Wednesday, 18 October 2017

How Fast Can You Rebuild Your Credit Score?

Credit scores are a reflection of one’s credit behavior in the past. Based on how someone has treated their loans and credit card dues in the past prospective lenders aim to estimate how they are likely to behave in the future. Someone who does not have a credit history of at least six months is not rated so building your score takes time. Again the rating is calculated based on various factors and only one aspect cannot make or break the score, it is a combination of five factors that are considered over a period of time starting right from your first loan or credit card.
What Can Harm Your Credit Score?
Before we discuss about rebuilding the credit score let us discuss what can spoil it. There are five factors that are taken into account when the rating is calculated; some are more important than others and hence contribute more than other factors to breaking or making the score. Rebuilding your score would also depend on what in the first place has caused it to go downhill and what is the intensity of the problem/s. It is important that one checks their credit rating once in a while; you can access your free CIBIL Score to figure where you stand on the credit health spectrum.
Repayment history and credit utilization ratio are the biggest contributors to the score calculation and hence any problems in this area can harm the score in a major way. Frequency of defaults also is important; a single missed payment in an otherwise regular payment record or the credit utilization ratio being high once in a while are not likely to cause any major trouble. Other three factors like credit mix, age of credit and credit enquiries cannot be ignored. Though these factors weigh in less than the other two yet they also make a difference when the final score is calculated.
How Fast Can You Rebuild Your Score?
Anuj required a personal loan; his application was denied to a low credit score. He looked at his credit report and realized that the score was low due to a few missed payments and also because of multiple hard enquiries. He spoke to a few experts on how to better his score and how long will it take to get it back on track. He was informed that it will take him a minimum of six months; he could not wait for that long. He had no choice but to explore the option of bad credit personal loans to fulfill his requirements.
Ideally no one wants to be in a position like Anuj but if one is caught in it then how long before you can expect your score to be healthy again. The time taken to rebuild the score will depend on why the score is low and also how old the problem is.
If the score is low because of unpaid credit dues, a loan dispute or an error then these problems can be resolved fairly easily and your score will improve as soon as the problem is taken care of. Repaying the old dues or getting the errors removed will not take much time and one can see the impact within months.
When problems relate to recurrent missed payments, settled loans in the past, frequently high credit utilization ratio or a poor credit mix then rebuilding the score could take time. Repayment history of last 36 months is reported in the CIR and one can do nothing about the past record so what they can do is be regular in future. Similarly if one has been reckless in using the credit card in past then they can just be more careful in the future. Make sure there are no over dues in your CIR, keep the payments regular and credit enquiries minimal. This will ensure that no further negative points are earned and the credit score will improve over time. This could take from a couple of months to years depending on how bad the score is.

If one is overwhelmed by their poor score they can take professional help to try and rebuild it. Here is important to remember that professional can just offer you more useful advice they cannot speed up the process or remove anything from your CIR. 

Friday, 13 October 2017

What’s Used to Determine The Credit Score?

The importance of credit score has increased manifolds in recent times. This three digit number is like a performance measure that indicates how well you have handled your debts in the past. Whenever you apply for a loan or a credit card, lenders pull your score to ascertain whether you are worthy of giving credit. A high score means that your loan applications will easily be approved and you can bargain for low interest rates and better terms.

Since this number plays a crucial role in your financial life, you must pay attention to building a solid credit history. For this you need to understand the parameters that determine your credit score. If you have a low CIBIL score, then working on these parameters will help you in rebuilding credit.

Though the exact scoring model of the credit bureaus is not known, there are primarily 5 main factors that determine your score.

1.      Payment history

The most heavily weighted factor in the CIBIL score calculation is your payment behaviour. If you consistently make on time payments of your EMIs and credit card bills, you will have a strong credit score. In fact it is the best way to ensure that your credit is in good health. It portrays that you are a reliable borrower who will honour the commitments in a timely fashion.
Late payments on the other hand hurt your score badly. Payments that are more than 30 days overdue are reported to the bureau. If you go without paying for more than 60 days the impact can be seriously damaging. Credit scoring models look into how late the payments were made, how much you owe, how often you miss your payment and how the recent payment activity has been. Once your account is sent for collections, the negative information will have a tremendous impact on your score.
Derogatory remarks like bankruptcy, foreclosure and liens have a serious impact on your credit score. It will severely reduce the chances of getting approved for new credit.
2.      Utilization
The second factor that determines your credit score is the percentage of the credit line that you are using on the revolving lines of credit (like credit cards). If you have a low CIBIL score inspite of making timely payments, then credit utilization ratio might be one of the reasons. It is calculated by dividing your credit card statement balances by the total credit limit. As a practice try to ensure that this ratio never exceeds 30%. The fact that you are not using a lot of the credit limit available to you shows that you are not overly dependent on credit.
3.      Age of accounts
The average age of accounts plays an important role in CIBIL score calculation. A longer period of your experience in handling credit helps lenders to accurately assess your credit worthiness. Old accounts with good credit standing help in raising your CIBIL score. That is why it is always recommended to start building credit by using credit cards as soon as you land your first job. The sooner you start the better it is for your score. Also do not close your old credit card accounts.  It will shorten the average length of open credit lines and also reduce your total available credit, thereby increasing utilization ratio.
4.      Account Diversity
Lenders like to see diversity in your experience in handling different kinds of credit accounts. If you have a good mix of revolving and instalment loans in your credit mix you will earn more points during the CIBIL score calculation. Revolving credit like credit cards have varying payments every month and the unpaid balance is carried to the next month. In instalment accounts like personal loans, car loans, home loans a fixed amount has to paid every month for a fixed period of time. Your ability to handle both these kinds of debts responsibly will contribute to your credit worthiness.
5.      New credit
The credit scoring models also take into account the number of new credit lines that you have opened. Before approving any new line of credit lenders pull your credit report to check your past behaviour. This creates a hard enquiry on the credit report. A no. of credit application in the recent past will indicate a credit hungry behaviour and lower your score. Hence do not apply for several lines of credit all at once.

So now that you know about the parameters that affect the calculation of the credit score you can work on them to improve your low CIBIL score. These guiding principles will help you work proactively towards a strong credit profile.

Thursday, 5 October 2017

Can Gambling Affect Your Credit Report? Really?

A good credit score is an indicator of how good you are in maintaining your credit worth or say, how good you are at borrowing and repaying your loans and credit balances on time. However those who abuse the credit facility to splurge such as for gambling or substance abuse can unfortunately greatly hurt their credit report. And that too with sky rocketing speed!
A credit report is the database of an individual’s complete credit history. It is an individual’s collective data gathered by Credit Bureaus which is used by lenders to verify the loan applicant’s financial condition. A credit report contains your overall personal information and credit account details. The credit history is one of the essential elements used in determining your credit score.

Let’s find out in detail how gambling affects the credit report in several ways.
Effect on Credit Score
Gambling is what’s called the game of luck and it can affect your financial condition through several expenses during the game. On some days, it can literally rip off your score. It can lead to bulk debit transactions on a single day. As a result, it puts a solid footprint on your credit report and ruins your loan eligibility at the same time.
Transaction Management
Every single entry on the credit report about money is known as the transaction. Through gambling, you can face few finance management problems such as duplication, missing some transaction entries in the credit report and more. A balanced money management is one of the factors needed to be considered for maintaining a good credit score.
Crossing Credit Limit
Several online gambling sites usually accept credit cards for payment, and within a few clicks, you will gain more gambling credit. But this practice can increase your credit utilization ratio. That’s how credit report gets focus for severe checkups through credit agencies. Generally lenders prefer less than or equal to 35 percent credit utilization ratio in an account as a balance. However to keep a track on the limit of credit during the betting session is generally not possible.

Hurts credit eligibility
The continuous habit of gambling for winning and making money can sometimes lead you to a bad financial situation. That’s why banks and other financial companies as a lender can also dismiss your loan agreement. Many lenders tend to reject your application owing to bad credit history due to gambling or other money pulling activities. With bad credit score, finding an interested lender becomes a very tall order. You would either not find a lender or would be bound to pay a very high interest rate on the loan.

Cash Advance like Payday Loans
In absence of adequate credit products, many resort to very quick short loans such as cash advance loans like payday loans. These loans come at a much higher cost and thus add more burden of repayment at the end of month.
Those who tend to bet for quick money are more inclined to borrow to finance their gambling activities. As an outcome, you have to put a significant amount of money as a balance on your credit card, and hence it will enhance credit utilization ratio. It is also a costly way to pay for cash, and it will influence your credit report as it is. Taking money in advance is not the right thing to do.
The word bankruptcy is originated from Italian remark “banca rotta” which means broken the bank. It is kind of legal action taken against an individual if he or she is unable to repay the particular debts on time to creditors.
It will only happen when you borrow plenty of money from the bank on loan for financing gambling with a promise to pay it back after some time and stumble upon your commitment. In case of repayment failure you tend to come under loan defaulter list and would thus ruin your credit worth for at least 7 years.

In a nutshell, gambling can ruin your whole life financially, and it would take many-many years to restore your credit situation. You would require a lot of perseverance and professional advice to get back on track!

Monday, 25 September 2017

Is it Important to Monitor Your Credit Score on regular basis?

Why do I need to check my credit score on a regular basis? Isn’t that the job for banks or any other financial institution when I apply for a loan? I am not planning for a financial product anytime soon, so why should I? What’s in it for me? This is the perception of almost everyone when it comes to checking their credit score.

Is this perception right? Absolutely not! Consider at time of an emergency, when you think of taking a personal loan and the process getting delayed because of your low cibil score or even get denied, what would you do? It is always suggested to get the rating checked on regular intervals to avoid such problems.

Here is why you need to monitor your credit score on a regular basis, 

To know where you stand

As we all know cibil score is a three digit number which is used by the bank to consider giving you any type of financial product like loans, credit cards etc. when you check your score, you will be able to determine where you stand and how is your credit health. Is it low, average or high, if low you can start working on the same and try building a good score because when the time comes your loan taking process will be smooth and easy.

Make sure your credit information accurate

When you try checking the score, you will not only be able to see how much your score is but also will be able to see all your loans, accounts and credit cards. If you see any other information which is not yours and that particular account is causing your score to go down, you can immediately report it to the credit bureaus. 

Get insight into what actions hurt and help your credit score

Imagine you checked your score three months back and then the score was good to go. Due to some financial difficulties you did not make the payments on time and end up being in the loan defaulter list now when you check the report there is a huge decline in the score. By checking your report on a regular basis you can easily analyze where you went wrong and how you can cope up with the scores in future.

Prevent identity theft

This happens a lot, if you do not monitor your cibil report on a regular basis, some fraud might use your information for taking a loan or a credit card without you even knowing. You need to check the reports on a regular basis so that you avoid such mishaps. Majority of the time this kind of a situation is faced when a person is dead; the dead person’s details are taken for loan purpose. If you have anyone who has recently passed away, do inform your relatives about this and report the cibil authorities to avoid data theft.
To identify credit bureau errors

You always make your payments on time, no one can find errors in your financial pattern, but when you apply for a loan your loan gets rejected. This can happen because of credit bureau errors. The banks send monthly reports to the credit bureaus to update your score and to add financial history many a times there are errors, if you check the score on a regular basis you can avoid such mishaps and report it back to the bureau. Yes this process takes time, but it is always “better safe than sorry”.

You can get a free cibil report once in a year, where you can get all the information.  Do not get the cibil report every month cause that will lead you to chances of declining your score, as when applying for a loan the banks will see how many times you have requested for the report. It is suggested get the report done every three months and try keeping a track on your finances to avoid any problems in the future.

Tuesday, 19 September 2017

Comparing Kundlis? Compare Credit Score Too

Kundli-milan has been an important aspect of match-making in India for centuries.  While one can argue the true significance of that in ensuring a happy married life, another element that’s been proven true to contribute to a healthy married life is credit score matching.
According to a research report by Federal Reserve Board, individuals with a high credit score are more likely to form lost lasting and committed relationships in comparison to the ones with a low credit score. Moreover, they found that the greater is the difference between a couple’s credit scores, the higher is the possibility of their relationship to end within 5 years.
There are many reasons why a couple with comparable CIBIL scores are likely to be compatible with each other and lead a happy married life. The following are some examples that show how:
1. Commitment
Building a high credit score takes commitment. You can’t quit down the road when things get tough. Even a small mistake can ruin all your efforts that you made in building the score. So, the free CIBIL score of two people is really high then they are likely to be lead a happy and long married life because they both would know the importance of being committed to something. 
2. Problem Solving
When you get married when you also share your problems with your partner. So, a person whose free CIBIL score is high can be a good choice. This is because you can’t build a good score unless you are good at problem solving.
Financial problems such repayment of home loans, budget and personal expenses, etc. are inevitable. However, the way you handle these problems can make or break your creating rating. If you are capable to fixing the problems then you can be a good life partner for someone. Thus, you would want your partner to have a high score too so that you are both understanding of each other’s personalities and help each other out whenever needed.
3. Jobs and Career
Businesses have started considering the credit score of individuals when hiring. It’s much likely that in the near future having a high credit score becomes mandatory. So, that’ another aspect to think about when you are searching for your life partner.
If you have a high credit rating yourself, then you won’t have any problem getting the jobs you are interested in. However, if your partner’s credit report has a mention of loan repayment or a poor score, then they might struggle in their career. This can create problems in your married life too.
4. Difference in Personalities
Comparable credit scores usually also translate to comparable personalities. For instance, if you and your partner both have an exceptionally high score, then it’s likely that you both like to stay organized and do things in a disciplined order. Similarly, if your scores lie between good and excellent, then it’s possible that you both have a laid-back kind of personality and you both like not to over think about things in general.  In both examples, one thing is true that the couples will be more comfortable with each other because of their similar personalities.
Take Match-Making to the Next Level
Getting married to someone is a big decision. It’s all about spending your life with someone who you often don’t usually know much about. So, you must try all kinds of things possible to ensure that the match is perfect.

While matching your kundlis may certainly help make the decision, you should also try to match your credit ratings too. Besides, finance is going to an important part of your life as a couple, so it’s only smart to learn how your potential-partner handles their personal finance such as home loans, credit cards, etc.

Tuesday, 12 September 2017

Where do you Rank on the Basis of CIBIL Score?

CIBIL is one of the biggest credit rating agencies of India and also partner with some of the largest banks and NBFCs that use its services. In fact, if you are going to apply for a personal loan or a credit card soon, then chances are that your bank will check your CIBIL report before making any decision. Most importantly- they will check your CIBIL score. But what’s that exactly?
What is a CIBIL Score?
CIBIL score, which is also commonly referred to as a credit score, is the numerical representation of your creditworthiness and has a proportional relationship with the same. In other words- the higher is your score, the greater is your creditworthiness.
If you want to get a loan or any other kind of financial benefits from banks and other non-banking financial companies, then you must improve CIBIL score. However, first things first.
How is a CIBIL score Calculated?
Your score is calculated on the basis of several factors, which are:
1. Payment History
Payment history is a broad subject but it mainly covers your loan payment history and credit card bills payment history.
If your track record shows that you pay your bills and EMIs on time then you score will increase and if not, then it will be cut. However, the timing of the late payments can cause a greater impact. For instance, if several of the late payments belong to a recent past, then your score can be heavily damaged.
2. History of Defaults, Loan Settlements, etc.
If you want your score to stay intact then you want to stay away from loan settlements or defaulting. These are serious misdemeanors in the eyes of the lenders who want their loan borrowers to have a clean slate, a history of responsible credit behavior. However, loan defaults and written-off debts are the exact opposite of that. Needless to say, someone with a history of such incidents will be only provided a poor score.
3. Debt to Income Ratio
If your debt to income ratio is higher than 30% to 35% then it indicated a higher financial pressure and can result in a low score. Similarly, if you have a high loan balance, then it can affect your score negatively.
4. Credit Variety
CIBIL rewards individuals who have a healthy credit mix with a high score. In other words- if your credit report shows the history of only a personal loan repayment then your CIBIL score will increase only so much. However, if there is an account of a credit card, a car loan, etc. then your will increase a lot because of the variety of credits.
5. Loan Enquiries
A loan inquiry is when you apply for a loan with a bank and they request for your credit report from CIBIL. This instance is mentioned in the report and works against your score. In fact, if you apply for a loan with multiple banks, thus causing multiple loan inquiries in a short period, then it can greatly reduce your score.
Now that you understand how score calculation works and how you can increase CIBIL score, let’s take a look at the meaning your current score:
·        350- 550: A score in this range is considered a poor score. It’s usually because of loan defaulting or consistent late payments of EMIs, etc.
·        550-650: This is an acceptable score range but definitely not the best. It usually signifies that the individual is a fairly responsible credit user but can do better.
·        650-750: This is a range which you should strive to achieve. If your score is within this range, then you can get any kind of personal loan, home loan, etc. at attractive interest rate easily.
·        750-900: Very few people are able to reach this range as 900 is the maximum score that you can achieve. However, if you are able to accomplish such a high score then you can also enjoy several benefits that others won’t easily get.
·        0 or -1: If your score reads 0 or -1, it means there is no credit history available yet which is why there is no appropriate score.

Having a high credit score can be really helpful in the financial arena. So, be sure to check your report from time to time and take the necessary steps if you notice your score reducing.

Thursday, 7 September 2017

Most Reader's Question: Utility Bills and Credit Reports

Here are two common questions that a lot of readers might have:
What impact does delay in paying personal loan installment have?
Nonpayment of a personal loan EMI will attract interest on delayed payment till the time the missed amount is not paid and also a fine imposed by the lender. There will be an adverse impact on the credit score as well.
What happens if you don’t pay your telephone bill?
Depending on the utility provider’s policy the customer is levied a fine and in case the payment is not made after repeated reminders there might be a disruption in service. However this has no impact whatsoever on the credit rating.
Credit Scoring in India currently takes into account credit card and loan installment repayments as illustrated by the example above.  However globally this is not the practice as utility bill payment history for electricity, telephone, water is also included in the credit report and is used to calculate the credit score. Thus both lender data (loans and credit cards) and non-lender data (utility payment details) affects the credit rating of an individual. Often there may be confusion about inclusion or exclusion of utility bill payment records in the credit record and here we will try and get some clarity on that. In India currently utility bill records are not a part of the credit scoring model.
Utility Bill Payments Inclusion in Credit Reports: The Way Forward?
Utility bill payments and insurance premium payment records are known as alternative data sources and just like EMI and credit card payments can be used to assess the creditworthiness of an individual. This is useful for the lenders as well as prospective borrowers who may find it difficult to get loans as they do not have the required credit trail. Even if somebody does not have any loans or credit cards they in all probability would have a telephone, water and electricity connection. Thus inclusion of payments records of utility bills and insurance in CIBIL Report will help those in the lower economic strata, those new to credit and also those who have just started working to have a credit rating with the use of alternative data sources.
This benefits the prospective lenders as unlike before the lenders will not shy from giving them a loan or a credit card due to lack of a credit trail. Thus people who have found themselves on the fringes of organized credit can now have access to it. Thus they can now dream of buying a house, a car, start a business or get higher education with the help of a loan that otherwise would have been denied to them.
For the lenders it opens a whole new market as earlier the probable customer pool would have been limited. Since more people’s credit worthiness can be assessed based on alternative data so the lenders can expand their customer base. Also inclusion of alternative data can provide a better picture of the creditworthiness of the applicant so lenders can take better informed decisions. So for the lenders the benefit is twofold; a bigger market and better assessment of the applicant.  Getting a loan with a low CIBIL Score or no credit trail can be a challenge and this to an extent can be overcome by the use of more ways of credit behavior assessment as explained above.
The Indian Perspective:
Keeping in line with international practices recommendations have been made to include the records of utility bill and insurance payments also in the credit score calculation. However before this becomes a reality the service providers for telecom and electricity have to agree to share data and also work out the legal and practical aspects and implications of this decision.  Thus it is possible that in future that not paying electricity bill or telephone bill on time could also impact your chances of getting a loan sanctioned.

Whether all of the aspects will be given similar weighatge or will it vary and whether the utility providers will also base giving their services (as in many countries abroad) to new customers on their credit profile are all modalities that will have to be worked out.  However whether or not the utility payment records are included in credit score calculation or not it is always a good practice to always pay your dues on time.