What Is A Credit Score?

You are planning to take a loan for the most favorite car you had thought once buying or a house you always had imagined or the business you wished to expand, would take you to a journey of going to banks, making inquiries, checking the best quote and the interest rate offered to you and then finally deciding which option would suit you the best in terms of tenor, rate of interest, processing fees and pre-payment charges. Now the point is, how do banks or non-banking financial institutions decide the rate of interest or other charges? What are the criteria?

Suppose you and your friend went to a bank. You both earn almost the same, your age is same, the family background is also similar. And you both apply for the same loan is the same bank. But you were offered 11.5% interest rate whereas your friend was offered 10.25% interest rate with little lesser processing fees and pre-payment charges. Now that would make you think if the external factor looks the same, why are the other things different? So you finally decide to know the details deeply of why your friend was given lower rates than you. And here would be the analysis of what you would get.

You had never done a CIBIL Score Check. Which is one of the major factor of the interest rates being processed? Lower the credit score more is the interest rate and vice-versa. The credit score ranges from 300-900. Where 300 is the lowest and 900 is the highest. Any sore beyond 750 is considered a good score. People below this score are considered red zoned, and the one above 750 are greed zoned. It’s not that, if you have a score below 750 you will not get a loan, but the % of interest will be higher. Now let us take into consideration that why is the score low or high? Basically, what are the factors that decide the score? There are 5 factors whose combination results in the score.

  1. Payment History (35%)

The major factor which determined your credit score is the payment history. How well-organized you are in making the payments of the credits you have taken, shows how responsible you are. Banks can make a note of your previous payments and decide if you will be an asset for them or not. If previously you have made blunders in payments or didn’t pay regularly, the score dips badly and makes it difficult for you to get a loan. If the score is not good, and it’s becoming difficult for you to get a loan; in that case, you can try for loans for bad credit. But ultimately the loss will be yours only.

  1. Amount owed (30%)

The total amount which is taken by you, in any means of the credit i.e. by credit card or a loan also has second major thing determined in the score. The amount of the revolving credit and the fixed credit is in the amount owed.

  1. Length of credit history (15%)

How long is your credit account active, and how old is your account also determines your score. Some people make the mistake of closing the older accounts thinking they are not of any use but that creates a dip in the score. So,  keep the accounts active.

  1. Types of Credits (10%)

There are 2 types of credit. Fixed or installment based credit and revolving credit with a mix of secured and unsecured credit. The type of credit you have will also contribute in the score. It’s healthy if you have a good mix of all types of credit.

  1. New Credit (10%)

The new credits you take is also a determining factor of your score. New credit means you are becoming more responsible towards your repaying responsibility. But do not overdo, else this would also hamper your score.

Always manage the credits you take responsibly. If you check your score and you feel there is some mistake, get a detailed report and check. Work with that diligently and patiently to get your score in green zone!

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Why Should I Check My Credit Score?

While dreaming big, on buying things, it all revolves around how much money do you have. Nothing is for free! Whether you are planning for a house or a bike or a vacation or gold or the property, things are expensive. On a larger picture of say 10-15 years down the line, you see yourself achieving the dreams of properties or asset you want to acquire. But what if you want them now? The answer to this now is credit. Credits are available these days on an easy base compared to how they were earlier. The credits or the loans are a nice way of living your life now compared to how you had decided a few years down the line. Its not something that is offered to you for free. But it’s the plain logic of getting the amount of money in advance where you will repay it later with the interest on the amount. But in all, it’s a help which is to be got from banks or NBFCs or Private Lenders. It’s also safe to get it from a trusted party in order to get away from any chaotic situations later if you have borrowed the money from your friends or relatives.

How can one get these credits or the loans? With the standard procedures, you go to the bank, ask for the loan and know the details. The bankers would want to know the type of loan you want, amount of loan required and the tenure for the same. Once they get this detail, your credit score is checked. According to that, the loan amount is sanctioned and rate of interest is decided. Now banks can get the credit score when an applicant comes to them for taking a loan. But, is there any requirement for you to know the score?

Yes, it is really important for one to know the credit score. There are many reasons why you should know the credit score and check it periodically. Let’s look at them turn by turn.

  1. To stay credit healthy

                 We always take care of our physical health or financial health or emotional/mental health. But what is credit health? Credit health is a much talked upon topic these days. By the word credit health, means your credit report should be good. Your credit score should be 750 or plus. It takes efforts to stay credit healthy. You need to make proper payment on time of the credits you have taken from banks via loans or credit cards. You need to think and use the credit you have received else you can get into loan defaulters list. This is not much of a task, is it?

By checking your credit score regularly, you will come to know if your score is the same, or it has gone down or it has been increased. A regular watch will be an add on to the work you are doing in maintaining the credit health.

  1. To check if everything is in place on the credit report

                 If you have applied for a credit card, and it gets rejected saying your credit score is low. How would you deal with the situation? When you had checked the score last time, it was good enough and hence after taking a lot of time to think, you applied for the credit card. But what happened? It is advisable to check your credit score every 6 months. There can be a possibility if some one has stolen your identity, i.e. its an identity theft case wherein your details are used by someone to take loan and you are completely unaware about it. Or there are some mistakes in your report and you are clueless as you have not made those payments. So, in that case, you need to raise a dispute.

In any of the case, if your score is not reflecting how you had thought it should be, you have to check the score.

  1. Keeping an eye

Either you are new to the credit score or you are trying to repair the credit score, in either the case it is important to check the credit report regularly. RBI has passed a rule of giving 1 free credit report per year to any individual to all the bureaus. Make the use of such advantage and keep an eye on the score.

In any of the cases, to stay updated is best. If you are going through a new built or repair, regular checks are important. Don’t be lazy in such things and stay credit healthy!

Will Arranging My Debts Help Boosting My Credit Score?

A credit report provides a comprehensive picture about one’s credit position. The credit score which is an important part of the report factors in various variables when calculating the score and this rating helps in predicting an individual’s creditworthiness. In case you have a low score then there could be a variety of reasons for it and depending on the problem you can solve it using various solutions. Arranging your debt can help you in boosting your credit score. Let us consider a few ways in which arranging yore debt can give a boost to your credit score.

  • Consider Balance Transfer:

Balance transfer is an option that can help in better management of debt. This option can be useful both for home loans and in case of piled up credit card debt.

Home Loans run for long tenures and it is possible that during this time the interest rates change a couple of times. If you realize that the loan you took years back is at a higher rate than the current prevalent rate for home loans in the market then you could consider getting a home loan balance transfer after weighing the costs and benefits. A lower interest rate could help lower you over all liability and you may find it easier to pay your reduced installments in case you are struggling with the repayment. Longer loan tenure if agreed by the new lender can also help you in repayment.

Credit card debt is the most expensive form of credit. If you are struggling with repaying your credit card dues then balance transfer could help you. In this process you transfer your unpaid dues on one card to another card (preferably one that charges a lower interest rate), the new card company provides some interest free holiday before you need to start repaying your dues which can help the card holder. The acquiring card company may also allow repayment in EMIs which can help in boosting your score.

  • Fore-Closure Could Help in Certain Cases:

All loans and credit card dues are included in the CIBIL Report, one aspect that influences credit score calculation is the balance between secured and unsecured loan. In case your unsecured loan (personal loan, credit card dues) burden is higher than secured loan burden then it could impact your credit score negatively. In such a scenario fore-closing these (unsecured) loan could help in boosting the credit score. Though loans that run the full course are better for the credit rating in the long run but in some instances a prepayment may help.

  • Prioritize your Debt

Needless to say repaying all your dues on time and regularly is important. However if you have too much debt and are struggling with repaying them then you must consider prioritizing the repayment. Repaying one which has the highest interest burden could be a good way to start. However it is important that you list out all your debt along with their interest, overdue amount and remaining amount. If you find it tough to repay all you monthly dues then you could talk to lenders and request a loan restructuring. Here the loan tenure is increased which lowers the EMIs and makes it easier for you pay your monthly dues. You aim should be not to allow interest fee and penalties to add to your debt burden. This is definitely not one of the ways to improve credit score fast but could give you results in the long term.

Ideally one should not reach a position where their debt burden becomes so high that they find it difficult to repay their monthly dues. However in case this does happen then you should consider rearranging your debt in an attempt to better your credit rating.

How Will Identity Theft Affect My Credit Score

Sneha, a well-settled entrepreneur, at 31 is well settled in Pune. She owns a house, two cars and few properties. These are solely her properties. She stays with a small family of 3, She, her Husband and a Daughter. She has put in a lot of efforts, in building the empire of her business and the properties she owes. She is a regular checker of her credit score and has made no defaults of any loan she had taken or any loan she has today. She has never made any late payments of any of the credit cards she peruses. Her credit score and credit report, both are in place.

A free CIBIL report is given every year by the bureau as per RBI regulations and she has taken well advantage of it. Now, she is planning for a business expansion. She goes to a bank and applies for a business loan. She is very well aware that a business loan is the unsecured – installment based loan. But with the past records and the payment history she has maintained, she is confident enough that her loan will get approved. While the finalization of the process, her loan was rejected. As she is a very old client, the bank manager explained to her that there is the cibil score goof up, and it has gone tremendously down in last 3 months. With looking in details, they came to a conclusion that it was a case of identity theft.

Let’s understand in detail, that what is identity theft. In this digital ear, everything is available online. There a few people who can hack into your systems and fetch the important and very sensitive and confidential data which then they use to make the theft. So, they will use your name, number, credit cards, aadahar card number and take a credit. Or the may make many multiple online transactions using this. Not only the hackers can do that, but if by mistake you have shared your confidential information somewhere, and it was meant to be destroyd but was not destroyed by any of the reason, some very over smart individual, will steal your identity and make the use of it.

What happens in such cases? When any of this occurs, it becomes an identity theft where the credit transaction is done from your account but not by you. You come to know about it when either you check your credit report in detail by yourself or if you have applied for a credit and it got rejected due to this reason. Let us now see, how can identity theft affect the credit score.

  1. Sudden dip in score

If in the month of May you checked your free cibil score, and it was 783. now just as an example mentioned above, you applied for some loan and it got rejected. Now when you investigate, you came to know that your score is 620. There is the sudden dip of 163 points in your score. While seeing the report minutely, you come to know that there are many transactions which are not made by you and a few credits which you have not applied for! Terror number one.

  1. Rejections in loans or credit cards.

As there is a sudden dip in the score, the credits or the loans you must have applied for, which are in pipeline will get rejected.

  1. Longer run effects

The negative flags, stay on your report for much longer time. Nearly a decade. Now, since you have not made payment by yourself, why would you pay the same? Makes sense, so in those cases, you would need to raise the dispute so that it can get off your report in the meanwhile.

  1. Fear always

Since once this has happened, you will always be scared to share your confidential information even to those whom you would actually have to share in case of taking credits or any important things.

Always make sure while applying for credit cards or any loans, do not share each and every detail with everyone. Also, whenever you share the important documents write the propose of in on the photo copied document in order to not get it stolen. While sending these details, be cautious. If possible send it in encrypted form or try not sending it online. Stay alert and stay accurate & updated. Do not neglect thing which can affect your score!

Is Free Credit Score A Scam?

It is the season of scams so it is no surprise that we take everything with a pinch of salt especially so if the promise is to get something free. In September 2016, Reserve Bank of India made it mandatory for the credit agencies to provide a free credit report to individuals once in a calendar year.  There are four credit agencies in India so you can get four credit reports in a year which makes it one in each quarter. Each credit bureau has a different process giving you a free credit report when asked, so let us go through each agency’s process and understand if free credit score is a reality or a scam?

How to Get Free Credit Score From Various Agencies?

Checking your credit report from time to time is recommended as it lets you assess your credit health. Since there are few ways to improve credit score fast, it’s better to be prepared in case you need credit and stay credit healthy. With scores available now without you having to pay anything now it’s easier to access your credit score without having to pay anything.

Below we discuss in brief how you can get (if at all) free credit score from various credit agencies:

Experian: For those looking for a free credit report from Experian, you need to follow the link that lets you access your free credit score.  Few basic details like name, Permanent Account Number, email Id, date of birth need to be entered for you to get the report. You will be sent a voucher which is to be used when you are taken to the payment page instead of making an actual payment. This voucher is mailed to you within 48 hours of you making the request for a free score. After you answer a few questions you would be sent the report within three to five days.

Equifax:  They provide the free report only after you download a mobile application which is available for both Android and IOS phones. You need to provide basic KYC details along with you Aadhaar Number. The applicant is provided a temporary PIN that is used to authenticate themselves and then they can login after 24 hours. After answering a few questions about your credit history the report is sent to you.  If you do not have a smart phone then there is a separate process for getting the free report. Those without smart phones need to send scanned documents along with an application to the given email id , documents required for this include address. Getting the report through the application make take two days, if doing it through the email route it make take longer time.

CRIF High Mark: They have a link on their homepage for getting a free credit report. Those desirous of getting a free credit report need to fill in some information to authenticate themselves. Information required here is more derailed as compared to other agencies. Once the application form is filled and the customer information is authenticated they can download the report. The report is generally available within 48 hours.

CIBIL TransUnion: Initially CIBIL had the option of submitting only a physical paper based request but now both options of getting it online or physically are available. For getting it online you need to fill in the required information after following the link that is provided for getting a free score. Applicants need to authenticate themselves before they can download the report. If all the steps are completed successfully the report can be accessed within a couple of minutes. For those who choose to send the documents physically, it may take them seven working days to get the login details. Once these details are received the applicant can login to the site and can access their report.

So all in all getting a free score is not a scam. In some cases it may be time consuming or the applicant may find the process cumbersome but usually they can access the free score even if it takes time and some effort.