How to enhance your loan eligibility

Every bank follows a credit appraisal process in order to determine a borrower’s loan eligibility. It checks the CIBIL score of an individual, and assesses the CIBIL report, income and other documents to determine whether the borrower is capable of repaying the loan on time or not. By working on the credit profile and improving credit score one can increase the chances of approval.

Here are some ways that can help you increase your loan eligibility.

Longer tenure of loan– Repayment capacity of the borrower is a major factor that banks consider before sanctioning a loan. If the monthly instalment is higher than what the bank thinks you can afford to pay, then your eligibility will be affected. Opting for a longer tenure will reduce your EMI liability and enhance your eligibility. Though a longer tenure will increase your net interest outgo it will at least make you eligible for the loan. 

Additional income-Showcasing that you have a high steady income helps to increase your loan eligibility. Keep a record of the variable perks or performance linked pay that you earn from your job and add them to your income. Mention the other sources of income such as high interest fixed deposits or rental income on the property that you own. Such additional sources of income will enhance your repayment capacity and increase the amount that you are eligible for. You may need to furnish supporting documents as proof of the additional income. So keep them handy.

Step-Up Loans- Step-Up loans are a great way to increase the loan eligibility. For people who are in a profession where there is struggle in the initial years, but surety of a good financial status going forward, this is an easy way to borrow funds. Here an individual pays a lower EMI in the initial years. The EMI progressively increases with the tenure of the loan. Here the eligibility increases as the future income is expected to increase as the borrower establishes himself in his profession.

Prepay-existing loans- If you are considering taking a home loan, then prepaying your outstanding loans like a car loan or a personal loan, is a good way to enhance your eligibility. The EMI that you are already paying on the existing loans reduces your monthly repayment capacity and impacts the home loan amount that you may be eligible for. For example if your monthly income is Rs 1 lakh, the bank may consider your repayment capability as Rs 50,000 as EMI. But if you already have a personal loan where the EMI is Rs 20,000 this will be deducted from the amount that you can afford. So to arrive at the eligible amount, the bank will consider your affordability as Rs 30,000. Hence it is advisable to prepay these loans before making a home loan commitment.

Co-borrower-The assessment of the repayment capacity of the borrower largely depends on his income.  The EMI is generally half the take home salary. But if it falls short of the required limit you can bring in a co-applicant. If your spouse is earning, then it is a good idea to make a joint application. Pooling two incomes together enhances the loan eligibility amount to a great extent. This also means that the liability of repaying rests on both the applicants.

 Work on your CIBIL score- CIBIL score is an important factor that determines loan eligibility. Hence you should make all efforts to improve credit score. Check your CIBIL report and score regularly. If you notice an errors then dispute them immediately. Pay your monthly instalments and credit card bills on time. Use your credit card wisely. By keeping the utilization levels below 30% of available credit limit you will ensure that you improve credit score.

When you work on the important aspects (like income and credit score) that the bank evaluates in order to make an assessment, you can surely enhance your loan eligibility.

 

Does a change in the spelling of your name or surname impact CIBIL Score

Consider the following three situations:

  • Vikas has a three credit cards and he is late in paying the bill by a few days on almost all three of them since the last few months.
  • Priya is getting married next month and is planning to change her name and adopt her husband’s surname post marriage.
  • Ayesha has a home loan which she plans to prepay in the coming few months using the performance bonus she is expecting.

Which of the above three situations is likely to impact your credit score and in what way?

  • Delayed payments by Vikas are harmful for his credit score, the more frequently he does it the worse it is. He will have to remedy his ways and will have to figure out bad credit fix soon to rectify this situation.
  • Priya changing her name or surname or both post marriage or otherwise will have no impact on her credit score whatsoever.
  • Ayesha pre-paying her loan will give a temporary jolt to her credit score but it not something that will have a lasting negative impact on the credit rating.

Name Change and Its Impact on the Credit Score:

As we said above changing the name or the spelling, adopting a new name, adding a surname etc have no impact whatsoever on the CIBIL score. The credit rating calculation is based on five parameters which are as follow: repayment history, credit mix, utilization ratio, credit inquiries and age of credit. Personal details like name, age, sex or contact details etc are not taken into account when calculating this score. Another aspect that needs to be kept in mind is that the income levels of an individual also have no impact on the calculation of the score; however lenders may want to have a look at the debt to income ratio or length of service etc before deciding whether they will lend to an individual or not.

When one changes their name all the details about various loans, credit cards and their repayment etc are carried forward in the new name. Past history whether good or bad is not erased so the score remains whatever it is without any impact on it due to name change.

Since CIBIL gets all data from lenders you need to inform the lenders as well as the rating agency about the name change so that the necessary changes can be made in the records. You will have to update the records with all the lenders from where you have running loans and also with credit card companies. They will make the necessary changes and the records are carried forward in the changed name.

You need not close or surrender your cards due to a name change; you can just inform the credit card company and get a new card issued with the changed name spelling without the need to close or surrender a card. This will ensure that older accounts remain in your credit trail which is good for the overall credit rating.  Women when getting married and changing their name/surname or adding their spouses name need to be especially careful. They should make sure that they get the necessary changes made so that their credit history is carried forward. Failing to do so, they may find it difficult to get a loan or credit card sanctioned in future in absence of any credit trail. It is also important to keep old accounts active and running to have a deep credit trail which gives a better picture of one’s credit behavior.

Though change in name does not directly impact the credit score it may cause delay or hassles if one is looking at applying for a card or a loan in the ensuing period. Change in the records of CIBIL does not happen immediately so they find themselves in a tricky situation when applying for new credit. This can be avoided to an extent by writing to CIBIL directly rather than waiting for the lenders to do so. Also ensure that you have sufficient time lag between the name change process and apllying for any fresh credit.

 

What goes into calculation of CIBIL score?

The most valuable asset that keeps your financial life sorted is your CIBIL score. This tool predicts your future financial behaviour. Whenever you apply for any loan, say a personal loan, the lenders check your score to determine the level of risk they are exposing themselves to by granting you loan. While a high score is a sign of good credit management a low score indicates that you are a risky borrower. Hence a low score may lock you out from the ability to borrow funds.

The credit bureaus use a mathematical algorithm to churn the information in your credit report and arrive at a three digit credit score. Let us solve the mystery of how this magical number is calculated. Only when you know the factors that go into the credit score calculation, will you be able to work on them so as to achieve and maintain a high credit score.

Here is a breakdown of five factors that constitute your credit score.

Payment history- This factor has the largest influence on the credit score (35%) as it portrays your future behaviour in terms of loan repayment. It reviews how well you have met your past obligations of credit cards and other loan accounts. It analyses whether you made your payments on time, how often you missed the payments, whether your recent bills are past the due date etc. It also looks at the public record items like delinquency, collections, liens, judgements or bankruptcy. If you have a clean track record of regular on time payments then you will score high on this factor. However if you have had problems in repayments, your score will be weak. The best way to gain credibility in the eyes of the lenders is to always pay back the bills and installments on time.

Amount owed- The credit scoring models give 30% weightage to the amount of available credit that you are using on the revolving accounts. The ratio of the amount that you owe to the total credit limit that is extended to you on all cards determines your credit utilization rate. This rate shows your overall dependence on credit. If you do not carry your balances to the next month you will have a high score. On the other hand high balances and maxed out credit cards will lower the credit score. As a general rule it is best to keep the utilization rate below 30% if you are trying to improve your score.

Length of the credit history – This factor accounts for 15% of the credit score and considers the age of your credit accounts. Creditors like to see whether you are able to successfully manage credit over a period of time. If you have open accounts since a long time and manage them responsibly, it gives the creditors sufficient proof of your dependable behaviour and therefore increases your credit score. If you have just recently opened an account and do not have sufficient credit history to show your track record then you may have a lower score. Because the length of the credit history affects your score, it is advised that you should not close your old credit cards as it shortens the average age of your accounts and hurts your score.

Credit mix-The type of accounts that show up on the CIBIL report, make up 10% of your credit score. If you have both revolving credit as well as instalment loans on your credit profile, you have a variety to show that you can manage different types of debt. Hence a good credit mix contributes to your creditworthiness and raises your credit score. On the contrary, having only one type of account like a credit card, can lower your score.

Recent credit activity- This factor considers your pursuit of new credit, including recently opened accounts and hard enquiries. It makes up 10% of your score. A number of newly opened trade lines or hard pulls on the credit report communicates to the lender that you are either desperate for credit or unable to qualify for credit. It signals financial trouble and lowers your score.

Knowing about the factors that constitute your score is the first step in your journey towards building your credit score. It will now become much easier to work upon your credit related actions to improve your score.

5 Ways to Build Your Credit Score from Scratch

It can be a terrifying experience to find out that your loan application was rejected due to the absence of a credit score. However, there is no reason to be alarmed as there are many people who don’t have a credit score for many reasons. If your credit history is blank, then you can build a good one in many simple ways.

The following are 5 good ways to build your credit score from scratch:

  1. Joint Account Holder

The easiest way to build a credit score to become a joint account holder with a person who already has a credit history. However, you must choose your partner carefully.

You would want someone who you trust, and who trusts you too.  This is because your credit history will be based on the kind of credit history they have as well. So, if they have a good CIBIL rating and a good history of timely payments, then your credit score will also increase. Similarly, if they tend to delay EMI payments, etc. then your will have low CIBIL score.

If you want a home loan on an urgent basis but don’t have a good credit score, or have no score at all, then becoming a joint holder is one of the best options for you. This is because the lenders generally don’t consider passing a loan “risky” then there is a joint account holder involved who has a promising credit history.

  1. Becoming Authorized User

It is not always possible to convince someone to become a joint-account holder with you. In that case, they might at least make you an authorized user.

While being an authorized user you don’t share any financial responsibility with the account holder and server only as a signer you can still get credit building advantages. The only problem with this method, however, that you may not see the results, at least for a long time. So, if you want to build credit score fast then becoming a joint account holder is a better option.

  1. Getting a Credit Card

Getting a credit card and using it wisely is another excellent and simple way to build your credit score. Since most banks love to push credit card usage anyway, it won’t be hard for you to get one for yourself. However, the real work begins when you get to spending. Here are a few things to keep in mind when you use your credit card:

  • Credit Utilization: No matter what the limit on your credit card is you must spend it wisely. Ideally, you shouldn’t spend more than 30% of the credit limit. Thus, if the credit limit is Rs. 1 lakh then you should cap your monthly expenses with the credit card to a maximum of Rs. 30,000.
  • Timely Payments: Believe it or not, timely payments are extremely important to build a healthy credit score. If a potential lender performs a credit check and finds a history of delayed payments, then it is easily possible that they will reject your loan application. Similarly, if they see a history of payments done on time then they will feel confidence in your creditworthiness and it will be easier for them to sanction a loan.
  1. Personal Loans

Personal loans are tricky to get especially when you don’t have a credit score. However, you still have a good chance to get a small personal loan. In fact, if you could manage a personal loan along with a credit card then you can get the desired results faster as a mix of different credit forms (loans and credit cards) can give an impetus to the credit score.

  1. Monitoring Your Credit Report

You can easily find your CIBIL rating online. Most of the credit bureaus of India allow the users to download their credit report for a nominal fee. If checking your credit report you find that there are some errors or discrepancies, then you can have them corrected and see an improvement in your score.

Credit building is a long-term process. Unless you already have a credit score it can be difficult to build one, and not to mention the time and effort it demands. That being said, if you can find someone who has some experience in this area then you can succeed in the endeavor easily and faster.

Should you take a personal loan when facing cash crunch?

The popularity of personal loans has soared high in recent times. In the age of instant approvals and quick disbursements personal loans have become a fast track solution for financial problems. Medical emergency in the family, child’s higher education, paying off high interest debts, funding a vacation, home improvements—these are just a few situations where small personal loans come in handy and provide quick and easy access to funds.

However, you need to be cautious while taking this loan. The temptation of quick and easy availability is so high that people often get caught in debt traps and face a crisis situation later. In order to stay financially safe be doubly sure whether you really need the loan and handle it properly once you take it.

Lenders who give unsecured personal loans offset their risk by pricing them much higher than the loans that are backed by collaterals. An extremely high rate of interest makes this form of credit quite expensive. Keep in mind the following rules before going for an easy personal loan.

 Consider your finances and borrow only the amount that you can repay

Small personal loans have short repayment tenure so large monthly EMIs can strain your budget. Your monthly outgo towards all your loans should not exceed 50% of your monthly income.  If a large part of your income goes into EMIs then your other critical financial goals like child’s education or saving for retirement will get affected. Banks always want you to borrow large amounts, but you should borrow only the amount that you can easily repay.

Do not borrow to splurge

You may have all the reasons to take a break and go on a long holiday, your wife may ask for a diamond ring on the silver jubilee anniversary , your teenage daughter may want a designer wardrobe, luxury watches and high end bags; but remember you should wait till you save enough for these expenses. If you borrow to pay for these expenses you will keep paying the EMIs long after the thrill and excitement to splurge has faded away. Remember to live within your means and borrow only if you really need the funds. After all, unsecured  personal loan only provides instant access to funds. It is not free money. It has to be repaid along with interest.

Do not borrow to invest

The golden rule for investing is to never borrow money to invest. The interest that you get on safe investments like fixed deposits will not match with the interest you pay on loan. Equity investments that do offer high returns are risky and volatile. If stock market declines you will not only suffer losses but will be tied up with an EMI obligation as well.

Consider other cheaper alternatives

Since unsecured personal loans are expensive it is always better to explore other cheaper alternatives first in case of cash crunch. Taking loan against assets like gold or fixed deposit may turn out to be a much cheaper option.

 

There are some situations where taking a personal loan is a wise decision

 

Repay a high interest loan

 

If you have a high outstanding credit card balance with an exorbitant interest rate of 28% it is prudent to take a small personal loan at 18% to repay it and reduce your interest outgo substantially.

 

Consolidating debts

 

In case handling several loans and credit card repayments is becoming unmanageable, small personal loan can be used to consolidate all your payments. Though it is only a transfer of debt pile and does not reduce your overall debt, still concentrating on a single loan payment is much easier.

 

Medical emergency

 

If you need money instantly in case of an emergency hospitalization you can rely on personal loans. Fast approvals and quick disbursement of the loan amount will help in arranging for funds in a much shorter time. An online comparison of personal loan interest rates can help in identifying the cheapest option available.

 

Defaulting on the loan can have serious consequences. Late payments or missed EMIs impact your credit report and mess up your CIBIL score. It may also hinder your chances of getting loans in future. So be a disciplined borrower and make sure you make your repayments on time.

 

Personal loans are easily available today. It is a good option if you are looking at consolidating your debt or paying off a high interest loan. But for spending on luxury items it is always better to save first, than pay a high interest on it. Being thoughtful about your own decisions and actions will save you from entering a debt trap.

What is P2P Lending? Why is it Trending?

For many decades banks were the only financial institutions that offered home loans, student loans, etc.  on a commercial basis. Then gradually NBFSs (Non Banking Finance Companies) such as Fullerton Credit, Muthoot Finance, Bajaj Finserv. etc emerged. However, as cases of loan defaulting started to become more and more frequent, and the interest rates went high, people began to look for alternative solutions that could be easy on the pocket, and also easily accessible. This was accomplished by P2P lending, which is catching up quickly in India.

What is P2P lending?

P2P lending stands for Peer 2 (to) Peer lending. It is the ultimate urbanisation of loaning and financing, as it offers an easily accessible, fast, and simple solutions for all your loaning needs.

To get a P2P loan you can choose any P2P marketplace that is available on the Internet, check if you meet the eligibility criteria, upload a few necessary documents, and if your application goes through you can get the money within 24-48 hours, typically.

What are the Advantages of P2P Lending?

P2P has numerous advantages over traditional loaning options, which is the reason why it is quickly becoming the most preferred choice for loan seekers.

Here are some of the best advantages of P2P lending:

Accessibility: One of the biggest problems we had with traditional loans was accessibility. To get a loan a person had to go to a bank in person, and submit an application for the same. If there was a holiday then the person would even need to wait till the banks opened. P2P lending has solved the problem successfully by allowing users to apply for loans on the Internet. No matter where you are, and what time is it, you can easily apply for a loan from your laptop or a smart phone.

Faster Release of Funds: With a P2P loan you can get your loan amount within a day or two after verification of your documents. This was much needed, as banks, and even NBFCs, take a much longer time for funds disbursal, that too if your loan gets approved.

Easier Obtainment- To get a loan from a bank or NBFC you have to have a good CIBIL score, and a decent, if not impressive, credit history. This is why a number of people who didn’t meet these requirements have to struggle and spend a long time applying for a loan in multiple banks. But this was a thing of yesterday. Today, you can get a P2P loan even if your credit score is below average. P2P lenders are more forgiving than banks, and you have a far greater chances of securing a loan from them than any traditional lender.

Flexibility- P2P lending also offers you a lot of flexibility in terms of loan repayment. You are free to shape the payment structure for your loan, and choose the duration, and the number of instalments. Usually you also get attractive interest rates, which are way lower than standard rates offered by banks.

How is P2P Lending Changing the Banking Industry in India?

Even though P2P has been existing, and rather popular, in first world countries such as UK and USA, it is still quite new to India. However, it is trending fast, and it is estimated that by the year 2020 the entire P2P lending industry would be at Rs. 30,000 crores.

Considering the significance and value of P2P lending RBI has already extended its support towards it by releasing draft regulation guidelines that will ensure that both the borrowers and the lenders can be benefitted as much as possible.

What Does it Mean For You?

Not only P2P lending is here to stay, it is quite possible that it will dwarf the traditional loaning options banks have been offering so far. As more and more lenders are emerging you can expect competitive interest rates, and attractive schemes.

If you want to enjoy flexibility in loan repayment, best interest rates, quick access to funds, and faster loan approval then P2P lending is a really good option. You can easily compare various lenders online and settle for one that is most suitable for your requirements.

Why You Must Collect NOC (no objection certificate) After Paying a Loan

Getting a loan has become a lot easier today. People have become more careful towards their CIBL score, and credit report, which is why they are able to get their loan applications approved without any problems. So, whether you want to buy your dream car or dream house, now is as good a time as any. However, you may know a lot about how to get a personal loan or a home loan, but are you aware of the correct loan closure formalities? When you have paid back a loan in full, it is important to carry out the proper closing procedure, of which collecting an NOC is an integral part.

What is NOC for Loan Closure?

An NOC or No Objection Certificate is a legal document that can be used by you as a legal proof that you have paid all your outstanding dues to the lender successfully. An NOC carries your name, address, account number, and other relevant details. It also certifies that the lending institution (whether it is the bank of NBFC) no longer has any legal rights or claims over your collateral.

Why You Must Collect NOC Once You Have Paid a Loan

There are many reasons to collect your NOC from your lending institution, as it can have a huge impact on your financial health. Here are some pointers on the same that you need to consider:

  • An NOC is essential for CIBIL to verify that you have successful repaid a loan. Failing to provide the certificate can lead to CIBIL score damage, as your credit report will continue to mark the loan as unpaid. This loss of credit score can limit your creditworthiness, and make getting a loan in the future difficult.
  • If you decide to not collect the NOC from your lending institute then they may not record the closing of the loan in their files. Thus, after several years you may suddenly receive a letter from the institution asking you to pay the loan, which you have actually paid. This misunderstanding can lead to an unwanted headache, and wastage of time.
  • Some banks are quite stringent with their procedures, and simply handling the misunderstanding may not be enough with them. They can take a legal action against you, and if you don’t have an NOC then there can be grim consequences.

Thus, there is no denying that collection of NOC is really important once you have repaid a loan. But how do you go about it? Here are some tips that can help you:

  • When you have made the final payment for your loan, you can write a formal letter to your lender asking them to return all your documents that they have kept with them, necessary bank statements, etc. along with a NOC.
  • Some banks and other financial institutions allow their customers to download their NOC document online. All you have to do is login to your account, select the document, and download it on your system.
  • If you have taken a car loan then you will need an NOC as well as an RTO form (aka Form 35). You will need to submit them to your Regional Transport Office, as well to your insurance provider.
  • If you have taken a home loan on a registered real estate property then you will need to go to your local Registrar of Properties office along with a representative from your lending institute to get the lien removed. Only then you can get the NOC.

No matter what kind of loan you have got, once you have repaid it you must get an NOC for the same. This is an important step of the loan procedure, and serves as a formal closure. Ignoring the same can lead to a lot of troubles, one of which is CIBIL score damage. Once this has happened it can take a lot of time and energy to improve credit score. It can also cause the financial institution to put your name on the loan defaulters list. Thus, make sure you ask your lender to provide an NOC as soon as you have made the last loan payment.

 

 

 

Are you really credit aware

In this day and age most people have become dependent on credit. Owning a home, car, funding a wedding etc. have become much easier thanks to the various credit facilities extended by financial institutions. However, despite the rising popularity of credit, many still do not know about the function of the credit bureau and have limited understanding about their credit reports. Being credit aware is important as it can help you with bad credit fix, enhance credit score etc. that in turn eases your financial journey. In this article, we will look at what one means by CIBIL report and credit score as well their importance.

 

To borrow money from financial institutions, your credit report and score plays a big role. The credit rating is assigned to you by the credit bureau. TransUnion CIBIL Limited is the country’s first Credit Information Company. Popularly known as CIBIL, the institution holds the records one’s payments in relation to loans and credit cards. Credit Information Report and the CIBIL TransUnion Score, the two CIBIL products, have brought drastic changes in the way credit is handled by financial institutions and customers.

 

A credit score, generally referred to as CIBIL score, is a three-digit number that reflects your creditworthiness. The number is determined based on the elements found in the credit report. Financial institutions look at your CIBIL score to estimate whether you will be able to repay back the loan amount on time. The credit bureau uses advanced analytics for calculating the score and then assigns the individual a number between 300 and 900. The closer the score is to 900 the better. It is important to enhance credit score, if your digits are below 750. The first and the foremost way to enhance credit score is by ensuring all payments are made on time. Multiple payment defaults can bring down your score. Lowering your credit utilization rate is another means to enhance credit score. Also, it helps to maintain a healthy credit mix; do not hold too many unsecured loans. Putting into practice different measures to enhance credit score is mandatory for all as it will help you avail credit easily and at low rates of interest.

 

If want to check your score, you would need to visit the official website of CIBIL and fill in the online score request form. You would then have to fill in the kind of subscription you require and your personal details such as email address, date of birth, gender and PAN number. After entering the required details, the site will direct you to the payment page. When the payment is done, you would have to submit authentication details, and once this step is successful, you will receive your score in a matter of some hours via email.

 

A credit report contains details about your credit history. Financial institution run a credit inquiry i.e. make a request to check your credit report before extending credit. The report is useful in identifying your true financial standing. Some of the information that can be found in your credit report include – defaults on loans (if any), number of inquiries made by banks and other financial institutions, types of credit used, payment history etc. Checking your CIBIL report at least two or three times is required as it helps you stay aware of your financial position. In case you spot any errors, you can raise a CIBIL dispute which in turn will ensure bad credit fix. Undertaking bad credit fix by getting errors in the report rectified is also a means to enhance credit score. Hence to make sure that no errors have crept in or your accounts are being misused, it is important to check your credit report at regular intervals. In case it occurs, raise a dispute with the bureau who then will undertake bad credit fix.

 

It is not just the banks that have an interest in your credit score and report. The other parties that can show interest in your credit history include employers (to making hiring decisions), landlords (to determine your ability to pay rent) and sometimes even by insurance companies (to decide on the premium). Now since multiple parties can look at your score, it becomes essential to undertake bad credit fix in case you have a weak score. If your credit utilization rate is high then one way to conduct bad credit fix is by getting a higher credit limit and spending less. If a particular line of credit is hurting your score then focus on getting rid of it by paying it off sooner. Striving to enhance credit score is necessary as it creates a positive image in the minds of the financial institutions. Remember, the closer the three-digit figure is to 900 the easier your financial journey will be.

 

 

 

The value attached to a good CIBIL score

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

bad credit scoreWhat is a CIBIL score?

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

How does the credit score matter?

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

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

How can you better your credit score?

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

In conclusion

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

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

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

5 Things you Should Understand About Credit Scores

Knowledge is power, and power is everything. Did you know that just the three digits that represent your credit score can have a huge impact on the financial well-being? If you have been overlooking news and articles related to CIBIL score and creditworthiness so far, then it is time to finally learn about it. The more you will avoid learning about CIBIL, the more difficult it will become for you to get loans and credit cards in the future.

So, here are top five things that you absolutely must understand about credit score:

free credit report1) CIBIL Score and its Importance

Your CIBIL score is a three digit score that is provided by Credit Information Bureau (India) Limited, the institution that collects and maintains records of every individual’s payments related to loans and credit cards. The score ranges from a  minimum of 300 to a maximum of 900.

2) Things That Impact Credit Score

There are a number of things that can affect your credit score, and thus should be given due attention to. These are:

  • Late Payments- Late loan payments, and credit card bills payments, are the most common reason behind low credit score. A lot of people don’t take payment deadlines seriously, believing that it won’t make a big difference. However, the reality is that every single payment is of significance when it comes to your credit score, and thus should be always taken seriously.
  • Mistakes in Credit Report- Your credit score is mentioned in your credit report(provided by CIBIL), which is also important. If there are any mistakes or errors either in your personal details or the payment history itself, that are mentioned in the report, then it could lower your score.
  • Remarks and Comments: The lenders from which you take loans can leave remarks in your credit report, which can be detrimental to your score if they show you in bad light. If this is the case then to improve credit score you have to request them to get them removed from your report.

3) You Can Get a Copy

The access to your CIBIL report is not restricted to financial institutions alone. You can get a copy of your report as well. All you have to do is create an account on CIBIL’s official website and submit a few documents for verification purposes. If all goes well then they will either send a report to your email address, or to your residence itself. You just have to pay a small fee for the service.

While getting a copy of your CIBIL report is an optional service, it is highly recommended so that you can keep an eye on the progress of your score.

4) Other Credit Information Companies

Although CIBIL is the authority bureau on credit management and regulation in India, there are  3 other bureaus as well that work on the same principles. In some cases your financial intuition could choose to consider turning to these bureaus as well apart from CIBIL, when considering your loan or credit card application.

Here are the 3 companies other than CIBIL:

  • Equifax: Established in 2010, the company scores individuals on a scale of 1 to 999, and is known for its new technologies and services.
  • Experian: It also scores on the scale of 1 to 999, but takes longer to provide credit report. It also offers the most cost effective means, by offering credit report for just Rs. 138.
  • Highmark: Highmark scores range from 300 to 850, and offers unique solutions such as data quality management, and credit assistance, etc. Since the company is relatively new it has some really innovative products for modern banks and other financial institutions.

5) Difference Between Free and Actual CIBIL Report

A lot of websites these days are claiming to offer free CIBIL report, when in reality they are just misleading the people. What most of these websites are offering is an estimate of your Credit Score, and not the actual credit score. If you want to improve CIBIL score then you must always refer to the actual CIBIL report, and not the rough estimates.

By being informed on your credit score and credit report, you can make sound financial decisions easily. The points explained above can be of great help in that enterprise.