Patience is the key to rebuilding your credit score after bankruptcy

What is bankruptcy? Bankruptcy is a state where the borrower who has borrowed the money from a bank or any financial institution, puts the hands off from the credit or the debt that is taken and denies to pay it anymore. There are two types of bankruptcy. Wilful bankruptcy one where the borrower says that he or she does not want to pay the debts anymore because they do not have adequate funds to repay the debts even after considering that all the property or assets which they have been diluted, the loan amount still is much higher than it. And the other one is where the borrower says with his or her wish that they will no longer pay the balance amount of the loan and want to declare the bankruptcy.

In either of the case, if genuinely the borrower has no money or if they do not wish to pay the money, the bankruptcy will be reflected in CIBIL Report. Once the bankruptcy is reflected in the report it will take seven years to start it again. For the next seven years the individual will not be able to borrow any loan or credits from any banks or NBFCs or any financial institutions. By that that what they can do is, if they have any secured type or credit like secured credit card: where FD is kept against the credit taken and just in case that if the borrower denies paying the bill, the amount can be deducted from the fixed deposit that is kept against the credit card, or any of the loan which has collateral like gold loan or home loan where the asset is there against the amount can be tried to apply for. In such cases, eventually, even if the credit score is on the toss, they still can say that the history of past years on other credits has been taken seriously.

Bankruptcy has a huge effect on credit score. It’s like the “it will take a decade to be okay” thing. As said earlier, it will take 7 years to get that title off the report. But along with this the name also will reflect in loan defaulter list. With multiple attempts and many years of serious practice of repayments of the credits that will then be taken may change a bit. Even in the usual case when the score dips, patience is the first thing one has to keep to get the scores up. It is not difficult to get the score above average. That comes with a question what is a good score? So, credit score is a 3-digit number, ranging from 300-900. any score which is 750+ is considered a good score. Ranging between 600-750 is an average score and the lesser than 600 is into the poor score.

Bankruptcy comes under the negative flag which once tagged, takes many years, seven specifically to get it out of the CIBIL report. Get it out does not mean that after 7 years the entry will be marked off and will no longer reflect the report but it means that the effect it has on a report which will not allow the lenders in usual cases to approve the credit application will go mild. Also, with all the patience and the hard work one must show in the other credits they have had in past years will show up in the report.

It is understood that a decade is definitely 10 years and will take a lot to again get that score back to 750 or more, but the event of a bankruptcy is that huge. Patience is all one can keep so as to make the effort and be diligent in repaying the new credits on time without delay or the missed payment and the hard work will surely pay off!

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Pay Your Credit Card Bills Before Due Date to avoid low Credit score

Who is a responsible person? An individual who is always taking care of the liabilities that are on him/her. When we talk about a financially responsible person, is the one who is able to keep a balance between the spendings and savings. Further bifurcating, a person who has applied for any type of credit is responsible when he/she makes the regular payments of the credit that they have taken. And when it comes to a credit card, it’s the one who pays the credit card bill in full amount on or before the due date. The question may arise is, why?

A credit score is an important aspect of today’s lifestyle where many of the people work on credits, Credit Cards, and loans taken from financial institutions like banks and NBFCs. The credit score is determined by five factors, Payment history, Amount owed, Credit mix, New credit and Length of credit history. Here, the most import and the highest weighted parameter is Payment history. It consists of 35% of the whole score. One may check the score from any of the credit bureaus that are established in India viz. Transunion CIBIL, Experian, Equifax, CRIF Highmark, they have the same score of 35% for payment history. Paying the bills of the credit cards and paying them timely shows that the borrower is accountable and serious about the credit that he/she has taken and the leverage that has been given to them.

Some may say that a few missed or late payments do not make a much difference. But, one should never listen to them. If not initially, but definitely eventually the credit score will get affected. Because eventually it will be a habit and then the score will take huge dips. There have been many examples that few missed and delayed payments a decade ago, which are obviously reflected in the credit report affected on the approval of bigger loans like home loans or business loans now. They either were not able to get the loan approved because of the small careless attitude a decade ago and they were to end up paying a huge amount of interest as they had Low CIBIL Score. The score ranges from 300-900 where 900 is highest and 300 is lowest. 750+ score is a good score, 600-750 is considered average and any score below 600 is considered low or bad score!

Let’s understand this by one of the examples. Sanjay, A 34 years, IT analyst is a project manager in a reputed firm. He has been living away from the family since he was 18. I.e. much sooner as he completed his 12th-grade studies. He did his bachelors and started working at the age of 21. he got the credit card when he was 22. He then took an education loan at 25 and persuaded his masters. First few months were okay as he had saved while he was working. But, later at the end of the third semester which is a year and a half after he started doing his masters, all his savings were exhausted and he then started to use the credit card. Since there was no source of income and he did not want to ask his parents, they were almost seven to eight months where he either was paying the only minimum due or sometimes skip paying the bills or multiple late payments. He knew he was not doing correctly. So he went to the bank and asked them to close the account and then forgot it. Much later, when he was 32, he wanted to buy a house and so he applied for a home loan. And when getting it rejected he checked his credit score and credit report. He had Low CIBIL Score and the major reason was that card which had applied to close it for. It took him two years to get the score in level and had to anyway pay that amount plus the interest that was charged for these many years!

So, if you have a credit card or you may have credit cards, make sure you do not make defaults or do late payments or miss few payments as it will affect the credit score and that will be always reflected in credit report!

Is it easy to get a Credit Card for a Self-Employed Person?

You are standing at a store, with all the things you wanted to buy, waiting for your number to pay and collect all kinds of stuff and leave for home. While counting the money you have there ate 2100 Rs less than the total bill that it is. But whatever you have bought is all important at this hour you cannot drop any item of the one that has picked. Now? There have been many situations like these were just for few of bucks you would have to think now what?! it’s like that embarrassing situation where you really can’t think of anything cause borrowing or asking from someone for the cash is odd!

Credit cards work best in such cases. Credit card as we all know are a boon where we have the privilege of using the money that we do not possess right now! You use the money now and pay it later. In usual cases the next month and if it is in EMI module of a few purchases that you pay it in the monthly small amounts divided by the merchandise company. But the whole point is that it’s not at the same moment. So while having the emergency it’s best to have one. Now the question is: how to get a credit card? Who can apply for it? Or can everyone get it? There are certain criteria for the approval of credit cards.

1. The primary holder of the card should be 18+ in age

2. The applicant should either be a working professional or self-employed with a regular source of income

3. There should be a saving account on his/her name

4. There should not be any bad defaults that must have been made in past

With these criteria, the credit score is also one of the factors that are checked before getting a credit card approved. The credit score is established only after having a credit for six months, so what if someone who has never applied for any type of credit or they have not taken any loan? With the fixed income of a few months and checking other parameters, the credit card can still be approved even after having no credit score. It might not be the one with a huge credit limit, but a one with basic credit limit can be applied for and will get approved. Also, the usual credit cards and an unsecured card where the credit line used is first paid by a bank to the purchase place, and then the user pays it to the financial institute. However, there is an option called as a secured credit card. In Secured type, the applicant has to keep a fixed deposit of the amount which they want the card limit to be. Any bank will approve this credit card as they do not have a risk here. Even if, just in case the cardholder do not pay the credit used, they can always get it from the fixed deposit that is been made.

Coming to the topic if a self-employed individual can get the credit card easily. 2 things. A. If they are planning to get a secured credit card, that is no brainy. They will easily get it. B. if the income of a self-employed individual is very much constant from a long time, they will still get it pretty easily. But, what if there is no constant income or the self-employed individual has just started? In such a case, it becomes a little difficult to get the usual unsecured type of credit card as a primary holder.

In such scenario, they can always take a secured credit card for starting and after it’s regular usage and repayment they can always talk to the bank, ask them to check the report and get the normal credit card approved and that will be quite easy!

Mastering the 5 Rules of Good Credit Health

A credit score is a key factor that is considered by lenders before approving any kind of loan. Even interest rates are also based on the credit health of the individual. So if you aim to achieve a perfect score you must master the 5 rules of good credit health.

Always pay your EMIs and credit card bills on time

Lenders essentially check your credit score to analyse your likelihood of paying back the debts. A good payment history is the key to establishing a good credit score. A responsible and reliable behaviour boosts your credit health. A single missed payment can cause a drop of a hundred points in your credit score. Defaults that are more than 90 days late are the ones that affect the credit score the most. So always pay your bills on time. It is always better to set payment reminders or enrol in automatic payments. Make sure you pay at least the minimum amount on the credit card bill even if you face a cash crunch in a particular month. All late payment records make their way to the credit report and affect your credibility in the eyes of the lender. In case you accidentally missed a payment you can call your lender to explain the situation. He may agree not to report the information to the bureau if you pay the bill and bring your account current.

Keep your credit utilization levels low

The amount of debt that you owe as compared to the overall credit limit determines your credit utilization ratio. Experts recommend that one must keep the utilization levels to below 30% in order to improve CIBIL score. The easiest way to ensure this is to pay off the entire outstanding balance at the end of each month to free up the credit limit. But sometimes the ratio is calculated using the balance outstanding at the time the bill is generated. If one charges too many expenses to the card, the credit utilization ratio may be high even though the entire bill amount is paid. In such a case it is wise to make payments twice a month.

Some other ways of improving the ratio is to request the card issuer for a credit limit increase. One can also open another card and keep low balance on it. This will increase the total credit limit available for use and improve one’s credit utilization ratio.

Monitor your credit reports

Your credit report is a record of how you handle all your debts and serves as a basis for credit score calculation. Inaccurate recording of information by the bureau or identity theft cases can negatively affect your credit health. Check your credit report from all the major credit reporting agencies regularly to ensure that the information recorded there is correct. If you find any errors in the report you must get it rectified by raising a dispute with the bureau. The bureau usually takes 30 days to investigate the issue and update the credit report.

Be strategic about taking new debts and closing old accounts

Credit scoring models take into consideration new enquiries for CIBIL score calculations. Applying for too many debts in a small period of time will result in a lot of hard enquiries and affect your credit health negatively. It raises a red flag for the lenders signalling that you may be a desperate borrower who may not have the ability to repay the loan back on time. So do not apply for too many loans or credit cards at the same time. It is better to spread your applications over a few months.

Do not close your old accounts as the length of the credit history plays a significant role in establishing your credit health. Having an available credit limit on unused old credit cards helps in keeping credit utilization levels low. Also if you have a good payment track record on an old account, it is good to keep it open so that it affects your score positively.

Consider credit mix

Scoring models also consider the type of credit that a person takes on. A good credit mix of both revolving as well as instalment accounts helps in establishing a good credit rating. So if you show that you can responsibly handle repayments of different types of financing tools like credit cards as well as personal loans it will be good for your score.

Mastering these 5 mantras is the recipe for a good credit score.

Reality about Credit Score No one will Tell You

Having a good credit score is no longer an option these days. It is necessary to have a good rating as it determines your creditworthiness and your eligibility for the loan. No bank or NBFC sanctions a loan without checking your credit score. The approval decision, amount of loan and rate of interest at which the loan is disbursed, everything is based on the credit rating of the individual. Let’s look at some important credit score facts that one must be aware of in order to maintain a good score.

Do we have more than one credit score?

There are many credit bureaus in India that receive information from the member banks and financial institutions regarding the borrower’s credit behaviour. These are Experian, CIBIL, Equifax and CRIF High Mark. Each bureau may receive updated information at different point in time, hence the information in their credit reports may vary. The scoring model that the bureaus use to arrive at the score also differs. Hence the score that you get from each of these bureaus may differ slightly.

What does a credit rating of 0 imply?

A credit score of 0 implies that one does not have any credit history till now. The credit bureaus that maintain the record of people’s credit behaviour haven’t received any information about your credit behaviour from the member banks, NBFCs or private lenders. By using a credit card or by taking a loan one can start building a credit history. When you charge your expenses on the card, and make timely payment of bill at the end of the month, the payment behaviour gets recorded on the credit report. Similarly payment patterns of EMIs on loan are also reported by the banks. The information on the credit report forms a basis for calculation of CIBIL Score.

What things one must take care to prevent the CIBIL score from falling?

Make all the payments in a timely manner. Any default or late payment reduces your score by a few points. It is a good habit to pay the entire credit card bill and not roll over your balance to the next month. Paying only the minimum balance helps one avoid the late payment fees, but doing so will not free up your credit limit for next month’s expenses. A high credit utilization level has a big negative impact on your CIBIL score.

Will a poor score haunt you forever?

A credit score is just a snapshot of your financial situation that your credit report shows at a particular point in time. When new information gets added to your report, the score will change too. If you have a low score because of your past credit mistakes, it does not mean that you are doomed forever. With consistent good credit behaviour you can get your credit profile back into shape. Pay attention to the factors that help in improving your score and you can improve your credit

Will becoming a guarantor or a co-signer prove risky for your score?

If you help a friend in getting a loan by becoming a guarantor or a co-signer then you put your credit history at risk. Make such commitments only if you are sure of the other person’s repaying capacity. If the borrower does not make timely payments you will be responsible to clear the debt. The loan will be considered your liability. If you fail to make payments on behalf of the borrower then your credit score will take a hit.

Checking your own score will not affect your score negatively

When you order your credit report from any of the bureaus it is considered as a soft inquiry and it does not affect your credit score at all, no matter how many times you check. In fact one must check the credit score regularly. It not only gives one an understanding of one’s credit standing but also helps in uncovering mistakes or errors on the part of the bureaus. However if a lender or a card issuer checks your score to base their approval decisions, it is considered as a hard enquiry and may impact your score for a short term by a few points.

Good Credit Score – Way to Secure Financial Future

There are three basic necessity of human being. Food, Shelter, and Clothing. Now all of these do not come automatically. One has to earn, and save and crack the best deal. Food and clothing is still not as expensive as the shelter is! So one does not have to consider that cost to a huge level! But Shelter… Most expensive of all the basic needs. In earlier times, people have spent the whole life saving for the money and buying a home. But nowadays it has become easy. The easier is because one can take a loan. So the dream can be achieved a decade or two decades earlier than seen!

Nimesh Wanted to take HDFC Home Loan and shift to a two bedroom house with his wife and twin kids. He had a house in his native where his parents stayed. He was an urban responsible husband and a father who wanted to stay in the city, work and provide education to his kids. Nimesh was always a responsible payer. Taxes, electricity bills, credit card bills, maintenance, nothing was ever delayed even for a day. Even when he started to pay off his education loan he had taken for his MBA, he paid all in time! And because he was a responsible payer, he got many privileges!

The first one was a good Credit Score! This is by default. Many people take the stress of maintaining a good credit score. But if the payment of all the credits have always been made on time and the report is checked regularly, the score will never be on toss! Also, with the credit score, the banks and the NBFCs check the generosity of the party applying. Past payments, why the loan is required, if the applicant will be able to repay the loan etc. And Nimesh was lucky for all of these points and the loan approval didn’t take him to many banks and multiple application but happened in one go and that too at earliest.

Now one may think that what is the correlation of good credit score and financial security. Well, for the example mentioned above, the financial future does not necessarily mean the savings or the investment in equity or mutual funds or bonds or insurance which an individual makes. But, it about how efficiently the funds are distributed! A good score is the reflection of the responsible payer of the debts. One may want to invest in multiple asset class and for that, they may want the funds from the banks and they would not want to either a. Liquidize the funds they have. b. they do not have enough funds currently. In any of the case when the applicant tries to ask the credit from a bank, the first work bank is going to do is ask for the check for the credit score! May it be a home loan like HDFC home loan or personal loan or business loan what one wants to apply for in order to make an investment which is going to lead them to a better secured financial future, score is very important as the approval of the credits is based on the score when applied for in banks or the NBFCs.

In the end, let’s get a brief of the score. It is made up of five parameters. Payment History, Amount Owed, Credit Mix, New Credits and Length of credit history. Various credit bureaus have different algorithms to calculate the score and they provide a score and report to each individual depending on those factors and it’s calculation. As explained earlier that if taken care from the initial stage, a good credit score which is 750+ to 900 is no big deal to be achieved.

10 Credit Hacks to Improve Your CIBIL Score

There was a time when people borrowed funds only in case of emergencies. They used to earn first and then think of fulfilling the desires, needs and wants of life. Today’s generation knows how to work harder, but just cannot wait till the time they earn sufficient money that is needed to get what they want to. Banks, financial institutions and other private lenders are here to fulfil the dreams of this new generation. But they are not angels, who will just give them the money and forget about it. They are in a business, and they want returns of their investment. That is why before lending money, they make sure that the borrower has sufficient repayment capacity as well as the intention to pay back the money with interest. For this they check the CIBIL score of an individual.

So if you wish to borrow funds anytime in your life, you must pay close attention to your score. If you find things out of control, you must take steps to increase CIBIL score. Here are 10 credit hacks to improve CIBIL score.

  1. Check your credit reports– The first thing that you need to check is whether there are any errors in the report. A low CIBIL score may be the result of mistakes on the part of the bureau which are not uncommon these days. Even though everything is digitized, errors do occur and become the reason for a low score. If the report reflects accurate information, then you need to identify areas where you need to focus your energies on to improve your score. Are you having too many loan accounts? Are your payments getting delayed? Is your outstanding balance on credit cards high? Looking at these factors will help you identify the road that you need to follow to reach your goal.

  1. Clear past due payment- Payments that are more than 90 days past due bring down your score drastically. Clear your past due payments, and start making all the future payments on time. An on time payment track record gives a boost to your score.

  1. Make a budget and stick to it- Having a credit card does not mean that you can spend as much as the credit limit allows. One needs to make a realistic budget and spend only what one can repay at the end of the month. Carrying huge balances on the credit card month after month will lead you in a debt trap.

 

  1. Credit utilization rate- The percentage of the credit limit that you utilize significantly affects the credit score. Maxing out the credit cards bring your score down. If you pay off your credit card balances it will reduce the utilization levels and help in improving CIBIL score.

 

  1. Pay the credit card bill twice in a month- If you use your credit card as a convenient means of paying for most of your expenses, it is possible that you reach the card limit when the bill is generated. Even if you pay the full balance when the card statement arrives, you may still have a low score, as the balance that is sent to the bureau for utilization calculation may be the statement balance. By making two payments in a month we can keep a check on the utilization levels.

 

  1. Take a personal loan to consolidate credit card debt- The credit card debt is the most expensive form of borrowing. If you have outstanding balances on multiple cards, it is advisable to take a personal loan to pay off all these debts. It will help you save money as personal loan is available at a comparatively low rate of interest. Moreover, the credit utilization levels decrease and help in improving the score.

 

  1. Raise in the credit limit- Check with your card issuer if you are eligible for a credit line increase. A rise in the credit limit also helps in decreasing utilization levels and increases your credit score.

 

  1. Negotiate with creditors- One can try if negative items can be removed from the credit report by talking to the creditors directly. Sometimes they agree to remove the entries out of goodwill. Find out if you can reach an arrangement with them wherein you pay the balance in exchange of the entry getting deleted.

 

  1. Keep old accounts open- Old and active accounts help in increasing the length of the credit history that has a positive effect on the credit score.

 

  1. Display good credit behaviour- One can take a loan with bad CIBIL score and make the payments on time to display good credit behaviour. This will help in building a good credit score.

 

Having a Good Credit Score can be a Money Saver. Read How?

If you were posed with the question that why should you have a good credit score, then the most common answer would be to get a loan application sanctioned. Well, that is true and is indeed often the primary and most common use of a good credit score. However what if this good rating can help you in other aspects also. One added use of a good credit score is in securing a job; apart from that a healthy rating can help you save money too. If you are wondering how, then the following discussing is for you.

How Can a Good Credit Score Help Save Money?

A good score is important, that is something which most of us may be aware, but how it can be a money saver? Here we discuss a few ways in which it can help you save money.

  • Helps Save Interest Cost: Lender charge interest on loan for two reasons; first for allowing you to use money that does not belong to you and second for the risk that they undertake when lending. As we know higher the risk higher the interest at which the loan will be available to you. Thus if you have a good score you can approach the lender who offers most competitive rates as you are sure of getting your loan application approved provided you comply with rest of the requirements laid down by the lender. A good score also prompt the lender you a loan at lower rates because they would be assured of getting the money back. So whether it’s personal loan interest rate or home loan interest rate, even a change of half a percent could help you save huge amounts. Obviously actual saving would depend on the quantum of loan, but a drop in rate however small is welcome.

  • Gives You Bargaining Power: Another way a good score can help you is by giving you a bargaining power to negotiate favorable terms with lenders. This means you can get a concession or waiver on various additional charges like the legal fee or the processing fee and you could also get favorable terms on pre-payment charges. All this could help you save money on your loans.

  • Could Help you Land a Job: This is not as much save money as earn it. Lots of organizations are seeking credit reports of applicants before hiring them. So if you do not have a good CIBIL Score you could end up losing a job opportunity despite having the right qualifications and skills for it. Not getting the job you deserve or have the qualifications for because of poor rating could make you lose lot of money in terms of remuneration.

  • Lets you Access Funds When you Need Them. There might be times when you might want to get a loan sanctioned at a short notice. This may be due to some emergency for which you need funds or because there is a window of opportunity like a deal on a car that you want to buy. Not being able to get funds on time could mean that you could end up losing that special offer which means you lose money when you buy it without the offer. It could also mean that you have to borrow at higher rates to deal with the emergency or break your investments,

So as we said earlier a good score is your ticket not only to getting loans sanctioned but it also lets you save money in various ways. Thus being credit healthy at all times became all the more important.

Why You Should Keep Your Credit Utilization ratio within 30-40%

Since years we have been listening to the saying, that spends only that much, how much you can earn. However, over the past few years, he thought has been changing. With credit cards coming into the picture and the availability of them have made it easier for many people to spend even when they do not have that much cash on hand for that moment. Credit cards have made it easier for people to access money when in urgent need. But, there are few asterisks (*) that comes with whatever we peruse. And when it is a credit card, the credit utilization holds the biggest asterisks. Even though the card has a given limit, it is never a good practice to use all of it!

With credit cards comes the credit utilization ration. But that? And what it? Let’s understand this with an example. Suppose the credit limit of a particular card owned by someone is 1,00,000 Rs; then it is advisable to use 30% to 40% I.e. 30,000 to 40,000 Rs max. Credit utilization is basically the amount that is spent on the total credit that is available to an individual of their card. And, the credit utilization ratio is the amount used divided by the total available credit limit. Now, the next question that arises is: why to maintain the ration? When the limit available is more, then why not use more.

A credit score is an answer to that. With many criteria that have their effects on credit score, this one also plays a role. The reason behind is, more the usage, more the debt. More the debt, more it seems that the person is in need of credit. And more the need of credit shows more debt burden. So its a huge chain of logic that have been eventually considered after studying many of the cases. The irony is if you have more than one cards, and collectively if you spend, and exceeds the total limit, 40% would still be okay. So, taking the above example, if there is one more card of the same limit, 1,00,000. and if one uses, 35,000 each card, i.e. 70,000 in total then it is okay. As the total credit limit available is 2,00,000. But, using 70,000 from single card shows credit hungry behavior. Of course, this does not mean that one should keep applying for the cards and use it. Everyone should always check the amount which they would be able to repay if spent before then paying.

Credit score a tricky concept. But easy to understand. More the usage of the credit card will imply that the cash in hand is unavailable. When the credit card is given, an individual’s salary or bank account is checked if they are either salaried or self-employed respectively and only then the card is offered or approved. But many, misuse it. And hence the credit bureaus check the credit utilization ratio. What to do if the usage is more and the limit available is less? Simple, as mentioned earlier, apply for one more card. But, one should not apply for too many cards. Even that states that it is a credit hungry behavior and one is in bad need of funds. Similarly, closing the older credit cards also would impact the score as the older accounts shows the credit behavior one has over these years. And account history is also one of the factors which comprise the credit score. Also, if one does not want to apply for new cards, they can always make the payment more than once a month. When the usage seems to exceed 30%, make a payment and revive the credit limit!

The moral to all this is, anything used on average is good. May it be the credit that is available! Using 30% to 40% of the total limit available over the credit card shows a responsible behavior. And that also maintains the score!

Use Secured credit card to Repair CIBIL score

If you have recently ordered your CIBIL report and found that you have a low CIBIL score, it is time to take charge of the situation and work towards improving it. Banks and financial institutions avoid issuing credit cards or lending money to individuals with a bad credit history. They pay a lot of attention to a person’s credit worthiness to avoid any risk of defaults. So a good CIBIL score plays a crucial role in the lending approval process. Many banks have cut off limit of a score of 650 -700 below which they reject the loan application.

In order to repair CIBIL score, one needs to prove that one can handle credit responsibly. For this one needs to make timely payments of loan instalments or credit card bills every month. But with a low CIBIL score, it would be hard to find a bank that trusts you with its money, or is ready to take the risk of lending to a person with a bad credit record. At such difficult times Secured credit card is a way out of this vicious cycle.

A secured credit card, works like any other card offered by numerous banks. The only difference here is that it requires one to keep a fixed deposit with the bank. The deposit amount then determines the credit limit that the bank offers on the card. So essentially, the bank does not face any risk of default. If the card owner does not pay his credit card bills, the deposit amount kept safe with the bank can be used to recover the amount.

Let’s look at some more features of a secured credit card

  1. Usually you do not earn any interest on the fixed deposit amount. You cannot close the FD till the time you are holding the secured card. Foreclosure of FD leads to cancellation of the card along with payment of applicable fees. After a year or two of responsible payment patterns, one can request a conversion of secured credit card to a normal card.

  1. There is very little documentation required to get a secured credit card. Generally all you need is an ID proof.
  1. The difference between a secured credit card and a debit card is that the secured card activities are reported to the bureau.

How does using a secured credit card repairs CIBIL score.

Timely payment of card bills is the most important prerequisite that is needed to build your credit score, through this process. The bank reports the payment behaviour to all the three credit bureaus. The payment details get recorded in your credit report and that forms a basis of your score. Since the payment history makes up 35% of your score, working on this aspect definitely gives a big boost to your score.

Remember, not using a secured credit card responsibly can bring down the score even further. So make sure you do not make any late payments, and do not default on them either. Do not use more than 30% of the available credit limit. A high credit utilization ratio pulls the score further down.

A secured credit card is a good option not only for people with a low credit score but also those whohave just started their journey of building credit. People with a lower monthly income, than the minimum income set by bank for issuing credit card can also use a secured card. Various banks like HDFC, Axis Bank, ICICI Bank, Dena Bank provide this facility. These banks allow a credit limit of 50% to 100% of the fixed deposit amount. But before you apply to any one of these banks for a secured credit card, remember to set your expectations right. You will not see overnight results. Just like all efforts take time to yield results, building a score also requires patience. It may take a few months before you start seeing any results. So you need patience and determination to start your journey. All the best !