Is a Higher Credit limit good for your CIBIL score?

Thinking about increasing your credit limit? Worried about how it will impact your CIBIL score? In this article we will cover just that! A credit limit is the maximum amount that a lender permits you to borrow on a credit card. Financial institutions take a number of factors into consideration when they set your limit. They will first look at your credit score, which is a numeric summary of your entire credit history. Looking at your CIBIL rating gives them a better idea of your repayment pattern and your ability to repay future credit. Credit card companies will also look at the outstanding credit made available to you through other credit cards. Getting a higher limit on your card does not automatically mean that you should be splurging beyond your means. Rather, you should be wise in handling credit which in turn will benefit you in a number of ways.

A credit score can be positively impacted when more credit is made available. One of the factors that contribute to your CIBIL rating is the credit utilization rate. The ratio of one’s credit card balance to the credit limit is termed as credit utilization. It shows how much credit a person is using. The lower the credit utilization ratio, the better will be your credit score. Likewise your CIBIL rating will be negatively affected when your credit utilization is high. If you decide to avail a higher credit limit and use all of it then your credit utilization will shoot up and tarnish your credit score. However, if you do not touch the newly availed credit then chances are that your CIBIL rating may improve. You could consider asking for a credit limit increase when your income has increased, when you hold a good credit score and when you do not have much debt. It is important to note that financial institutions can revise your limit from time to time according to your CIBIL rating, transactions etc.

One of the other benefits of having an increased credit limit is that you wouldn’t need to hold multiple cards from different credit card companies with lower limits. You would just need to keep track of a single card and use it as per your requirements. Another advantage of having a higher limit is that it can serve as an emergency cushion, provided that you are disciplined in handling finances. You can use it to pay for necessary car repairs, booking last minute tickets etc. The higher your limit, the more you will have at your disposal in case of emergencies. Additionally, higher credit limits make you more appealing to the credit card companies. Financial institutions offer added benefits to their premium cardholders. Keep in mind that credit card companies and other financial institutions want to see you maintain a high CIBIL rating and follow through your financial obligations.

There are downsides to have an increased limit on your card. This happens when you fail to strictly monitor your spending, which then hurts credit score. Often times when availing a higher credit limit, people start to believe that their CIBIL rating has gone up more than it actually has. This increases the chance that they will apply for new credit which again means more credit inquiries will be made on their credit report. Ultimately it leads to a drop in CIBIL rating rather than an increase. You can also run into the risk of increased debt and higher interest payment. Chances are that you may not be able to pay your bill in full when you have an increased credit limit. That again means you would have to pay more in interests to the credit card companies. Another drawback is that you can end up depending too heavily on credit cards.

Yes, a higher limit means that you have more credit at your disposal. Increasing your credit limit can be a good thing if you are financially disciplined. It can serve as your asset. On the other hand, if you are reckless then you can quickly fall into a debt trap. When credit card companies are letting you avail higher limits, make sure that you get every detail from them. Know the plus and minus points of handling a card. Be responsible with the way you treat credit limit increase. It can easily tarnish your credit score which will take time to build up.

 

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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.

Can anyone check my CIBIL report without my permission?

A credit report is an all-important font of information that all banks and financial institutions rely on today. As part of the loan approval process, a lender first checks the credit report and then determines whether a loan is to be sanctioned or declined. The better your report reads, better are the chances of your loan application going through.

What is a CIBIL report?

CIBIL is India’s oldest credit bureau, of the four operating today, the others being Equifax, Experian and CRIF High Mark. Hence very often, a credit report is referred to colloquially as a CIBIL report.

However, credit reports are provided by all the above mentioned bureaus.

What kind of enquiry is made against a credit report?

There are two types of ‘hits’ or enquiries that are made against your credit report:

  • Soft enquiry, wherein a lender (or credit card company) requests for a copy of your credit report in order to offer you an enhanced credit limit. Typically, the bank or financial institution does not request for your consent when making this enquiry.
  • Hard enquiry, which is done by a lender when you apply for a loan or credit card. Again, most lenders do not require your consent to pull this report, but some may do so. In which case, it would be mentioned as part of the loan application terms and conditions.

If you realise that there are hard enquiries made against your credit report, it would be wise to bring them to the attention of the concerned credit bureau. There is a possibility that these are a result of your credit report being misused, for example in case of an identity theft wherein another person is attempting to use your personal information to get a loan or credit card. Remember, each hard hit pulls down your credit score, so this should not be taken lightly.

Where are these enquiries used?

Globally, credit reports are used in businesses other than financial services for loans and credit card, such as insurance companies and telecom operators.

In India however, the usage of credit reports is mainly restricted to the financial services sector, as an entry-level check when you apply for a fresh line of credit.

Who can access a credit report?

In the United States, for example, the Fair Credit Reporting Act (FCRA) determines who can get access to an individual’s credit report. Some of the reasons a report can be made available include:

  • A bank or financial institution, to process your loan or credit card application
  • The individual agrees (in writing) to share their credit report
  • On the behest of a court order or subpoena
  • For prospective employment, by an employer (with the candidate’s prior permission)
  • With regards to a business transaction initiated by the individual
  • When utility companies process your application to apply for services, such as telecom
  • When a landlord is appraising your request to rent their property
  • When an insurance company is underwriting your policy

If an individual reports unauthorised use of their credit report, the FCRA will take up the enquiry. For example, an insurance company can view your credit report at the time of underwriting, but not if you subsequently file a claim. It caps actual damages at US$ 1,000 if there is an error owing to oversight, but consumers can also sue for punitive damages, lawyer’s fees and associated court costs.

In India, as per the Credit Information Companies (Regulation) Act, 2005 (CIC Act), the borrower’s consent is not required to (a) collect data from lenders and (b) furnish this information to specified users of credit information by credit information companies. This ‘consent clause’ has been made redundant as per a Reserve Bank of India (RBI) notification dated July 01, 2013. Hence, it is likely that you would know when an enquiry has been made only when you request for a copy of the credit report yourself.

It is important to note that not just about ‘anyone’ can get access to your credit report without your permission. A prospective employer for instance cannot obtain a copy of your report unless you agree to share it with them. Simply put, as on date, no individual or corporate body/ organisation can check your CIBIL report without your permission, unless you have applied for a line of credit as mentioned above.

How can you safeguard yourself?

It is always prudent to keep track of your credit report at regular intervals by obtaining a copy from any or all of the credit bureaus. While the score itself may differ slightly across bureaus, you would be able to tell if any unusual activity is reported. In such an event, contact the concerned bureau(s) immediately to have the data rectified.

Your credit health is the key to your financial future, and the credit report is an extremely crucial factor in the process. Hence, it is never too late to begin monitoring your credit report and safeguarding your financial future.

How often should you check your credit score?

One may not need the credit or loans at all times, but it is prudent to keep track of your credit score regularly. If you find anything out of the ordinary, it would be wise to report it to the concerned lender immediately, and have it rectified.

As a consumer, you should be aware of your credit history, as any small error can play havoc with your score. Make sure that the information captured in your report is accurate and up-to-date, ideally checking at least once a year.

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When should you check your credit score?

There are four credit bureaus in India licensed to operate by the RBI. You can apply for a report to any (or all) of the bureaus, and check the scores across each.

A good strategy is to spread out your report requests throughout the year, instead of getting them from each bureau at the same time. That way, you would be able to keep track of your score year-round.

You may want to check your report additionally if you are planning to avail of a new line of credit – a loan or a credit card – as the score plays a critical role in the approval process. A good score can ensure you get a loan on the best possible interest rates and terms.

Alternately, it would suffice to request for a report from the bureau once a year. Checking your personal credit history as often as you like does not impact your score.

How to get a free credit score?

While the bureaus themselves do not offer a free credit report to consumers, you can log on to freescoreindia.com, for a free credit score from Equifax, one of the bureaus in the country today.

To summarise, while a free credit report is not available currently, spending a relatively modest sum to know that your financial information is correct is well worth it. Know your credit score and earn yourself some well-deserved peace of mind.

How to do a credit check

The term ‘credit’ is synonymous for ‘loans’. A loan is a borrowed sum of money from a bank or a lending institution to fulfill financial goals and meet monetary needs. A credit card is also a type of loan. Usage of loans and credit cards is recorded on a database by banks and credit bureaus, in the form of credit report. A loan applicant may seek their own credit report, or a bank may do a credit score check for a loan application received to assess loan eligibility. This process is known as credit check and involves checking one’s credit report and credit scores.

Online and offline modes for doing a credit check

A credit check can be done via online and offline modes from any one of the four bureaus operational in India, viz CIBIL, Experian, Equifax or Highmark. These bureaus charge a nominal fee to generate credit reports of a loan user. Online mode is usually preferred, because it is paperless, convenient and faster. For the online mode, one must visit the website of the bureau of one’s choice and fill up the details asked under different tabs. There will be a list of documents given, that will indicate proof of identity and proof of residence – one must collect these and upload them online. Thereafter, move along with the instructions given on the web portal, and follow them; close the application by making an online payment for the charges asked by the bureau. The charges for drawing one’s credit report can range from INR 300 to INR 500, depending on the bureau you approach.

The bureaus also list their helpline numbers and email id for assistance in processing your credit score application. Once you close your online process, the bureau will generate your credit report and send a soft copy of the same via electronic mail only to the email id registered by the applicant. For those who are not savvy on the internet and for those who do not have an email id, the bureau will send a hard copy of the credit report to the applicant’s registered residence address.

Freescoreindia.com gives free credit score. The process here is more or less the same, as for a paid report.

Why you need to know about your credit score

If you are a student, how would you feel, if you are denied your academic report? How will you evaluate your performance on various subjects that you are studying? If you are an employee, can you be oblivious to your professional performance?

It is equally important to know your credit performance, the way it is to know your academic and professional performances. A person’s credit performance – means, how they handle loans and credit – is indicated by a three digit number called the ‘credit score’. Credit score appears on the individual’s credit information report and is a reflection of the person’s financial and credit worthiness. Knowing your credit score will tell you whether or not you can seek a new loan or a credit card; allow you to take important decisions regarding your finances; and seek financial help when you really need it. Loans and credit have become an important, indispensable part of common man’s life since they allow people to meet their financial goals and fulfill their dreams. In that case, knowing whether you are loan-worthy or not, means, knowing about your credit score becomes inevitable.

What exactly is this credit score and why is it so important?

Credit score is a three digit number, that shows the financial worth of an individual. In other words, credit score and credit report will let you know if an individual has a good credit behaviour or not; OR, whether the individual is employ-worthy. Credit score is a clear indication of a person’s loan eligibility also. It is computed on the basis of a person’s credit usage and loan re-payment patterns over a period of time. In case of organizations, credit score will let a prospective investor or a business partner judge, if the company is worth investing in or worth partnering with. Knowledge of your own credit score is therefore crucial.

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One would be able to manage their credit products better, if they are aware of their credit score. Means, running a credit check will tell them whether the scores are low, average or high. A low score will give them the opportunity to improve credit score and become loan worthy, before they approach a lender. Which means, to a potential lender, your credit score will reflect as good. Whereas, a good score will translate into a good credit health, means, it shows that you are loan worthy [or employ-worthy]. There are several factors apart from a credit score, which impact a loan approval process. But, a credit score is the one that directly impacts majority of credit decisions. In accordance with your credit usage patterns, your credit score may fluctuate.

Knowing your own credit score will also allow you to make timely corrections on flaws or errors before such a factor can turn a potential lender away. So, now you have understood how to know your credit score, and approach a bank or a lender with confidence. Credit score is a crucial factor in all borrowing and lending decisions.

Know how to get free credit score