What are the factors which affect your CIBIL score?

It is not every day that you need to fix your mobile or television or AC or any gadget for that matter. If you follow the instruction manual, and if you are lucky to have a non-defective item, your gadgets will have a long life. Where exactly am I going with my talk of machines and gadgets? Well, the same principle applies to one’s credit maintenance. The credit landscape has advertisements on every bend that welcome you to take the ‘right’ turn with a score that is upwards of 700. Anything short of that, and you have to take more uphill roads to reach credit haven. So, let’s see how you can consistently stay on the right side of 700.

CIBIL gives you a score ranging from 300 to 900 based on a round-up of your credit history. If you have never approached banks or similar institutions for credit cards or loans, you do not exist in CIBIL’s database and you will not have any report to show lending institutions. So, while not having a good score is stumbling block when you apply for loans, not having a credit history is also questionable. It is not that much of an issue if you are salaried or have a steady income and you are approaching credit card companies for the first time. But, it does become a point of contention when your search extends to the best home loans in India. If you are going to be applying for it, your credit report from CIBIL will make the journey much easier. Let’s turn to the top factors to maintain a steady score, so you never have to worry about how you are going to get a loan for low CIBIL score.

Pay your dues on time

When you get your credit card bill for the month, do you stick to paying off all the credit that you have drawn the past month or do you let it roll over to the next month either out of forgetfulness or laziness or just because you have more important bills to pay off that month? If you are doing so, you are hurting your CIBIL rating badly. You would need to show greater financial discipline to score more. Banks exist to make money. They would be cautious about giving loans or cards to anyone who has a history of defaulting his/her payments. They wouldn’t want you to be their loss maker. In this context it must be stated that minor defaults – payments missed under 90 days have a temporary setback on the CIBIL score, while major defaults – those that are beyond a period of 9o days damage your score for a much longer time.

So, paying off dues on time is arguably the most essential trait that could give you a favourable score.

Utilize credit moderately

Every credit card that you have has a maximum limit that you need to abide by. However, that does not mean that you max out your card every month. Doing so indicates that you are credit hungry and lowers your CIBIL score. The other side of the story is that if you utilize up to 30% of your credit limit, you automatically score well in your CIBIL report.

Curb the urge to stock credit cards

Avoid the impulse to decorate your wallet with colourful credit cards – especially if you are thinking of applying for a major loan, like a land mortgage loan, in the near future. Lending institutions view this as an indication that you cannot live within your income and are over-dependent on credit. They are skeptical about your capability to repay any further debts. So, use your limits wisely and let that reflect in your score.

But, don’t be over-cautious about using credit cards

If you own plastic money, make use them regularly. Only be sure to pay the balance off on time (Advice #1). Does that contradict what we just said about using too many cards? Not really. The key to maintaining a healthy score is to using them without excess. Owing a credit card and not using it does nothing to your score. On the other hand, showing that you can keep your debts in control, by paying off dues every month gives you a healthy score. So, go ahead and keep your cards active.

No credit score? Should you be worried?

Not having a credit score can be a bit of a Catch 22 situation, as having a credit score will help you qualify for credit, but at the same time for someone with no credit to begin with, how does an individual get a score? This is especially difficult for a first-time applicant for a loan or credit card as the lender needs to establish their creditworthiness. What thenl is the solution? Where should an individual start?

Globally, credit information companies or bureaus are trying to break this hold to establish credit scores by using alternate information such as rent payment details and information from public records to help establish credit history. As on date in India, we do not have a similar practice, and having a credit history is the only way to pull up credit scores.

Why is a credit score important?

A credit score is a numeric representation of your creditworthiness and is the first piece of information a lender will view when you apply for a fresh line of credit, be it a bank or any other financial institution. The score helps them determine whether you are likely to default on a loan, or whether the loan will go ‘bad’. Typically ranging between 300 and 900, a healthy or good score can help you obtain a loan when you really require one. Often, it can be the differentiator between an application being approved or rejected. While a loan for low credit score is not impossible to get, it could mean a compromise in the loan terms and conditions, especially with regards to the rate of interest being offered. A good score is most likely to result in the most competitive rates.

Help! I don’t have a credit score! What do I do?

Even if you don’t have a credit score to begin with as of now, do not worry. Let’s take a look at the options open to you, in order to start building your credit score.

Secured credit card – This is a sound way to get started on building your credit history, and banks are willing to offer this product to their existing customers. The card is linked to a fixed deposit that you maintain with the bank, and if need be, dues are recovered by liquidating the deposit. Of course, if you are looking to establish credit history, make sure that all payments go out on time, with no delay and ideally in full. When done over a period of time, it indicates healthy credit behaviour, that the person is able to handle credit responsibly. This will help your score, and over time even increase credit score.

Become an authorised user – If you are finding it difficult to avail of a card in your name, consider becoming an authorised user jointly with someone (typically immediate family) who already has a credit card. The repayment behaviour will help you put together your own score, as the primary cardholder’s good payment history will appear on your credit report. If you do choose this option, make sure you monitor your credit report at regular intervals to ensure correct reporting is taking place.

Make small purchases – If you’ve held a card in the past and did in fact have an established credit line, you can look at ‘reviving’ it by making a small purchase on the card, which will immediately pull you back into getting a credit score. Remember, credit bureaus use algorithms to develop a score, and one of the requirements is a usage pattern which will come in only once you use a card. Hence to start off the process, make a purchase, but also make sure that you pay off the dues as soon as the card statement comes in. This information once reported to the bureaus will help you begin establishing a credit history.

In conclusion

Once you have credit, be judicious in its usage. Timely payments go a long way in making sure that your history remains good, as does the length of accounts you have open. Hence retain good ‘old’ debt if possible, as keeping an account that is for example a decade old will boost your credit score. To make sure that you do not fall into a debt trap – and this is very important for first-time users – do not sign up for more cards than you can manage. Further, do not spend more than you can comfortably repay, in order to set up what you had intended in the first place – a good, strong credit history that over time will work for you.

Once you have started building a credit score do keep in mind that it requires financial discipline in order to maintain a score and subsequently even boost it. Over a period of time it can be done, and in the long run will prove essential to help you stay financially fit.


Smart things women should do while investing in a house

With more women in the workplace today, they account for over 20 percent of homebuyers as they take steps in the right direction to not only make a good, sound investment but also to provide a permanent roof over their own and their families’ heads. Further, it is also tempting to finally do away with the hassles of renting a property and paying rent month on month, instead of which an EMI can give you the security of owning your own home at the end of the loan tenure.

Let’s read on to know what you should take into account when investing in a house, and ensuring that it is by far the best decision you may have ever taken when it comes to investing your heard-earned money.

Make a list

The first thing to do is to list down what it is you’re looking for in a house. For instance –

  • What are your lifestyle needs and choices?
  • Do you really require a third bedroom or will two suffice?
  • What other things do you need to consider, such as proximity to schools/ colleges/ hospital?
  • What would be the approximate resale value, should you have to relocate?
  • Are there any amenities that are absolutely non-negotiable, for example a gated community with a children’s play area?

These are just a few of the questions you need to ask yourself, before you narrow down on the options open to you.

Calculate your expenses

Unfortunately, the reality is that resources are ultimately limited, and hence while it is tempting to think big, it is prudent to aim for something that will not take up a large chunk of your monthly budget. Sit down, put together the amount of income you earn (either singly or jointly with a spouse) and the monthly commitments you already have. Based on this, determine the amount you can afford to spend on an EMI, without compromising much, if at all, on your current lifestyle. Remember your home owing process needs to be a joy and not a burden!

Know the other costs involved

Factor in other associated purchase costs such as property registration, stamp duty etc. Do keep in mind that you will also need to set aside funds towards maintenance charges, general repairs and renovation etc. There are also municipal taxes that are required to be paid annually, as well as contingencies that require urgent attention such as a leakage or plumbing that needs an overhaul. While owning a home seems easy, there are often unforeseen expenses involved too, so it is best to be buffered for those.

Consider availing of a loan

Most of us do require the assistance of a housing finance company or bank when it comes to making this all-important purchase. Hence, it becomes imperative to compare home loans before you decide which loan provider to go with. A loan is a practical solution for home buying as the amounts involved in property sale and purchase are high, and you may not be able to (or choose not to) spend out of pocket for the entire sum.

Do also check for preferential rates, as low as 9.5 percent that are extended to women by a large number of housing finance companies.

Borrow what you can repay

While a bank or housing finance company may offer you more than you really require to buy your house, depending upon your eligibility, do not be tempted to increase your EMI obligation simply because the money is available. Remember at the end of the month, it is you who are responsible to make good on the loan, hence think carefully before you seal the deal. Also, it would be advisable to plan ahead – keep in mind expenses related to education, marriage etc., all which tend to take up a fair amount of money.

Know your credit history

If you choose to avail of a home loan, the first thing a lender will verify is your CIBIL report. In addition to getting your finances in order therefore, knowing where you stand on the credit eligibility front is equally important. For your application to go through as well as to be offered a rate at the most competitive terms, remember that a good credit score will work in your favour. It is important to keep track of your score on a regular basis, and more so before you apply for a loan. Should managing your score seem difficult, you can always avail of professional help from a credit health management company to work towards improve credit score.

In conclusion

Buy your new home with confidence and join the increasing number of women investing in property. Look around and consider the type of home loan that best suits you, as well as the home loans rates.

This year then, make your dream home a reality!

Hurdles you can face while applying for an education loan

Fulfilling dreams of a higher education is probably one of the biggest achievements for any aspiring student. With the escalating cost of education both in India and overseas, most students have no choice but to avail of a loan if they are to pursue the programme of their choice at the university or college they prefer. Even while a rising number of students are now availing of finance to comfortably fund their education, doubts and ambiguities still run rife with regards to the education loan procedure, the products available, repayment and even to understand what aspect gets funded under an education loan – whether just the tuition or also living expenses and any other related costs.

Let’s take a look at the hurdles that students still continue to face when applying for an education loan with some lenders. One of the first things that are of concern is the limitation on loan amounts with public sector undertaking (PSU) banks. For instance, a master’s degree from reputed university abroad costs upwards of Rs. 50.0 lakhs, and funding it can be a concern when the maximum cap on the loan amount is Rs. 20.0 lakhs.

Another parameter that students need to factor in is the margin money, which is essentially the difference between the required amount and what the bank agrees to sanction. Typically, most banks ask for margin money amounting to 15 percent of the total cost.

Documentation woes also plague students, as the process calls for a laundry list of documents to be submitted. Not only is this tedious but in some cases, it involves running from pillar to post to obtain the required documents. It can also necessitate into multiple visits to the concerned bank in order to submit these documents (often piecemeal) and have the loan application processed only subsequently.

Further, while banks may have an extensive network, not all branches may sell education loans. Hence, it proves to be difficult to avail of a loan if a student is located in a city wherein a branch that processes education loans is not available. On a related note, it is likely that a student is originally from City A, but has relocated to City B to pursue higher studies. If the loan requires collateral which is located in City C, chances are that a PSU bank is likely to decline the loan application, as they require the student as well as the collateral to be in the same city.

How do you overcome these hurdles?

With the advent of non-banking finance companies (NBFCs) in the education loan sector since the past few years, the playing field has opened up and students have a lot more options than they did even a decade ago, when it was primarily PSUs that disbursed education loans. Consequently, the process has become simpler and more streamlined. Not only do students have more options by which they can compare education loans but the competition has meant ramped up customer service levels as well as innovative products. Before you narrow down on a lender to finance your dreams of a higher education, shop around. Evaluate the various lenders in the market and see what it is that they each have to offer by way of products and services. For instance, in addition to the loan, some lenders offer a bundle of value-added services that include calling cards for overseas students, insurance and deals on foreign exchange services.

Check whether the cost of education includes even your travel expenses and accommodation. These days, lenders structure a loan such that these aspects are covered and even expenses such as having to purchase a laptop to use for studies, for example. These are some of the value added services that make availing of an education loan attractive.

When it comes to documentation, the requirements are simplified by some lenders and a one-time exercise is all that it takes in order to submit a loan application. This sometimes gets further simplified if the education institution that you are planning to enrol at has a tie-up with a financer.

When you compare education loans, do keep in mind that the interest rate is one of the factors that you need to evaluate. In addition, facets of the loan such as repayment options, ease of transaction processing and flexibility in terms of online access and repayment of the loan directly from overseas also make a vast difference. Hence even if the rate of interest is marginally higher, you may consider availing of a loan from an NBFC just for the sheer convenience and flexibility they offer.

Education loan and CIBIL rating

As with other loan products, your credit score counts even when applying for an education loan. For a student with no credit against their name, the credit score of the co-borrower is what is taken into account. Hence, to ensure a lender is aware of your creditworthiness you need to maintain a healthy credit score. An education loan is a product that no parent would want to compromise on, given that it is directly related to their child’s future. Hence to be able to get the loan when you really do require one, ensure that your credit score is treated on par with your physical fitness.