Common misconceptions about CIBIL score calculation

CIBIL or the Credit Information Bureau of India keeps a record of an individual’s credit related activities with all the financial institutions, lenders and banks (including outstanding balances, credit limits, EMI, credit card payments). This record gives an insight into a person’s credit usage patterns. CIBIL generates a three digit number called a CIBIL Score that summarises the credit information and aids in the evaluation of borrowers on a standard scale. Banks check the credit score and credit report to make their credit approval decisions.

As the significance of maintaining a good CIBIL Score is increasing, rampant myths have cropped up which have left people confused. This article attempts to debunk some of the widely spread misconceptions surrounding this financial tool.

Myth #1: Enquiring about your own CIBIL score will bring it down.

When you check your own credit report or score, it is considered a soft enquiry and is not taken into consideration while calculation the score. On the other hand when a lender checks on it for the purpose of evaluating your credibility it is a hard enquiry that gets recorded on the report and impacts the CIBIL score calculation. A series of loan applications in quick succession will generate multiple hard enquiries and have a negative bearing on the score. It is actually a good financial practice to keep a regular check on your score to track your credit health. You can check your score from the bureau by paying a nominal fee.

Myth #2: Close your credit cards to improve your score.

This is the most dangerous myth hovering around the CIBIL Score. Contrary to this belief, closing credit cards will actually bring the score down. When you forgo a card, your total available credit limit declines, and the credit utilization percentage increases. CIBIL score calculation largely takes into account the credit utilization ratio. A high ratio will push your score down.

Length of the credit history is another significant factor that affects CIBIL score calculation. So if you have old credit cards, in which you have displayed good credit behaviour, do not bother closing them. Firstly, a history of payments within the due dates on those cards will positively affect your score. Secondly, they add to the available credit limit you enjoy, and help in reducing the utilization ratio. Hence it makes sense to hold on to such cards, even if you do not use them.

Myth #3: Prefer cash over credit to raise your score.

Indians have grown up with the belief that borrowing money is a bad thing. On those lines they think that if they make cash payments and avoid credit completely it will keep their CIBIL Score in good shape. But contrary to this perception cash transactions do not have any bearing on the CIBIL score calculation. The one and only thing that affects the score is the credit history. If you do not use your credit line you cannot build your credit history and bureaus will not assign you any score at all. You will find it difficult to get loans sanctioned in case you need them for emergencies. The trick is to avail loans and make purchases with your credit cards, and make timely repayments. Such credit behaviour will be rewarded with an excellent credit score.

Myth #4: A bad credit score cannot be restored.

A credit score is a reflection of one’s financial behaviour at a particular point in time. In case you have a bad credit score, it may lessen your chances of loan approval in the near future, but it isn’t a closed chapter. With judicious planning you can get your financial life back on track. Apart from making on-time payments you can take help of professional help from credit management companies who will help you draw out a plan to restore your credit records.

Myth #5: CIBIL score calculation takes into account factors like Education level, Occupation, income, bank balance, place of living and marital status.

None of these factors play any role in calculating your CIBIL score. In fact CIBIL does not even have access to such information. A credit score only reflects how responsibly you handle your credit. It only depends on the credit information like the number of loans taken, total available credit limit, outstanding balances and credit repayment patterns.

Myth # 6: Being a guarantor does not affect credit score calculation.

You will not lose points on the credit score for acting as a guarantor for a loan taken by your friend. But if your friend fails to make timely payments of his debts the onus will lie on you. If you fail to pay the amount your credit score may plummet.

Credit scores affect your financial life significantly. Misconceptions and erroneous understanding regarding CIBIL Score calculation can lead to serious repercussions. Hence it is good to know what affects the score and what does not.

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The Importance of Your Credit Score When Looking For a Home Loan

Real estate prices in India have scaled to unbelievable heights. Buying a house, atleast in the major cosmopolitans in India seems like a distant dream for most especially because the prices have exceeded a common man’s affordability. Inspite of the recent trends in property prices in India showing a marginal downturn, they still remain far above the ground.

To cover the gap between what a common man’s pocket can allow and what home sellers are asking for, a home loan must be sought. This article will quickly walk you through on why your credit score is such a big deal when you are looking for a home loan.

How to proceed when looking for a home loan?

It is important to mention here that banks and other non banking institutions that provide housing loan and are also member of CIBIL, withdraw a loan applicant’s credit report as a first step in evaluation of the loan application. Whether the applicant is seeking a secured debt or an unsecured debt it does not matter. Even for a thing as minor as a request for an upward revision of the credit limit on your credit card, sends a bank looking for your credit report. Most banks and other lenders are known to grant credit to those who have scores greater than or equal to atleast 750. Thus, what’s applicable for any other loan is applicable for home loan too. You should do a cibil score check every year to keep a eye on your score.

Banks and other non banking financial institutions do have their internal policies on credit scores and reports but none of them have ever openly disclosed their criteria. However, by and large 750+ scores are considered as very good score to get through the loan process at any bank, unless you lack a document or fail on other parameters of the lender.

How do I know my score?

Knowing your score is not complicated at all. You can get online and go to cibil’s website . Here you can request your copy of CIBIL report. After a payment of Rs. 550/- you can easily and instantly get yourself access to your score and report. Incase you do not want to invest money in withdrawing your report then you can also go to http://www.freescoreindia.com and request for a free credit score. Although free but you will receive it only three days after you have submitted a complete request. So, if you are not in a hurry, you may consider this alternative.

I know my score, now what?

Once you have received your copy of the report then give it a thorough look. Look at all the details carefully and make sure that they are all correct. Incase you find any false information then it is best to raise a CIBIL dispute and request for a rectification. The reason why you should be so cautious about all the details to be right is because there could be information that is hampering your score. Upon correction of that misleading information, not only will your score improve but also it will become easier for you to impress upon your prospective lenders.

For example, you may have paid in full an old used car loan some time ago but the lender has not reported this to CIBIL. However, the report shows the loan account as still “open” and running. Since CIBIL’s authority is limited to only collating data from its various members, it cannot update unless it has been notified from the bank itself. Thus, by having your data corrected, it will bring down your used credit limit and help increase your score.

I have a good score. Can I use it to my advantage?

Ofcourse! It may come as a pleasant surprise and it is true. Often we have heard that people with poor scores need to worry and not those with good scores. But that is so untrue. The truth is a good score helps the borrower more than the lender. This is so because it not only it means that you can easily seek credit upto the limit of your eligibility but also you can negotiate for favourable terms and a lower rate of interest. Banks and other lenders will be vying for your loan portfolio incase you have a good score. Therefore, you can certainly take advantage of competitive rates.

Are there any loans for someone with a poor score?

Well, ofcourse. Even with bad credit home loans can be acquired. There is a good chance that you may have to pay an interest rate higher than standard rates or you may have to get a guarantor on board or perhaps, get someone with a good credit standing to co-sign your application, but you certainly do not need to deprive yourself of a home loan.

Incase, unfortunately you do not hold a good score then do not lose heart. You can adopt credit healthy ways and work on improving your score. We have covered on our blog on how you can repair your broken credit.

Rejuvenate the power in your credit score

Like they say, “better late than never”.  Despite a poor score, by bringing discipline in your finances and making a fresh start will help you achieve a better score over a period of time. Avoid being nonchalant about your score, have patience and work on it actively. Once better then go after that loan you always wanted.

There may be chances that you do not have the skill required to negotiate on interest rates or you do not understand how you can bring in discipline in your investments. In this case, you must seek expertise of credit consulting companies who can do this job for you. Find comfort in the company of an expert and follow their advice.

Stay tuned for more credit updates!

Important tips for first time home buyers

Congratulations! Now that you have decided to take that all-important first step towards purchasing your long-dreamt of asset – your first home – it’s time to look into all the details with a magnifying glass. It is no doubt an exciting prospect, but it can be overwhelming too, if you do not walk into the loan buying process adequately armed.

Let us quickly walk through the must-dos that every first time home buyer should evaluate before signing on the dotted line.

Check your credit score – A very critical aspect of the home buying process, this vital piece of information can often be the reason for your application to be reviewed favourably or otherwise. A high credit score typically translates into a loan at the most competitive terms, and can mean that over the long term you wind up saving a significant chunk of money. It would therefore be prudent to do a cibil score check and call for a copy of your credit report and know where you stand and if required, take adequate steps to better your score.

Select your home loan provider – There are quite a few lenders out there, be it banks or other financial institutions. Do your homework and select a lender that closely matches your thoughts and philosophies. This is because you will be associated with the lender for a reasonable amount of time (given that home loan tenures are rather lengthy) and you want to work with a lender that offers you comfort and impeccable customer service.

Avoid overspending – Know what you can comfortably afford, and stick to it. While it may seem a dream come true to have that 5 bedroom apartment you always wanted, remember that it comes at a cost – not only do you have to pay your EMI each month, but you likely have other commitments that need to be met as well. Hence, keep it real and buy a house that you can comfortably afford at the time.

Determine your loan eligibility – Prior to applying for a loan, run a quick check to roughly determine the loan amount you would be offered basis your current financial standing. This can easily be done using a number of tools such as a home loan calculator that are available online.

Know the interest rate – Given the sheer number of years you are likely to spend repaying this loan, compare home loans and see how much the property is going to cost you.

Know the paperwork – You should understand in depth the formalities to be followed, both at this stage and throughout the life cycle of the loan and home buying process. This will include valuation and verification checks carried out by the loan provider. Check that all legal documentation is in place. This includes the title and search report, development agreement, Power of Attorney (if applicable), commencement certificate, approved sanction plan from the relevant authority, occupation certificate, NOC etc.

Identify properties – As per your requirement, select properties that you believe you would be interested in. Shortlist/ narrow down prospective properties and focus on those. Meet with the builder (in case of under construction/ new construction) or the present home owner (in case of resale property) to view the property. If selected, make an offer and negotiate the sale amount. The seller (in case of a resale property) may have a particular price in mind. Once you have a fair idea of the value of the property, make an offer to the seller. Have the home appraised and inspected to ensure everything is in place structurally.

Check property documentation – You would need to thoroughly examine the documentation available with the seller, to ensure you are legally in the right. For example, in case of a resale property, the title deeds including the previous chain of documents, copy of the agreement to sell (if already executed between the buyer and seller) etc. are required for loan processing.

Consider the resale value – While they say that property always tends to appreciate, you ought to prepare yourself for any eventuality. Hence, when you buy a house also do factor in its resale value, and whether you are likely to be able to sell it easily, or would it take more time to liquidate.

Property registration – Once the sale has gone through, you would have to sign the sale deed and complete the related registration formalities (including payment towards stamp duty, etc.). Remember that property registration is a must under Section 17 of the Indian Registration Act, 1908. Determine the stamping requirements (as a percentage of the value of the property) and pay the registration charges for a sale deed. In case of a new property being purchased directly from the developer, the developer will convey the title in the name of the society. In case of resale property, then NOC from the society is required. When the sale deed is executed, before handing over complete payment to the seller, all title documents need to be collected from the buyer.

In conclusion

Let your home buying process be a pleasant experience, with no glitches to bog you down. It is therefore important to do all your groundwork thoroughly before proceeding with the purchase.

Remember that as with all loans, here too a good credit score is very important, and hence being credit healthy is one of the starting points to make buying smoother.

Importance of a High Credit Score

A high credit score plays a crucial role in securing one’s financial future. Maintaining a good credit score can easily help avail loans from the financial institutions at competitive rates. Through advanced analytics, the credit bureau assesses an individual’s credit details and then allocates a three-digit number ranging from 300 to 900. Most financial institutions are willing to lend funds to applicants with a score of 750 and above. For CIBIL score calculation, details such as repayment history and borrowing details, among other things, are taken into consideration. The score is analyzed to ascertain the potential risks involved in lending money to individuals.

How to maintain a good credit score?

If one has not taken credit yet, the secret to establishing and maintaining a good score is to start small. This can include holding one credit card instead of multiple cards from credit card companies or availing a small loan. It is also essential that timely payments get reported to the credit bureau. On getting a credit card, make sure that the balance gets paid in full and on time. If payments are delayed, it will not only affect one’s relationship with the credit card companies or company, it will also lower the credit score.

Checking on the credit report at least three times a year can help inculcate financial discipline as the individual becomes well informed about how he or she is managing funds. This helps to spot errors, if any, and also get it corrected immediately, before it can impact the scores. Credit report called Credit Information Report contains details of a person’s past credit history.

Importance of high credit score

Banks and other financial institutions take into account an individual’s credit score to determine whether or not to lend funds. The first impression that the lender has of the applicant is his/her credit score. Lower the credit score, higher will be the interest rate. Lenders can even demand collateral when they realize that the risk is high.

Personal loan, car loan and other kinds of loans can be availed with the help of a high credit score. For example one can avail the best home loans in India with a good credit score. Most home-loan providers are willing to consider scores of 700 and above. The closer the score is to 900 higher are the chances of getting a loan that meets all of the applicant’s terms. Therefore it can be concluded that one can get the best home loans in India through a good credit score. On the other hand, a bad credit score can dampen one’s chances of getting funds at competitive rates.

A high credit score can not only help get favourable loans but also lesser insurance premiums. The credit bureau allows insurance companies, broking firms etc. to access a client’s credit details. A poor score could result in payment of higher insurance premiums.

Missing out on a single payment can bring down a person’s credit score, and a poor score can result in loan applications being turned down. Even though it takes a long time to build a good score, a few missed payments here and there can water it all down. Additionally credit card companies can reduce the limit when the credit scores are poor. Financial institutions want to be certain that the applicant’s has a good payment record before they decide to lend funds.

Factors that can have a positive impact on credit scores

Some of the factors that can positively impact a person’s credit scores are:

  • Paying credit card bills on time
  • Properly utilizing the credit limit that has been approved
  • Not applying for a new credit card unless necessary
  • Making sure financial institutions submit payment details on time to the credit bureau
  • Review credit history on a regular basis to avoid surprises
  • Paying bills in full
  • Keeping balances low
  • Maintaining a healthy mix of credit  (80% in secured loan and 20% in unsecured loan)

It is important to note that holding a high credit score does not automatically mean that an applicant will get whatever he or she desires from the financial institutions. Lenders take other factors as well into consideration for approving or rejecting loans and other funds. The parameters differ from one institution to another. Some of these other factors could include debt to income ratio, income, employment situation etc.

Ways you can improve your CIBIL score fast

My name is Sonali Kulkarni. About three years ago, I settled a loan for 4 lakhs that I took from a NBFC. That settlement still shows on my credit report. It is affecting my credit applications. What can I do to have it removed from my report?

What Sonali has faced, you might be facing too. What she didn’t know is that such “settlements” reflect in the credit report for at least 7 years from the date of last reporting. Yes, as shocking as it may be having unhealthy credit practices or having been reckless with regards to your finances, can affect you miserably for a long time. Our most sincere advice to Sonali was to adopt healthy and responsible credit practices.

Theoretically, a lot people will suggest you to “observe credit discipline” and adopt “healthy credit practices”. We shall answer in this article what it really means to be credit disciplined and how you can be counted as a “responsible credit user”.

There are a number of ways on how to boost your credit score, however, there are some practical habits that you can start implementing from this moment onwards. Below are some very realistic tips that will help you to improve CIBIL score and also by practising these on a regular basis you will be able to maintain authority on your finances.

  1. Avoid cheque bounce: Some things are beyond our control. But things like issuing cheques and allowing them to bounce due to “insufficient funds” is very much within our control. A cheque bounce will not only attract bank charges, further reducing your balance but also adversely impact your score. Issue cheques for amount that you have or else ask to give post dated cheques (PDCs) for dates when you will have funds to honour your payments.

 

It is most advisable that you streamline your finances. Try to manage funds as judiciously as you can, avoid making hasty impetuous decisions regarding your money and most importantly exercise self control over your expenses.

 

  1. Standing Instructions (SI): You may have been late inadvertently in sending payments on your loan instalments or credit card dues. It’s time for taking some corrective action. Do this for future. Find out your billing cycle and your due dates. Set a standing instruction for an auto debit on your salary account or your savings account, where you are sure funds would be available to make the requisite payment. By doing so the lender will automatically debit your account on the set due date and this way you will not be hassled with remembering all the payment cycles. But make sure the account on which you have set the SI should not be out of funds before the due date orelse you will again become a defaulter on loan.

 

You can set SIs for your electricity bills, phone bills, etc too. This habit will keep you free of any anxiety over bill payments.

 

  1. Stop applying for credit from various lenders: You are already in the red zone because you have been unable to service your obligations properly. Yet you go ahead to ask for futher loans? No. This is not a good habit. Firstly, since you are already struggling with a low rank of credit rating, CIBIL member banks and NBFCs will not be willing to sanction any further credit to you. Bankers will be cautious of you as you are bound to exceed your debt servicing capacity and due to overload of credit you may not be able to honour any repayments.

 

Secondly, even if you do have loans from several banks you are bound to mismanage them and forget to make timely payments. A responsible credit user will consolidate his debt to not more than two loans. That means, pay off all other petty debts using money from one loan and then service that single loan on time.

 

Thirdly, it does display that you have an insatiable hunger for credit. Banks and lenders are unwilling to party with such individuals. Credit discipline demands that you do not display such inappropriate behaviour.

 

  1. Prefer Secured Loans over Unsecured Loans: If you must go for some form of credit then prefer to go for secured loans like home loan, loan against your FDs, loan against gold or property or equity holdings. Avoid asking for unsecured loans like personal loans, even if they are easy to get. You may want to apply for a secured credit card vis-à-vis a normal credit card. This is so because, unsecured loans attract a higher rate of interest and that would mean a higher payout of EMI every month. Higher the percentage of unsecured loans, greater will be your responsibility to service it.

 

  1. Avoid using too much of your credit limits: Going overboard with credit will indirectly impact your CIBIL report With an overused credit card, every month there will be increasing outstanding balance to pay off. Unless you habitually pay it off in full, which ideally a responsible credit user will, your outstanding balance will just keep building up. This will mean increased credit burden and might put you in a situation where you may not be able to pay it.

Don’t be desperate for credit. Rein in your urges and be more patient. This will yield positive long term benefits and may you never have to worry about credit woes again.

Realistic tips to help improve your CIBIL score

There was a time when financial fitness was not up there on the to-do list of most people, but that is definitely not the case anymore. One of the factors that determine from a lending perspective just how healthy you are is your credit score. Globally, the credit score not only helps you get a loan or credit card, but can also be the deciding factor in your securing a job, the premium you will pay on your insurance, getting an apartment on rent or even a new mobile phone connection.

In India, while credit scores are not an alien or unfamiliar concept any longer, the usage as of now is mainly restricted to the banking and financial services (BFSI) domain.

What is a CIBIL score?

We’ve touched upon credit scores – what then is a CIBIL score and how does it differ? Well, a CIBIL score is nothing but a credit score, but with CIBIL being India’s oldest credit information company or bureau, the terms are used interchangeably. A score ranges between 300 and 900 and conveys your creditworthiness to a lender, that is the likely of a customer defaulting on the loan or credit card payment.

However, if you wish to call for a copy of your credit report, you can do so from any or all of the credit bureaus, namely CIBIL, Equifax, Experian and CRIF High Mark.

Factors that impact the CIBIL score

Broadly, given below are the factors that impact the score, and hence it becomes important to monitor the score at regular intervals, to ensure the information contained therein is accurate as well as complete. Any discrepancies need to be rectified immediately, so that they do not have a negative impact on your score.

If you look at the chart above, a large chunk taken into account pertains to your repayment history; hence tracking your payment becomes important.

Tips to improve the CIBIL score

Now that we know what constitutes a CIBIL score and the important and relevance it has in our lives, let’s look at how to boost your credit score.

Check your credit report – Once you are armed with a copy of your credit report, is it the first step towards achieving your goal of good credit health. Check this report and ensure all data mentioned therein is accurate and up to date. In case of any errors, you would need to have them resolved with the concerned lender as well as the credit bureau.

Timely bill payment – Whether credit card dues or a loan EMI, make sure that you do not delay payments, or worse, skip making one. This simple practice can fracture your score if not addressed. Set up payment reminders or sign up for auto debit instructions to ensure that all your outstanding dues are cleared in time, on or before the due date.

Clear off debt – If your credit report is riddled with multiple open lines of credit, consider closing them, one by one. Even if this appears to be a tedious process, in the long run it can do wonders for your score.

Retain ‘good’ old debt – While you may do well to clear off outstanding dues, what can go against this effort is closing old accounts with a good payment history. With your repayment track record amounting to as much as 35 percent of your credit report, it is important to maintain an account that is old, and has been serviced well throughout. This indicates your credit responsible behaviour and can help your score immensely.

Track your credit utilisation ratio – The ideal credit utilisation ratio is 30 percent of your overall limit, be it one card you hold or several. To cite an example, if your credit limit is Rs. 1.0 lakh, make sure your spends do not cross Rs. 30,000 as high utilisation of the limit can indicate credit hungry behaviour.

Keep the limits reasonable – While a high credit limit may sound very attractive, it can also tempt you to spend beyond your means, landing you into a possible debt trap. Hence, while a low limit may not serve the purpose of having a credit card to begin with, it is always a good idea to have a reasonable limit.

Maintain a good credit mix – Having a skewed portfolio may indicate credit hungry behaviour to a lender, especially if you tend to lean towards unsecured products such as personal loans or credit cards. Throw in a healthy mix of secured products as well, and you are likely doing your credit score a favour.

In conclusion

Remember though that there is no quick-fix solution to increase credit score. It is an exercise that takes some amount of time and financial discipline. However, once you put your mind to it, it is only a matter of time before your score gets back on track.

When you’re next applying for a credit card or a loan is when your credit score will come in handy. Hence it is never too late to get on the path to good credit health.

 

Is your wallet stolen? Learn what to do!

Losing your wallet can be both intimidating and a potential threat to your CIBIL Score.

Imagine you are on vacation and enjoying a spot of holiday shopping when you reach into your pocket for your wallet and find… nothing. You now have a nightmare unfolding – that of contacting each bank and credit card issuer to have your debit and credit cards blocked or hot listed and reissued. Identification documents such as a driving license, PAN card or aadhar cards also need attention – after all, these are critical documents that can have far-reaching consequences if they fall into the wrong hands.

While all this may seem akin to the end of the world, it is not so. Before you start to panic, let’s see what all are the things you can do to mitigate the damage. The money in your wallet is gone of course, and that is possibly something you can’t replace, but for almost everything else, help is close at hand. Let’s take a look at all the available options – after you have calmed down somewhat, of course!

Is your wallet really lost, stolen or just misplaced? The first step would be to think back to when you last had your wallet. If you were at a mall or store for example, retrace your steps. Did you whip out your wallet to pay for your purchases and leave it at the counter? Would you have dropped it en route? If you’ve been home for a large part of the time, check thoroughly just in case it’s fallen or been dropped in some corner of the house.

However once you have established that it is indeed missing, read on to know what you should do.

Block all cards – Whether debit, credit or charge cards, call up each bank or card issuer and have all your cards blocked. If you do not have their helpline numbers at hand, log on to the website and get them. Once done, sit down calmly and make those all-important calls.

When you call the banks and/ or card issuers, be sure to mention that your wallet has been lost or stolen, as the case may be. If you can provide an approximate time in addition to the date that the incident occurred, it would help the financial institution to let you know whether any transactions have been carried out since. Finally, once you have the cards blocked, be sure to request for replacement cards.

Stop-payment – Whether a cheque or chequebook, do mark a stop payment against these instruments to prevent misuse. Be especially alert in case you had a bearer’s cheque in your wallet – these are not crossed favouring a particular payee’s account and hence can be misused by anyone to withdraw cash, especially if the payee details were blank.

File a police report – Now that you have ascertained that your wallet has indeed been lost or stolen, you would need to go to the police station (in the jurisdiction of where the loss/ theft occurred) and file a First Investigation Report (FIR).

List the contents – In addition to money, your wallet is likely to contain debit and credit cards, identity documentation, a cheque book or maybe even a cheque that you have been meaning to deposit or encash. Make a list of the contents as best you can remember so that it is just that much easier when you have to go about methodically getting things back on track.

Check your credit report – Do pull up a copy of your credit report from all the credit bureaus (namely, CIBIL, Equifax, Experian and CRIF High Mark) operational today, as this will help you check whether any credit – be it a loan or credit card – has been fraudulently obtained in your name. If you do see an unfamiliar account on your report, notify the concerned bureau immediately to track it down. You need to do this to ensure that you are not a victim of identity theft, and to keep your credit report clean.

Wallet Protection Plans

As the old adage goes, prevention is better than cure and while ensuring the safety of your wallet is not something that you can predict, you can however take adequate measures to minimise the damage and stress. Banks and other institutions offer a wallet protection plan that safeguards the contents of your wallet. On payment of a reasonable annual fee, some of the things your wallet is protected for include:

  • Replacing lost PAN card and driving license
  • Comprehensive fraud protection coverage – both online and offline
  • Blocking a SIM card
  • Emergency travel assistance (hotel and ticket booking)
  • Emergency cash limit
  • Emergency roadside assistance
  • Online locker

Of course, before signing up for any services be sure to first check with the organisation offering the plans, and then carefully read the fine print to know exactly what you are signing up for.

Understand the loan underwriting process

When you apply for a loan, as part of the process the information given by you is scrutinised and analysed in depth by the lender’s underwriting team before a decision is taken as to whether to approve or decline the said loan application.

What is loan underwriting?

Loan underwriting is the process wherein prior to taking a decision of whether to approve or decline a loan application, the lender (that is a bank or other financial institution) verifies the information provided by the applicant and confirms that the requirements as laid down by the lender for a particular loan facility are met.

Loan verification includes taking into account items such as employment or business history, salary or income and other financial statements, and the borrower’s credit history as detailed in the credit information report. Finally, it also takes into account the underwriter’s evaluation of the borrower’s credit needs and their intention as well ability to repay a loan they avail of.

The length of the underwriting process depends upon factors such as the completeness and complexity of the loan application received. It is also influenced by factors internal to the lender such as the underwriter’s experience as well as how busy the lender may be at the time. For example, if you apply for an education loan just before the start of a programme, it is likely that a lender already has their hands full with similar applications owing to the peak enrolment season and hence the time taken to process the application may increase.

What are the factors considered while underwriting loans?

Sound underwriting comprises of many aspects – judgement, experience and the underwriter’s ‘gut feeling’. This makes the process both subjective as well as objective. It is subjective to the extent that the underwriter forms an option about the borrower and their repayment capacity basis relevant opinions or impressions formed while reviewing the application. The objective view comes from understanding and analysing in depth the verifiable facts (such as income, other loan outstanding, past repayment track record) available before making the loan decision.

Let’s then take a quick look at the credit decision process.

Calculation of monthly expenditure: When a lender reviews your loan application they take into account the monthly outflow that you have, factoring in any obligations you may have, including monthly household expenses etc.

Existing debt repayment: When you have an existing loan the lender will take those into account as well, to determine whether it is possible for you to take on a further debt burden.

Monthly income: Not only is your cash outflow taken into account, but also what it is you earn each month, be it by way of a salary or a business income. This amount can also include any interest income (from investments such as fixed deposits) or rental income (from a property you are renting out), as it is an amount that occurs with regular frequency and can be relied upon when calculating the amount of debt you can undertake.

Debt to income ratio: What an underwriter does when assessing your loan application also includes determining just how much your current debt (or outstanding) is in comparison to your income. When your income holds its own against the outflow, the outcome is considered to be favourable and increases your chances of getting a loan. This is because you come across as someone who can handle debt well.

Review of credit profile: An important part of the process is scrutinising the applicant’s credit profile, i.e. pulling a copy of the credit report from a credit bureau to estimate the individual’s creditworthiness. This report is carefully scanned to check for loan defaults, skipped payments, account write-offs etc.

Keeping all the above factors in mind, the underwriter will review the applicant’s profile in entirety before making a decision either way. This in-depth analysis helps them to understand the risk involved in lending to a particular customer.

Loan underwriting and CIBIL scores

If your CIBIL score is good, the options available to you are a lot more, and most banks and financial institutions will be willing to lend you the loan amount you are looking for, whether to purchase a house or a car.

But do keep in mind that a credit score is one of the parameters that a lender uses while evaluating a loan application and is not the sole factor taken into account by any means. It is primarily a guideline and not used in isolation to other factors. If your credit score is low, it is not a given that a lender will reject your loan application outright; they are likely to weigh the other parameters as well, before taking a decision either way. Of course, the terms at which you may be offered the loan could likely be less competitive especially with regards to the interest rate than they would be otherwise, but a low score definitely is not the end of the road.

In conclusion

The loan underwriting process is a judgement call and underwriters are also human beings, willing to take a risk on those they believe will turn out to be ‘good’ borrowers! It is advised to check your CIBIL report before applying for the loan.

CIBIL score repair made easy!

Karan was looking to upgrade from his existing two-wheeler to a car and approached his bank for an auto loan. He was shocked to learn that his loan application was rejected on the grounds that his CIBIL score was low. Neither did Karan know much about his score, and nor was he aware as to why it was so low. Taking this as an opportunity, Karan analysed his spending behaviour pattern and religiously monitored his CIBIL score.

Does Karan’s situation sound unfortunately too close to home? Are you also looking at ways and means to better your own credit score? If yes, you’re in the right place – read on to know more!

In today’s financial environment, your credit score is akin to your passport to good credit when you require it. As in Karan’s case above, he was unable to obtain credit when he most required it, and hence when he eventually did get the loan it was at a higher cost and seeing that the price on the car also went up in the same period, he wound up spending more money than he would have otherwise.

What is a credit score?

A credit score is a three-digit representation of your creditworthiness, i.e. the likelihood of a borrower going to default on a loan. It is derived from your credit report which is a detailed analysis of your credit behaviour, both past and present.

When you approach a bank or other financial institution for a loan, the first check thye conduct prior to taking a decision as to whether to lend is to call for a copy of your credit report and go through your credit score. Typically ranging between 300 and 900 a higher score equals better chances of loan approval at the most competitive interest rates and other terms.

What then is the CIBIL score?

There are four credit information companies or credit bureaus licensed to operate in the country by India’s apex bank, the Reserve Bank of India (RBI), namely CIBIL, Equifax, Experian and CRIF High Mark. Of these CIBIL is the oldest bureau and hence very often, the term ‘CIBIL score’ is used interchangeably with ‘credit score’.

However, bureau reports and scores are both available across all four bureaus and if you wish, you can obtain a copy of your report from any or all of these bureaus. While the score itself may differ from one bureau to another, the analytics on which it is based is similar as all bureaus take into consideration the same factors when calculating the credit score.

What are the factors that impact the credit score?

A credit score is determined on the below mentioned parameters which are determined from your credit history:

  • Repayment track record or payment history
  • The amount you owe lender(s), or the outstanding due on your loans/ credit cards
  • Credit history
  • Credit mix, i.e. type of loans including secured loans (such as housing or auto loans) and unsecured loans (for example, personal loans or credit cards)
  • New credit, i.e. the number of times you apply for fresh loans or credit cards, which indicates your financial solvency and dependency on debt

What causes damage to the credit score?

Below are some of the factors that impact your credit score:

  • High credit utilisation ratio
  • Delay in bill or EMI payment, or skipping a payment altogether
  • Applying for multiple lines of credit, for example: several credit cards to enjoy the initial benefits on joining
  • Having no line of credit can also go against you, hence for instance, getting a credit card to establish good credit history is a prudent alternative

How does one repair the credit score?

The first thing to do would be to call for a copy of your credit report from any of the credit bureaus. With the process being online, it is simple and hassle free and your report (together with the score) will be made available you upon payment of a nominal fee. Once you have received the report, do go through it at length and check for any incorrect or inaccurate information therein. Every error in the report can cost you – you score can take an instant nosedive – and hence it is of utmost importance to ensure accuracy of information.

If you do have information that requires modification/ updating, do contact the concerned bureau at the earliest and request for it to be rectified. This will ensure that your score goes up, as your data is now maintained correctly.

Of course, the above does not apply in case you have unpaid loan EMIs or credit card payments against your credit report. In such instances, the only thing to do would be to make payments towards any outstanding debt and once cleared, request for the data to be updated with the newest information.

In addition to this, plan and budget your spends, and do not tack everything on to your credit card when out shopping. Further, do not utilise your credit card limit to the max, an ideal credit utilisation ratio across all your cards does not exceed 30 percent of the total card limit.

This will help you going forward as well, in making sure your card complements your lifestyle and does not entirely sustain it.

A credit health management company can also help, by assigning you a trained credit counsellor who will work with you to improve credit score over a period of time. While the task may seem challenging and uphill, it is not entirely impossible and with time, patience and financial discipline it is indeed something that is achievable. Credit Sudhaar, India’s premier credit health management company is one such organisation that you could approach.

The bottom line

A large part of your financial future depends upon your credit health so it is never too late to know more about your credit score and if it warrants attention, to do so before it is too late.

CIBIL is keeping an eye right from your first credit card

Have you ever wondered as to who keeps a watch on your financial dealings when it comes to having availed of credit, be it a loan or a credit card?  Do you have a credit bureau watching you, or is it the lender or both? Here is a brief insight into the world of credit health.

Tell me more about CIBIL and credit bureaus

CIBIL is India’s oldest credit information company, or credit bureau, that has been licensed to operate by the Reserve Bank of India (RBI). CIBIL was incorporated in 2001 and has been providing credit bureau services since 2003 for banks in India. A credit bureau generates credit information reports that provide a wealth of information regarding an individual’s credit history, both past as well as ongoing. These credit reports are summarised by credit scores, which typically range between 300 and 900. A high credit score indicates better repayment behaviour and satisfactory credit hunger of the consumer.

In addition to CIBIL, there are three more credit bureaus, namely Equifax Credit Information Services, Experian Credit Information Company of India and CRIF High Mark Credit Information Services. These bureaus were granted licenses in 2010 and since then have been working closely with banks and financial institutions to fill in gaps that were present in the market at the time when there was only one credit bureau.

These bureaus also have expanded the data coverage and introduced specialised segments such as microfinance (MFI) loans. This data is also now available with the credit bureaus in addition to the commercial loans and consumer loans data traditionally available with the bureaus. There is a mortgage check repository also and a separate database for fraud checks; bureaus have also been working to get more and more data into their databases and like in some other countries with time telecom and insurance data may also come to credit bureaus in India. This will greatly help a lender establish whether they want to extend a fresh line of credit or not. For example, if a borrower features in a fraud report, the next lender they approach for credit of any kind is likely to decline the application.

Credit bureaus and the RBI

As per the Credit Information Companies Regulation Act, 2005 (CICRA) the RBI is the regulator for credit bureaus and over the years has brought in several robust guidelines and policies to monitor bureaus. As per the latest guidelines, lenders are required to submit data to all bureaus. This means that every bank or financial institution is required to become a member with each of the bureaus present today. This is a significant move to ensure that credit history and repayment behaviour of all types of borrowing is available with all the bureaus.

Apart from bureau data, the RBI also requires credit bureaus to share a list of wilful defaulters, and this data is published on the RBI website.

What does a credit bureau check?

A credit bureau maintains the credit history of a borrower, detailing in its reports the repayment track record of a borrower. When you approach a lender for a loan or apply for a credit card, the first thing the lender does it to pull a copy of your credit report, which helps them gauge both the willingness and ability of a borrower to repay any outstanding debt.

Bureaus however do not make any changes or modify this data either in entirety or in part. They merely put together the data received from their member institutions, i.e. banks and other financial institutions. Essentially, bureaus don’t track individuals they only maintain and organise the data submitted by lending institutions.

Hence, from the time that you obtain your first credit card and right up to your existing home loan, for example, the lender(s) you have borrowed from will be the entities that monitor you closely, and not CIBIL or any other credit bureau. This monitoring is translated into your credit health, which needs to be maintained as you would your physical well being.

How does one track the credit score?

The first thing to do is to call for a copy of your credit report from either one or all bureaus. Once you receive the same do go through it at length and also check the score. If you think the score is not on par or you need help to improve credit score, consider availing of the services of a credit health management company. In tandem with trained credit counsellors you will be able to restore your credit score and even enhance it over time.

Therefore be it your first credit card or current home loan, make sure you maintain credit health.