Find Out Why and How to Start Building a CIBIL Score?

What will you do if you find yourself in a cash crunch one day, and you don’t have any savings left? Chances are that you will apply for a small loan. But do you know that your application can be easily rejected if your CIBIL score is poor?

Your CIBIL score is the most important factor that banks and NBFCs consider when they evaluate your loan application. So, you need a high score if you want a loan, especially at a lower interest rate. This brings us to the main question- how can you improve CIBIL score?

The first thing that you need to understand is that no matter how poor your score is today, you can improve if you are willing to do the work. You may not get the desired results within days, or even weeks. However, if you are committed and take the right steps, then nothing can stop you from building an impressive credit. All you have to do is take the following steps:

1. Check Your Report

The first thing you need to do before you can start working on your CIBIL score is checking your credit report. Only then you can see what your current score is and how much work do you have to do to increase it to a decent level (a score that’s equal or above 750 is considered good).

You can also go through other important details in the report which include personal details, previous loan’s details, repayment history, income, etc. If you see any mistakes in these details, then you can have them corrected which will improve your score.

As per RBI’s norms, you can receive one free CIBIL report every year. Although you can get your report as many times as you want for a small fee. You can check CIBIL’s official website for more details.

2. Start Using a Credit Card

Using a credit card is one of the simplest and most effective ways of improving credit score. This is because when you use a card and pay the bills on time every month, then it builds trust and increases the score. Plus, you can save money too as many credit cards offer perks like cash back offers, discounts, reward points, etc.

3. Checking Credit Utilization

If you are already using a credit card, then check if you are spending more than necessary every month. Ideally, your credit utilization shouldn’t be more than 35%. For instance, if your credit card limit is Rs. 1 lakh, then you shouldn’t spend more than Rs. 35,000 per month as it affects the credit negatively which you can easily verify through a copy of your free CIBIL report.

If you need to spend a lot of money with credit cards every month, then it’s better to get multiple credit cards. This way you can lower your credit utilization without compromising with your spending habits.

4. Get a Joint Loan

Apart from credit cards, small personal loans and home loans also help in building a credit score. Although you should try to get a loan all by yourself, if you are having trouble with that, then you can get a joint loan instead.

When you apply for a loan with a co-applicant, especially if they have a good credit history, then it’s easier to get a loan. However, the benefit of repayment in terms of credit score is shared equally between the borrowers. So, when you take a loan with someone who has a good credit, then you can improve CIBIL score along with them using their merit.

So, there you have it- some of the most recommended tricks that you can use to build credit. However, there are a few other things that you should keep in mind. For instance, you should never become a loan guarantor for someone who you don’t fully trust even if they are a family member. This is because if they fail to repay their debt, then you can greatly hurt your own credit score. Also, never underestimate the consequences of late payments. Whether it’s credit card bills or loan EMIs, every single payment should be made on time if you want to improve your score faster. Good luck!

Advertisements

Does Credit Score Retires?

Credit rating is a continuous process that begins with the first loan or credit card one takes in their name. Subsequent to that all information related to cards and loans keeps on getting updated in the credit report. The credit score is calculated based on the cumulative information on each loan and card. There are five basic parameters that determine the credit score of an individual. So does credit rating have validity? Does a score retire after a specified time period?

Understanding Credit Scores:

Before we understand whether a credit score retires or not it is important to understand the calculation process for it. Repayment history, credit utilization ratio, loan tenure, credit inquiries and credit mix are the five factors that influence the credit rating.

Repayment records about all loan dues and card dues is reported in the CIR, this is done month on month so as long as a loan is running or a card is active, information on them will keep getting updated. Regardless of the fact whether a loan runs for 15 years or 5 years the record will keep getting updated for that duration. So what happens when the loan is repaid? After that repayment record are not updated but the loan status whether closed or settled is reported in the CIR.

The same applies to the credit utilization ratio too, this information is also continuous as the card would be used on an ongoing basis and this information will also be updated monthly and the score would reflect that too. Hard enquiries (when a prospective lender asks for an applicant’s score) would be reported in the report as and when an enquiry is made. Information about credit mix and loan tenure is also dynamic in nature and would depend on the individual’s treatment and nature of their debt.

So Do Credit Scores Have Validity?

No, credit scores per se do not have any validity and they do not retire. Credit rating calculation is a dynamic process and gets updated as and when there is a change in parameters (that impact the score) whether positive or negative. However the information that is part of the score calculation has a specific validity and will cease to impact the score after a specified time frame. Repayment history for 36 months is included in the report and only repayment records for past 36 month are included in the score calculation. The more recent information has more impact on the rating. Thus if a default or delay is made more than 36 months back its negative impact will not be felt after this time frame.

Hard inquiries for two years are included in the report however when score is calculated only inquiries made in the last year are factored in. So all inquiries made in the past year will have an impact on the rating; older enquiries will have no impact whatsoever on the score calculation. So anyone who wants to improve CIBIL score should avoid making loan applications without a sufficient gap between two loan applications.

Information about “settled” or “written off” loans stays the longest on a report and this account status must be avoided at all costs. Any “settled” or “written off” loan raises red flags for all future lenders as they may feel that you cannot be trusted as a borrower. This information stays on the report for seven years, thus the validity of this information is seven years.

As we discussed before, information related to loan tenure and debt mix is dynamic. If a loan runs for its full tenure then it is considered good for the rating as a deeper credit trail is good for the credit health. Secured loan and unsecured loan mix is also a factor when the rating is calculated, a bigger proportion of unsecured loans is not good for the score. So as and when the loan proportion changes its impact will vary on the score.

Thus credit scores do not retire and have no validity but some information that is used to calculate them may have some validity and may become redundant after a specified time period.

Is My Income Part Of My Credit Report?

There are a lot of people who do not know what a credit score is and how it is calculated. Many of us only come to know about a credit score after a loan or a financial product gets rejected. After getting such news you try to get your credit report to understand where you went wrong and start making attempts to build up your credit score. While building a score from scratch, you will try finding easy ways to get the score up in no time to avail a financial product. You make all your payments on time, use less limit on your credit card but you do not find a significant impact on your report. Suddenly something clicks in your mind, can my salary be a part of my credit report?

The answer to this question is a NO! Your salary or any type of monetary gains can never be a part of your cibil report. Other than income, factors like, color, race, religion, marital status, gender, occupation, where you live, etc. do not contribute to your credit score.

There are a lot of factors which contribute to your cibil score but salary is not one of them. Factors like your payment history contributes 35% to your score, the amount owed will be 30%; length of credit history contributes 15%, 10% of new credit and 10% on types of credits used.

A credit report is designed to analyze your financial behaviors and if you can default a new line of credit. It makes the lender’s job easy to understand if you are credit worthy and if they can provide you a loan or a financial product. The lender will definitely check your incomes and gains to understand your repayment capability but it will also check your credit report for any past defaults.

One of the reasons why your salary is not listed on the report is because the credit bureaus seek information from lenders, creditors and collection agencies; they do not take any self-provided data from consumers as they may have fake information. The employers also are not comfortable sharing the packages to bureaus as this kind of information is confidential. There can be instances, the competitor company can pull any employee’s records of how much package are you offering and can headhunt your candidate, as credit report information is easily available these days.

How can you bank on your income?   

You can use your income to do a lot of things financially. You can invest in insurances, which is termed to be good investment. The payments you make for your insurance policies are reflected on your report which than helps you improve cibil score.

There are instances, when you need urgent funds and you cannot rely on your family members. You can show your stable income proofs to the bank or any lender for a quick loan which can help you with quick funds. When lenders make decision on giving you a line of credit, your salary is always a key factor while considering your credit worthiness.

Once you have availed a loan, make sure to make timely payments to the bank, so that your credit score up rises from time to time and when the time comes, you avail a bigger loan like a home loan or a luxury car loan with ease.

The other ways to bank on your salary in financial market is to apply for credit cards. Credit cards play an important role in everyone’s life if used properly. A credit card can be a boon at emergency times and can be a source to quick funds. If you have a good income structure, you can apply for a credit card with good upper limit. Card lenders consider your salary and gains when they accept application to determine if you are a car worthy individual and also what would be your credit limit. Owning a credit card can help you many ways including improving your credit score.

If you are on the way to build a good credit score, don’t feel bad if your salary is not considered as a component to calculate your cibil score. You can use other ways to build a good score, where your salary can play an indirect role. Just utilize your salary wisely and make all your payments on time, you will see a great hike on your cibil score in no time.

Age Of Free Credit Score: True?

From January 2017, the Reserve Bank of India made it mandatory for all credit rating agencies to provide a credit report without any cost once a year when a request is made. This means the agencies have no obligation to provide a report themselves, thus if you need a report then you have to expressly make a request as per the guidelines laid down by the agency to get it. Well, does this guideline by the RBI actually translate into free credit score for all those who require?

How to Get Your Free Credit Score?

There are four credit agencies that provide credit reports for individuals in India and each has a different process for getting a credit report. Let us have a look how you can access your free credit score from each one of them:

  • Transunion CIBIL: If you want to get your free score from CIBIL you can do so by visiting the website where there is a link at the bottom of the home page for getting a free report. It’s a three step process, the applicant needs to fill a form where basic details need to be filled and then answer a few additional questions for authentication purpose. Post the details being verified the applicant can access his/her report.
  • Crif High Mark: They also have a link for getting the free score; it is on the left side bar of the home page. The first step is to fill in basic information, here the information required is more detailed, after filling the form the applicant chooses his/her order, then they authenticate themselves, after which they can download their report.
  • Equifax: If you follow the link that is displayed for getting a full free credit report you are directed to a set of guidelines where you are instructed to download an app for the same. The applicant will need to login to the app using a temporary PIN, authenticate themselves and login again after 24 hours. You are given four attempts to answer three questions related to your credit history; once you have completed all steps successfully you get the report on your phone. Those who do not have smart phones can get the report by sending a scanned copy of an identity proof and address proof along with the application form at the mentioned email id.
  • Experian: There is no separate link for a free credit report but once you click on the link for getting a report, it takes you to a form where you fill in details as required, get an OTP and then generate a password. After this, you can almost immediately access your report.

So is it Really the Age of Free Credit?

Yes, it is the age of free credit. Each organization has a different process, for some, it is slightly cumbersome and for others, it may be simple and quick. Irrespective of that fact, all rating agencies do provide a free credit report almost immediately or after some delay. If the process is followed the applicant can access their reports if they wish to do so.

Since there are four rating agencies, effectively one can get four credit reports in a year which makes one report each quarter. In case someone wants more reports than that (which is unlikely) then the option of getting it free might not be there.

So what does it mean for you?

Being updated about your credit health has many benefits. It allows you to spot any errors in the report and get them rectified if required, you can improve CIBIL Score by assessing the reason for it being low, and looking at report can also help you detect signs of any identity theft if it happens. Checking your report has many positives, now it costs nothing and it also does not lower your score.

So it’s up to all of you out there to make the best of the situation and stay credit healthy by checking your credit score regularly and that too without paying anything!

 

How to Save Money on Your Loans and Improve Your Credit Score in the Report

Loans are part and parcel of our life these days. Anyone who is financially prudent seeks loans to build assets and lead a lifestyle of their choice. Your ability to borrow is not limited to what you earn every month rather your ability to manage finances is something that defines your credit worth. In fact the colour of your credit report indicates your credit health.

Most of us use multiple credit accounts these days like credit cards, auto loan, home loan, personal loan, to name a few. The appetite for credit is not limited to day to day requirements and many of you would desire more loans such as student loan, travel loan or business loan. You can practically borrow for any purpose these days. However your past credit history define if you could borrow more or not.

Anyone who has a current mortgage or multiple loans would probably be using enough of his credit limit. To borrow more you would need to save on your previous loans and create a gap between what you earn and what you are utilizing. It is important to know how to save money on your loans and improve your credit score in the report.

The higher is the score, higher is your loan eligibility. Thus you should always pay attention to your CIBIL score calculation and assess your credit report at least twice a year. Factors that help your credit score include: regular repayment of loans and credit bills, credit utilization ratio, length and age of credits, credit mix and history of loan queries.

Saving on Loans and Improving Credit Score in the Report
One of the smart ways to increase your credit score and avail better rate of interest on a long term loan is by closing your previous loans. By prepaying your previous loan you would build a good history and boost your credit score.

If you are planning home purchase and need loan for the same, the lender would assess your credit history before offering the loan. With low CIBIL score or not so perfect score your low eligibility is low and you could be offered interest on higher rate.

However by prepaying your previous loan you would be marked as a potentially worthy customer and your loan application would be approved. Likewise prepayment of loan also saves you enough money.

To understand how let’s take an example.

Mr. Rajeev Shukla is an IT professional and he has savings of Rs 1000000 in his bank account. His net monthly income (after tax deduction) is Rs. 80000. He spends Rs 10000 as credit card expense every month which he diligently pays before the due date every time. He pays Rs 6000 as his car installment which is calculated at 9 percent of interest every month. The auto installments are due for next 4 years. He wants to prepay auto loan, but he has 4 per cent pre-payment penalty if he pays before one more year.

Mr. Rajeev decides to prepay the auto loan as he plans to raise a home loan of Rs. 3000000 after six months.

By prepaying his auto loan Mr. Rajeev reduces his debt to income ratio. This leaves additional credit limit and makes him eligible for more loan. It also gives him more flexibility to pay for his next loan installment. If he has additional six thousand to pay for loan installment every month he can either have a bigger loan or reduce the loan duration by having bigger installments. Also he can use this money for raising student loan for his daughter’s higher education.

Now coming on to prepayment penalty of four percent, how would he compensate that additional prepayment charge? By prepaying the loan he actually saved five percent which he would have paid as interest in the due course of time. If he could manage to get a better interest rate on his home loan for next 20 years he would further save.

By prepaying loan you would not only save money but also improve your score and worth. Thus a financially prudent person looks at his money from its worth for his future plans and never values it conservatively on its current purchasing power.

Does winning a Lottery affect My Credit Score

Winning a lottery is like a dream come true. If you are one of those lucky few who have won lakhs or crores of rupees in a lottery, you may be wondering its impact on your life. Well, just having the money will not put an end to all your financial woes. How you put it to use is what determines its effect on your financial life. Does winning a lottery affect your CIBIL rating in any way? Let’s find out.

Correlation between credit score and wealth

The income level of an individual or his bank balance has no effect on his credit score. People with a high net worth may not necessarily have a high credit score. The credit score calculation primarily factors in one’s payment history and credit card usage behaviour. So even if a person has a huge bank balance, he will not have a good CIBIL rating unless he makes timely payment of his loan EMIs and credit card bills.

The wealth of an individual may be taken into account when a person seeks approval of a loan application. Banks do check an individual’s bank balance and income level apart from the credit score to determine whether the person has the capacity to repay the loan. Hence winning a lottery may increase your ability to seek loan approvals.

Here is how you can use the money to improve CIBIL score

Though winning a lottery does not have a direct impact on your CIBIL rating, it does give you an opportunity to raise your score by other means. Here is what you can do with the money to improve CIBIL score.

  1. Pay back outstanding dues

If you were unable to clear your outstanding dues in the past because of lack of funds, you would surely have a bad credit history. Late payments, collections, charge offs and other such negative remarks brings down one’s CIBIL rating. Now is the time to put your money to good use. Contact the bank and discuss that you have sufficient money to repay them. Request them to remove your name from the bank’s loan defaulter’s list. Negotiate with them if they can remove negative remarks from the credit report if you clear all past debts.

  1. Reduce credit utilization ratio

Credit utilization ratio plays an important role in CIBIL score calculation. A high utilization shows an over dependence on credit and reduces your credit score. By using the funds to pay off your credit card outstanding balances you can reduce this utilization ratio and work towards improving your credit score. Make sure you do not use more than 30% of your available credit limit. Keeping low utilization levels helps boost CIBIL rating.

  1. Exhibit good credit behaviour

Since you have sufficient money in your bank account, make sure you pay all your bills and EMIs on time. By exhibiting responsible behaviour and making on time payments one can build positive credit history.

3 Ways Parents Could Accidentally Harm Their Child’s Credit

Credit health is as important as your mental or physical health. However many a times we realize the significance of credit health only when it is hurt. A low credit score hurts your credit worth and makes you ineligible to advance the loans.

Let’s find out some of the common mistakes which hurt the score in the beginning of credit building cycle of an individual. Herein we would focus on 3 ways parents accidentally harm their children’s credit report.

  1. Multiple Student Loans
    The escalating costs of school and college fee is one of the major reasons why student loans are as much a fad as a necessity for young aspirants. The parents who fail to incur adequate research on the matter and avail a high cost loan for the purpose, certainly build a huge financial burden right in the beginning of their child’s credit life cycle.

    Many people mindlessly raise multiple loans for students owing to availability of credit facility at lower rate. With enormous amount of debt it would be a huge responsibility for a student to repay a loan after completing their education. As a parent, it is your duty to calculate total fee amount and try to look for the least expensive way to finance your child’s education.

    You also need to build the healthy habit of saving funds in your child. As a parent, it boils down on you to inculcate good financial habits in your child. Raising too much of loan for their education would not be a smart decision if it results in low CIBIL score.

  2. Share your credit cards
    Excessive spending is another key reason for impending balance on credit cards. Before handing over a credit card to a young mind, it is important to help them understand the importance of not having huge balance at the end of every month.

    Being a parent you can also add the kid as your credit card account holder. It will sometimes help them to improve their CIBIL score. But maintaining good credit behaviour would be a must. As an adult you need to ensure that regular payments are processed on time and there is no balance after the due date. Remember your child is most likely to follow your footsteps. If you are not serious about repaying your bills on time, the child is also not likely to pay attention to deadlines. You would seriously challenge your child’s future with bad credit habits.

  3. Credit education
    If you fail to teach right knowledge about finances and credit to your child it is your failure as a parent. You need to make the young mind understand the important aspects related to money management and ways to improve CIBIL score. The first credit lesson starts from home. You need to make the child understand how credit affects their life. You need to make them understand the importance of credit for their education, job to buying a home or car.

You need to teach them how important it is to monitor their credit score multiple times in a year. It is important to let them know how information in their credit report will impact their credit score.

Educate them about the available resources to obtain a free annual report. You can choose to review it along with them so that they learn the intricacies of maintaining a good score. You need to help your child develop a mindset that it is easier to maintain credit health rather than fixing bad history later on.

Last but not the least, do not forget to talk about identity theft threats. For online it is one of the fastest-growing crimes. They should know that sensitive information related to account should not be shared with anyone outside.

Employers Are Using Credit Checks for Hiring, Hope you are not missing on Good Jobs!

A CIBIL report is like a financial report card that keeps track of your borrowing behaviour. It details the loans that you have taken, your payment patterns and other details relating to your credit history. This information is for sure useful to the banks who use it to evaluate your credit worthiness before granting you loan. In fact the CIBIL score and report have become an integral part of most bank’s loan approval process. But is this information of any use to your prospective employers? It seems very unlikely that your employer would be interested in knowing such details. He should only be concerned about your education qualification, experience, skills and aptitude required to do the job successfully! Right? Wrong!

You may be surprised to hear this, but there are quite a few companies especially in the financial sector who check the credit history before hiring an individual. You may think that your financial health has nothing to do with your capability to perform a job well, but some employers think differently. So next time you go out looking for a job, you need to worry about one more thing apart from your resume and interview preparation; that’s your CIBIL score and report. This practice of reviewing the credit history as a part of employee background check was prevalent in many western countries. Slowly this is gaining acceptance in India as well especially in the financial sector. It will not be long when companies across all sectors will use this as a standard practice.

For what kind of roles is credit check more prevalent?

Positions with financial responsibility, senior executive positions and roles that require handling of confidential or sensitive data usually involve credit checks. Many private sector banks like IndusInd, Standard Charted and DBS bank check the CIBIL report as a part of the thorough background check that they perform before offering a job. Such checks are usually performed for hiring for sensitive roles in an organization.  The rationale behind these checks is that if a person has defaulted on loan payments or not settled credit card dues since long, he may not be considered suitable for handling customer’s funds. Employers use this data to judge how responsible and financially stable you are.

So if your credit report is not in good shape, now is the time to work on improving CIBIL score. As the job market is becoming more and more competitive, companies are analysing the candidates profile more deeply to select the most suitable person for the job. A low CIBIL score may hinder your chances of getting hired for your dream job.

A CIBIL report which shows 100% credit utilization, significant levels of debt, late and missed payments and delinquencies indicates the irresponsible attitude of the individual. If the report shows many settled dues, bankruptcy, foreclosure then you may be seen as an individual with bad intentions. Companies refrain from hiring such individuals as they believe that poor financial health of an individual will have an adverse effect on his or her performance levels at the job. On the other hand a good CIBIL score and report is associated with honesty, integrity and responsibility towards one’s obligations.

What and how can the employer check credit details

Your credit score and credit report are two different things. Your report does not display the three digit number. Your employer can only check your credit report and not your score. Secondly, they cannot do a credit check secretly behind your back. They can do so only after seeking permission from you. The employer will ask you to authorize him and give a written consent to allow him to have a look at your report. So when you sign the authorization documents, you will know that your credit profile will be evaluated. You may refuse a credit check, but then the employers may reject your job application on the grounds that they were unable to complete their screening process.

If you have negative information on your report what should you do?

If you have questionable items on your report, inform the employer before hand as to what they can expect. You need to be prepared with an explanation for the negative record. Companies would want to know how you took charge of the financial situation when you were faced with adversity. Explain what you did to rectify the situation.

Bottom Line

Having excellent skills for the job is no longer enough to guarantee a placement. Employers have adopted the practice of checking CIBIL report to analyse your trustworthiness and attitude towards your responsibilities. So keep a check on your CIBIL report and improve CIBIL score. This will improve your prospects of landing into a good job when you are competing against other equally qualified candidates.

Buying Your First Life Insurance Plan? Here are Things to Keep In Mind

Life is the most valuable asset for anyone and we all shudder at the thought of losing someone we love or for that matter about the loss that our loved ones would endure in case of one passing away.  Though one cannot do anything about the emotional loss that befalls the family in case of death of a loved one but one can take measures to ensure that they do not suffer (especially in the case of dependents) any financial hardships. This is where a life insurance policy comes in; the right life insurance policy would make sure that the dependants are taken care of financially in the event of death of the primary or sole breadwinner. So what should you keep in mind when buying your first life insurance plan?

  • What Life Stage are You In?

If you are buying your first life insurance plan then most likely you are at a stage in life where you have started working recently or have just started a family. However there may be times when you may have missed getting an insurance policy then; better late than never. Each life stage has different requirements and since a life insurance plan is bought primarily to take care of the dependents you need to keep their requirements in mind. As life stage changes so does the number of dependents and the requirements of the family. Insurance needs will be different for an individual who is recently married, both partners are working and they do not have any kids as compared to an individual who has spouse and two kids to support. As the life stage changes so should the insurance cover.

  • How Much Life Cover Do You Need?

The amount of insurance one needs will be dependent on your life stage, your lifestyle and your liabilities too. It is possible that two individuals who are at the same life stage may have different liabilities and hence their requirements may vary. The rule of thumb says that the insurance cover must be ten times the yearly income but there are various methods of calculating how much cover one should have. If one has a loan to service then that should be taken into account when calculating the required life cover, the number of dependents, their education and other requirements etc also must be factored in.

  • Which Plan Suits Your Requirements

There are numerous plans available to take care of the needs of an individual. Term plans give high coverage at low premiums as they are pure insurance plans. Endowment or money back plans guarantee a saving corpus by paying regular premiums and they also provide insurance cover. ULIPs help in wealth creation, though insurance is also provided but the cover provided vis-a-vie the premium is pretty low.  Insurance premiums are dependent on the age, medical health and of course the amount of cover one seeks. Another factor that may impact the premiums is the CIBIL score! Based on the CIBIL score the company will calculate its own insurance score which will indicate the likelihood of a claim. Choosing the right plan based on your requirement is important; for somebody who has just started working and has no liabilities an endowment plan or ULIP could be an option but for someone who wants maximum insurance at lowest premium the Term Plan is the best bet!

  • How is the Claim Process?

As we said earlier an insurance policy is bought to serve the needs of the dependants in the absence the breadwinner. However the policy would be useless if the family is unable to get the funds when they require or the process is too complicated for the family members to follow.  Thus before buying the policy check about the claims process, what is required, how much time it takes and other important aspects related to filing a claim. Do not forget to check the Claim Settlement Ratio of the company as it will give you a fair idea about how the company is at processing claims; it obviously makes sense to choose a company that has higher settlement ratio.

So if you are looking at buying an insurance policy, do keep the above in mind. Also do not forget to try and focus on how to improve CIBIL score so that you can buy a policy without paying higher premiums. A suitable insurance policy is very important for every individual.

Importance of good credit score for Home loan

Buying a dream home is a dream every man cherishes till it becomes a reality. However the escalating cost of property calls for huge financial planning and investment. Most of us indeed opt for a fund lender in order to materialize this dream. Herein your credit score plays a pivotal role.

Your credit score is the score of your financial worth. In order to seek a hassle free home loan in India you need to have a good credit score by Credit Information Bureau of India Limited (CIBIL). Besides, other factors such as your age, salary and job also play a key role in the backfield. You would be required to submit documents for each of these factors to become authorized for raising the loan.

Role of CIBIL score in home loan approval:
Your CIBIL rating helps lender to evaluate your credit worthiness and repayment ability before approving a Home Loan. That’s why a good CIBIL score is a must to get a loan approved.

The CIBIL score is the summation of the credit history of a person. Factors such as your earlier loan payment history, outstanding loan amounts, credit enquired, payment history of credit card bills and more build your credit history. When you apply for a loan the first thing that the bank will check is your cibil rating.

The lender always want to cover the risk they are taking by lending you loan. So by checking your CIBIL score they assess your repayment track record. The low score reflects bad financial decisions including excess use of credit limit, non-repayment or late payment of loans and more. Thus with low score, there is a high possibility of rejection of your loan application. Similarly with a good score your loan application becomes attractive and lender shows confidence in your application by offering loan.

What does a good CIBIL score actually signify? 

A good CIBIL score to be eligible for a home loan is 700 and above. The nearer you are towards 900 the higher is the chance of getting the approval. Furthermore, an upper credit score means that you can bargain for attractive offers like lower interest rates, higher loan amount, simpler documentation, discount in related fees and longer repayment periods. The lender might approve up to 80% of the total cost of the property.

If you have a low CIBIL Score are you still eligible for a home loan?

While it is not easy to get home loans for bad credit score, you can still take some steps to roll the dice in your favour. You can either use professional help or credit improvement counseling or take some steps to improve your score.

  1. The first step should be to pull out your free credit report from CIBIL.
  2. Next mark all the weak points that have hurt your CIBIL score. You can take small steps to boost your score. The better the score the better rate you can expect.
  3. Now you can list all small, high cost loans and try to repay them at the earliest. This will substantially improve your score.
  4. If your spouse has a good credit score then you can apply for the home loan jointly. This way you will have better chance of having your loan approved.
  5. If you have defaulted the payment of a loan or credit card bill then negotiate with the financial institution, clear the dues and get a no objection certificate from the financial institution. This will bring a good appreciation to your score.
  6. If you have a poor score then try to get the loan from the bank with which you have your savings account and FD’s.

 

Using these points you can raise your chances for loan approval. However getting loans with bad credit score has its own advantages and disadvantages. The biggest advantage is that it will make you take constructive steps to improve your CIBIL score. It will inspire you to close the earlier loan and repay the entire amount in a one go. The biggest disadvantage however, is that you will have to pay high interest rates and even the fees and charges that are associated with the loan approval will be higher for you. But as you would learn to protect your credit score, you would soon become credit ready for lifetime.