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.

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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.