Why is high CIBIL score valuable

A CIBIL score is a three-digit numeric that reflects your creditworthiness. The score ranges from 300 to 900, with 300 being the minimum and 900 the maximum. Most banks and other financial institutions will require that their clients hold a score of at least 750. The closer your CIBIL score is to 900, the easier it becomes to avail loans. A good score i.e. from 750 to 900 can help you avail credit quicker and at low interest rates. On the other hand, a poor score may limit your options when it comes to lenders, and institutions willing to lend you loan for bad credit may do it in exchange for high interest.

A good score is important as it simplifies your financial journey. Since our dependence on credit has gone up in recent times, a good score can help avail loans and credit cards much sooner. Your credit score reveals your financial behaviour. Having an excellent score shows lenders that you take payments seriously and that you can be trusted to make repayments on time. A good score is important when it comes to availing personal loan, car loan, home loan, credit cards etc. While it is possible to avail loan for bad credit you can be sure there are some tough strings attached. So to improve your chances of getting your credit application accepted practice the different measures to increase CIBIL score.

An excellent score will help you fetch the best interest rates as well as terms. Banks and other financial institutions tend to charge low rates of interest on those who have a good credit score. You can be sure that if you hold a score of above 750 then lenders will charge you less for borrowing. This is mainly because the institutions consider you less risky compared to those who have poor credit scores. If you have a poor score and are availing loan for bad credit then lending institutions are very likely to charge you exorbitant interest rates as well as stringent terms and conditions. Taking out loan for bad credit will cost you heavily as lenders see you as risky clients. So in order to avoid that situation from occurring, practice the different ways to increase CIBIL score.

It is not just the lending institutions that take an interest in your CIBIL rating. Landlords, insurance companies and employers can also undertake credit checks. Landlords can look at your score to assess whether or not you will pay your rent on time. Some insurance companies use the score to decide on the insurance premiums. Employers can be interested in your credit health checks to see how well you manage your finances. It is to be noted that companies do not conduct credit checks for all positions, just for the top management. Since there are several parties that take an interest in your credit history, make sure to always maintain a high credit score at all times.

If you have a poor score, chances are that you may have come across many offers of loan for bad credit. When lenders present you their offers, be sure to read between the lines to ensure that they are authentic. If a company calls you offering loan for bad credit, look to see if the company has the required license to run the business. Look at the interest rates they are charging. While interest on loan for bad credit generally tends to be high, it should not be more than what other financial institutions are charging. If you wish to avail a loan it is best to wait until your rating moves up so that you get the best deals in the market. However if you have an urgent need of funds, make sure to go through the company history first before entering into an agreement.

If you are looking to increase CIBIL score, there are a number of ways you can do it. Start by first ensuring that all your payments are made on time. Your payment history is taken into consideration when calculating your score. Missing out on a couple of payments will hurt your score. So make sure that your repayments are made on time to increase CIBIL score. The second measure to raise your credit score is by maintaining a low credit utilization rate. When your credit utilization is low, your score will go up. If your credit utilization is high, your score will take a beating. Handle your credit cards wisely and do not simply splurge. To spend only when necessary and financial discipline can help increase CIBIL score. You can also reach out to a reliable credit advisory company who will tell you the different ways to increase CIBIL score. If you have a poor CIBIL rating, they can help you with credit repair and tell you how to avoid bankruptcy. Additionally, they will help you with effective financial planning and financial discipline.

 

 

 

Can I Get a Loan to Repay The Debt on my Delinquent Accounts?

So, you have been falling behind with your bills for a while, and now you have a huge debt to deal with. You don’t have enough savings, and don’t want to turn to friends and family for help. You don’t know what to do now. Then one day, as you are having lunch with your colleague, they tell you about taking a personal for the repayment of debt. It sounds good to you, but you ask yourself- “Is this a really good idea?”

The situation above is more common than you think. When your back is against the wall, as debt is increasing with each passing day, you are ready to try everything possible to deal with the situation, with a personal loan being one of them. However, you must know that it has both upsides, and downsides. And it is worth being aware about them before you make the final decision.

The Upsides

1) Low Interest rate

One of the best advantages of taking a personal loan for paying off credit card debt, or any other kind of debt, is that you have to pay a lower interest rate. Personal loans generally have a lower interest rate, in comparison the interest rate on the credit cards. This means you can save a lot of money this way. Also, since many online lenders have started offering personal loans, you can get one approved easily, and quickly.

2) Easy Finance Management

Debt consolidation can make debt management a lot easier, since you just have to make one major payment every month, instead of several smaller payments. If you have more than a few credit cards, then this move can be highly beneficial for you.

3) Credit Score Improvement

Taking a personal loan can also help you build a better CIBIL score. If you make the payments on time, then it can increase your creditworthiness, and show the future lenders that you are  responsible credit user.

If the outstanding balance has increased a lot, and you are on the verge of making it to the loan defaulter list, then you can prevent so by taking a personal loan for its repayment. A loan flor low CIBIL defaulters is extremely hard to come by, which is why you should avoid defaulting at all costs.

A personal loan for debt repayment is indeed a good idea, but it has its downsides.

The Downsides

1) Continued Usage of Credit Cards

A personal loan can only help you if you minimize your credit card usage. If you have to use your credit cards even after taking a loan, then you will only add more debt, which is counter-productive. Thus, when you take a loan you should be committed to never carrying credit card balances again.

2) Higher Monthly Payments

It may not always be possible to get a personal loan that has a lower interest rate than your credit cards. In such a case taking a loan will increase your monthly payments.

Despite the potential downsides, a personal loan is generally the best way to deal with huge outstanding balance. However, if this is not an option that can work for you, or if you seek alternatives, there are a few that you can consider:

  • Credit Card Balance Conversion To EMI- The majority of banks allow their credit card users to convert their credit card loan to an EMI loan. Popular tenures for the same include 3, 6,12, 24 months. The interest rate could be anywhere between 12% to 18%.
  • Credit Card Balance Transfer: If the rate of interest on credit card balance is lower in some other bank, then you can your current outstanding balance transferred to it. In most cases you will need to pay a certain fee, but if the pending amount is a lot, then the fee will be worth the transfer.

Delaying loan payments, or credit card bill repayments can often lead of the loss of CIBIL score, and damage on CIBIL report.  The only way to improve credit score, is to choose the best way for repayment, and ensure that the payments are always made on time. The tips given above can be quite helpful in that enterprise.

 

 

 

 

Does credit card limit has any impact on your credit score?

A good CIBIL score ensures that you can have an easy access to financial services in times of need. You can qualify for loans at a low rate of interest as a good CIBIL rating demonstrates that you are financially stable. There are several factors that go into the calculation of a credit score. Though different agencies have different credit scoring algorithms the major influencing factors for all of them include the payment history, credit utilization ratio, length of the credit history, type of accounts and new credit.

Credit utilization ratio has a strong correlation with the credit score. This ratio depends on two factors. Your total outstanding balance and the credit limit. A credit limit is the maximum amount that will be extended to you by the lender. You cannot charge more than that amount within a stipulated period of time. If you do not know your credit limit, you can either sign in to your credit card account to view the limit or call and ask the card company.

The credit utilization ratio is calculated by dividing the total outstanding balance on all revolving accounts with the total credit limit. For example if you have a credit limit of Rs 3,00,000 and your outstanding balance at the end of the month is Rs 2,40,000, your credit utilization ratio is 2,40,000/3,00,000 i.e 0.80. This means that you are using 80% of the available credit. This high ratio is a strong warning sign of credit risk. It indicates that either you are living beyond your means or you are experiencing financial difficulty. Your profile is considered risky as you may have trouble making future payments. Hence a high utilization will bring your credit score down. If your outstanding balance is only Rs 30,000 then the ratio will be 30,000/3,00,00 i.e 0.10. A low utilization ratio is a sign of financial soundness as you are not using too much of available credit. This works in favour of the credit score. Hence the credit card limit directly affects the credit utilization ratio and therefore the credit score of an individual.

Does a low credit limit translate into a low score?

If you have a low credit limit, it does not necessarily mean that you will have a low credit score. If you pay your credit cards in full each month before the due date and do not carry any balances your credit utilization ratio will be zero. In this case the amount of credit limit will not have any effect on the score. It is always a good idea to keep the credit card balance as low as possible in relation to the total credit limit. If you do so you can keep the overall credit picture healthy even if your limit is not too high.

Should you request for a credit limit increase to raise your score?

 

If you are looking to improve credit score, then a higher credit limit will definitely be a good thing. You can either request your current credit card company to raise your limit or apply for a new credit card. Even if the amount owed by you remains the same, a high limit will result in a lower debt utilization. It is suggested to keep the utilization below 30% if you are trying to improve credit score.

 

When a card company extends your credit limit it increases the amount of debt you can incur and gives you greater buying power. Just make sure that a high limit does not tempt you to increase your spending, otherwise the whole purpose of getting the limit increased will be defeated. Take into account your saving goals and exercise financial discipline. Use the limit only when you really need it. If you are not careful you will carry more balances each month and that will translate into paying more interest to the card company.

 

Will closing a credit card account affect my credit score?

It is never a good decision to close old unused credit cards just for the sake of cleaning up your credit profile as far as credit score is concerned. That’s because closing a card will reduce your total credit limit available and increase your credit utilization ratio.

Your credit card limit surely has an effect on the credit score. But it is only one piece of the puzzle. If you are trying to improve credit score it is necessary to look at the bigger picture. Paying down outstanding balances and maintaining a clean track record of on time payments also go a long way in enhancing your score.

 

The value attached to a good CIBIL score

It is not uncommon these days to have someone mention the credit report or credit score as a topic of discussion, especially when discussing the matter of one’s financial health. This is owing to the greater awareness on the topic over the past few years, given that in today’s times practically no financial transaction (especially when it comes to availing of a loan or credit card) can go through without a quick credit check. This all-important scrutiny is conducted by the lender in question, be it a bank or financial institution to ascertain the borrower’s financial standing.

bad credit scoreWhat is a CIBIL score?

Ranging between 300 and 900 typically, a credit score is derived from the more detailed credit information report popularly known as CIBIL report, which is nothing but information pertaining to the loan accounts and credit card accounts that an individual has availed of, whether currently or even in the past. It takes into account how the accounts have been serviced by the person, and exemplary behaviour will naturally result in a higher score, as compared to someone who has been possibly lax or negligent with maintaining their credit health. With CIBIL (one of the four credit bureaus in India), a score of 750 and above is normally considered to be a good score by most lenders.

How does the credit score matter?

With a good credit score, when you apply for a fresh line of credit lenders are more likely to look at your application more favourably and the chances of application rejection are immediately lowered. Of course no lender views the score in isolation so other factors do play a prominent role as well, but the score is the first piece of information that practically serves as a means to screen any loan or credit card application.

Let us take an example. Two people who apply for the same value of home loan, for the same tenure have different credit scores, one of which is a score of 780, while the other score is 670. As a result the person with the higher score not only gets the loan amount they had applied for, but at the most competitive interest rate, which brings down the cost of the loan and subsequent purchase. The person with a lower score can face one of two scenarios, that is, the possibility of the loan amount being downsized, hence the person would need to shell out a larger amount by way of down payment which is out of pocket, and second, the interest rate may be higher. This in the long run increases the cost, because you naturally pay more by way of the interest cost. In case of someone with a very low score, it is likely that the loan is rejected at the outset entirely, when even other factors may not be enough to act as mitigants.

How can you better your credit score?

Every time your credit card statement comes in, ensure that your payment is made on time, on or before the due date, and there is no delayed payment or even a missed one entirely. When it comes to other existing loans, make sure that in a similar fashion you make the EMI repayments regularly. Any slipup on either count can drastically impact your credit score negatively.

In conclusion

Remember that for your score to dip on account of bad credit behaviour does not take time, however when you wish to reverse the damage, the process takes a lot more financial discipline and patience. Instead of working backwards then, to improve a bad credit score, it is more prudent to work diligently to ensure that your score remains good and over a period of time, only gets better.

In India currently the use of credit scores is more or less restricted to the financial services industry, whereas overseas in most developed nations, the score plays an important role even when it comes to determining your insurance premium, the amount of deposit you would need to set down for a new phone connection, or even for a landlord to determine whether they would want to rent out a house to you.

Hence, it becomes obvious that the value attached to a good score today is too important to give a miss to, and hence to ensure a smooth financial life, there is nothing more critical than your credit information report, and the credit score thereof.

Credit Report ‘Red Flags’ that could damage your score

If you have ever applied for a loan or a credit card you must be aware that creditors check your credit score to understand whether you are a trustworthy customer or not. If your credit score is not in good shape you will not be approved for the loan. Your credit score is completely based on the information recorded in your credit report like payment history and outstanding balances of all your credit accounts. Hence keeping a regular check on your credit report is vital for your financial health being. It will help uncover warning signs that may be responsible for damaging your score.

Here are 7 red flags that you should look for when you analyses your report.

  1. Inaccurate information- Basic personal information like name, address, date of birth and employment details should be up to date and correct. Any inaccurate data should be reported immediately as this may be a sign of identity theft. You may have good credit management habits but if someone uses your identity to open new lines of credit it will have a devastating effect on your credit score.

 

  1. Too many credit cards and accounts- While it is good to have a mix of different types of credit accounts having too many cards gives a negative impression to the lenders. It puts you in the category of high risk customers who do not exercise financial control and spend beyond their means. So if you have numerous lines of credit that are maxed out, then you may be flagged as a desperate borrower who already has sufficient credit limit. This negatively impacts your credit score.

 

  1. Co-signed loans- While it is good gesture to help friends in need by offering to co-sign the loan, it may not be good for your credit report. When you become a co-signer the loan account appears on your credit report and increases your debt to income ratio. So when you yourself apply for a debt, lenders reduce your credit eligibility by that amount. Moreover, if the primary applicant fails to make the payment it will negatively affect your credit score. Hence when you analyses your Cibil report check if regular payments are being made on the loan co-signed by you.

 

  1. Too many enquiries- When you apply for a loan, the lenders pull out your credit report to understand the credit risk associated with lending you money. While one or two such enquiries do not harm, much excessive enquiries pose a lot of risk. They signal a red flag that you are desperate to obtain credit and bring down your credit score. A wise method to avoid this damage during loan shopping is to file all applications with different banks within a short span of time. All enquiries within a 14 day period are clubbed as a single enquiry. So when you are shopping around to find the best deal be careful about the timing of filing applications. Alternatively, you can get a copy of your credit report and score and provide it to all lenders so that they can use it to make their lending decisions. This way you can minimize the hard hits on your credit report.

 

  1. High debt to credit ratio- Debt to credit ratio is another element on the credit report which signals a warning sign for the credit score. If your outstanding balances on the various lines of credit is very high compared to your total available credit limit it may tarnish your credit history. If you max out your cards it increases the risk of default from the lenders point of view and hence damages your score.

 

  1. Payment behaviour- A very important aspect that the credit report reflects is your payment pattern. If you show irresponsible attitude with respect to managing your debts it would damage your credit history. Series of late payments or defaults signifies a bad sign for your credit score. Paying only the minimum balance required rather than the full balance also indicates that you are in a financial trouble and can be listed in cibil defaulter list in future.

 

  1. Collection notices, foreclosures, bankruptcies- All these are red flags which stay on your report for a long time. These elements indicate that you were unable to meet your debt obligations and signal that you may not be able to arrange for funds in future too to pay back your lenders. Such remarks are damaging to your credit score.

 

These are some elements that you should look for when you analyses your credit report. These warning signs indicate that you need to take a proactive step and focus on repairing your credit history in order to prevent it from damaging your score.