of your financial worth. In order to seek a hassle free home loan in India you need to have a good credit score by Credit Information Bureau of India Limited (CIBIL). Besides, other factors such as your age, salary and job also play a key role in the backfield. You would be required to submit documents for each of these factors to become authorized for raising the loan.

Role of CIBIL score in home loan approval:
Your CIBIL rating helps lender to evaluate your credit worthiness and repayment ability before approving a Home Loan. That’s why a good CIBIL score is a must to get a loan approved.

The CIBIL score is the summation of the credit history of a person. Factors such as your earlier loan payment history, outstanding loan amounts, credit enquired, payment history of credit card bills and more build your credit history. When you apply for a loan the first thing that the bank will check is your cibil rating.

The lender always want to cover the risk they are taking by lending you loan. So by checking your CIBIL score they assess your repayment track record. The low score reflects bad financial decisions including excess use of credit limit, non-repayment or late payment of loans and more. Thus with low score, there is a high possibility of rejection of your loan application. Similarly with a good score your loan application becomes attractive and lender shows confidence in your application by offering loan.

What does a good CIBIL score actually signify? 

A good CIBIL score to be eligible for a home loan is 700 and above. The nearer you are towards 900 the higher is the chance of getting the approval. Furthermore, an upper credit score means that you can bargain for attractive offers like lower interest rates, higher loan amount, simpler documentation, discount in related fees and longer repayment periods. The lender might approve up to 80% of the total cost of the property.

If you have a low CIBIL Score are you still eligible for a home loan?

While it is not easy to get home loans for bad credit score, you can still take some steps to roll the dice in your favour. You can either use professional help or credit improvement counseling or take some steps to improve your score.

  1. The first step should be to pull out your free credit report from CIBIL.
  2. Next mark all the weak points that have hurt your CIBIL score. You can take small steps to boost your score. The better the score the better rate you can expect.
  3. Now you can list all small, high cost loans and try to repay them at the earliest. This will substantially improve your score.
  4. If your spouse has a good credit score then you can apply for the home loan jointly. This way you will have better chance of having your loan approved.
  5. If you have defaulted the payment of a loan or credit card bill then negotiate with the financial institution, clear the dues and get a no objection certificate from the financial institution. This will bring a good appreciation to your score.
  6. If you have a poor score then try to get the loan from the bank with which you have your savings account and FD’s.

 

Using these points you can raise your chances for loan approval. However getting loans with bad credit score has its own advantages and disadvantages. The biggest advantage is that it will make you take constructive steps to improve your CIBIL score. It will inspire you to close the earlier loan and repay the entire amount in a one go. The biggest disadvantage however, is that you will have to pay high interest rates and even the fees and charges that are associated with the loan approval will be higher for you. But as you would learn to protect your credit score, you would soon become credit ready for lifetime.

Things You Must Know About Top-Up Loans

Mr. Arora took a home loan with a 15-year tenure at an attractive interest rate. However, after 7 years he realized he felt the need of renovating his house. So, just like most people he thought a personal loan would be a good idea to cover the expenses and started looking for a good deal. Unfortunately, he couldn’t find a personal loan with an affordable interest rate even though he didn’t have a problem of a bad CIBIL score or bad credit history.

With the burden of this loan already on his shoulders, Mr. Arora desperately needed to arrange the funds for his home renovation in a way that it didn’t burn a hole in his pocket. This is when his friend told him about it.

What’s a Top Up Loan?

A top-up loan is a small loan you get on top of your primary loan- mainly a housing loan. The interest rate on a these loan is usually smaller than a full-fledged personal loan. Moreover, you can also enjoy tax benefits with a top-up loan.

The following are some of the things you must know about top-up loans:

  1. Qualification

These loans have their benefits, but just because you are repaying a house loan, it doesn’t mean that you automatically qualify for them. Your lender will inquire about your reason for a it and will make a decision at their discretion.

The following are some of the good reasons:

  • Medical expenses
  • Home renovation
  • Land purchasing
  • Education expenses
  • Business Expansion
  1. Collateral

Since a top-up loan is provided on the basis of a primary loan i.e. a house loan you don’t need to provide security for the same. The bank uses the house as collateral. However, this means that even after you have repaid your loan you have to wait until you have repaid the top up loan as well to get back the rights to your house from your bank.

  1. Interest Rate

The interest rate on a top-up loan is 1% to 2% higher than the housing loan. However, it’s still lower than most personal loans available. You may also get to pay a smaller processing fee.

  1. Tax Benefits

If you are using it for acquire/renew/construct/ or repair a property then you are eligible for tax deductions on the amount paid for the principal amount and the amount paid for the interest on the loan as per Section 80C and Section 24 respectively.

Top-up Loans Conditions

Although the eligibility criteria for a varies from one bank to another, the following are some general conditions:

  • You should be availing a home loan from the bank/ financial institution.
  • Most banks require you to repay the home loan for 6 months to 12 months, or even more before you can apply. They do this to assess your repayment habits. Thus, you should not have a low CIBIL score or bad credit report. If that’s the case, you must take measures to CIBIL score before sending an application.
  • The usual permissible loan amount is calculated on the following basis:

permissible amount= 70% to 80% of the market value of the property- loan balance

So, if your house is worth Rs. 50 lakhs in the market and the pending debt is Rs. 25 lakhs, then you can only get a maximum of Rs. 10- 12 lakhs through it.

  • Many banks limit the tenure according to the outstanding term of your current loan. So, if your loan term ends in 9 years, then the maximum length of top up loan tenure would be 9 years.

If your credit history is good and you don’t need to improve CIBIL score then availing a top-up loan is an excellent option over others such as personal loans, etc. This is because the process of a top up loan is simple and easy. Moreover, you don’t have to offer another property as collateral with them.