Wednesday, 11 January 2017

Ways to clear holiday debts

Holidays are fun time! They are an opportunity to spend time with family, unwind and explore new places. Lots of times holidays can coincide with festivals which can double the joy and fun but also double the expenditure. India is a country with myriad festivals and the last quarter of the year is packed with them. So we have Durga Puja, Diwali, Thanksgiving, Christmas and of course the perfect end with the winter vacations and the New Year Celebrations in the last three months of the year. So while trying to juggle the fun, expectations of the family and the finances we can find ourselves face to face with holiday debt.
How to Clear Holiday Debts?
If one has not budgeted well or gives in to sudden temptations or some plan go awry we may be forced to spend more than we intended on the credit card. So even if it is a relatively low interest credit cards (I say relatively low because all credit cards charge exorbitant interest rates on payment delays or overdue amounts) you still can have piled up debt that requires immediate action.   
Ø  Accept the Problem:
Living in denial will not help. So the first step to resolve the issue is to accept it. Rather than waiting for the situation to become bad it is better to be pre-emptive and take remedial action as soon as you realize that you have spent more than you intended to or budgeted for the holidays. A high credit card bill (higher than what usually it is), exceeding the credit limit, resorting to borrowing are all signs of trouble. So it makes sense to be prompt in action than wait for a situation where the credit score is impacted and you are burdened with high interest costs. Missed payment, high credit utilization ratio etc impact CIBIL score calculation.
Ø  Make a Plan:
Once you know that things are not as smooth as they should be it is time to get a plan in place. So get a plan ready; identify what are the problems areas and figure out a practical yet effective plan. The plan should be workable even if it takes a while to reach the goal. No point having an ambitious plan if it is not practical. If the debts are too high then do not make a plan that involves repaying the debt at the earliest yet in a feasible way. A good way would be to pay minimum amount due on all cards even if you are unable to pay the entire amount immediately. This will save you from being a defaulter and also the penalty charge for non-payment though charges on overdue would still apply. 
Ø  Start With the Highest Interest Debt:
The biggest problem with holiday debt apart from the fact that is a mental burden is the financial burden it poses due to the interest that is piled on the unpaid amount. Credit cards are one of the most expensive debts and if you have taken a personal loan for footing the bill for your holiday expenditure then remember those are also pretty expensive. In such a scenario one must start with the debt that has the highest interest cost for obvious reasons and then go on the next most expensive and so on. Of course if you figure out a way to pay all the debt nothing like it but if you are unable to do so then pay the most expensive debt first.  
Ø  Don’t Pile on More Debt:
When trying to repay your debt there is no point trying to pile on more debt. Often credit cards are used to pay monthly bills and dues; this might be unavoidable in certain circumstances. However if one has the option then one must refrain from using credit card for these payment too and pay from the regular bank account or cash. Needless to say buying unnecessary things, shopping and being indulgent should be avoided; where ever possible defer non-essential expenditure.
Ø  Look for Options:
There is no single way to repay holiday debt and no best way. There might be multiple options that can be used to overcome this situation and one or more can be used depending on individual’s preference and choice. One could opt for balance transfer option where the unpaid balances are transferred from a credit card which charges higher interest to a card which charges a lower interest rate.  This will help you save some interest cost. You could also talk to the existing card company to convert your dues to EMIs. There is option of dipping into personal savings, using a fixed deposit or some other way to pay these dues. However any option must be used after carefully evaluating its benefits and losses.


Hopefully you do not have any holiday debt piled up but if you have the above discussion can help you get out of it. 

Friday, 6 January 2017

You can improve your credit score using credit card

Credit cards are useful; well almost a necessity for some of us now. However what if we told that a credit card could help you improve your credit score. Though it may sound surprising but it is true. A credit card if used in the right way can not only help you create and maintain a healthy credit trail but can also help in improving the existing score of an individual. As we know that credit score is important as it reflects the financial robustness and credit worthiness of an individual. So if you want to improve your credit score we have just the right ideas for you.
Use your Credit Card Responsibly:
Phrases “using your credit card” and “using your credit card responsibly” are differentiated not just by a word. This word could change a lot for your credit score. When you use your credit card responsibly your CIBIL Rating will improve. The key to being a responsible user is:
ü  Keep a Low Credit Utilization Ratio: Credit utilization ratio is the proportion of your average card spending to the sanctioned limit for your card. This ratio is considered per card wise as well for all cards put together if one has more than one card. Often one might wonder if they are able to pay on time then how does it matter how much of their sanctioned limit they utilize. However this is not the case; even if one does pay the entire amount a high credit utilization ratio reflects a credit hungry behavior on the part of the user. Apart from that high credit utilization is also an indicator of high default potential by the card holder in case of loss of regular stream of income.
ü  Pay on Time: This of course is the simplest thing and needs no explanation but we will still mention about it briefly. Paying on time is the best thing you can do for your credit score. Payment history is the biggest contributor to the CIBIL score calculation and can impact it to a great extent.
ü  Keep Old Cards: Another thing you can do to better the credit score with the help of credit cards is to keep old cards especially if you have a good track record of paying on time and keeping a low utilization ratio. A deeper credit trail gives a more accurate picture about a person’s credit behavior.
A Credit Card Could Help You Create a Credit Trail:
Absence of any type of credit will not lead to a good credit score as it does not give any idea to the prospective lender about how you will treat your debt. Thus if you have a credit card but are averse to using it we have a revelation for you. Using a credit card is the best way to create a credit history; one would not want to take a loan for it. Thus use your card carefully regularly, pay on time and do not go overboard with it. This will give you a stable credit trail.
A Secured Credit Card Could Help You:
A secured credit card can come as a life saver for somebody who has a low credit score and is unable to get a credit card for this reason. Any new loan or credit card is issued based on the credit trail one has; the lender accesses the applicant’s Credit Information Report (CIR) commonly known as CIBIL report. Based on the CIR they will then decide whether to issue a card or sanction a loan to the person. If the CIR does not give a healthy picture the application is likely to be rejected. In such a situation the applicant could try and get a secured credit card. A secured card is a card that is issued against a deposit that a person holds with the bank. Depending on the card issuer’s rule the credit limit could be 60% to 70% of the deposit value. Rest of the basics of credit card usage remains same. Thus the card issuer remains assured that in case of a default they have the deposit to fall back upon and their funds are safe.
Thus a secured credit can help not only loan defaulters but also those who have no credit trail. No credit trail means that there is no credit score too; thus getting a card without a credit score could be a challenge. However, not so if the applicant applies for a secured credit card.  Here the issuer has collateral in the form of the deposit so they would be willing to issue a credit card. Thus a secured credit offers a solution to loan defaulters and those with no credit history.
As we said earlier the credit card offers not only convenience but also a simple way to improve one’s credit score; hopefully the above ideas can help you do so.



Thursday, 29 December 2016

Top Reasons for Credit Card Rejection

Getting your credit card application rejected can be troublesome and as well as confusing. It can be troublesome because you may want a credit card for a particular reason like travelling abroad or for a bigger credit limit and confusing because you may wonder what caused your card application to be rejected. Credit cards offer great convenience and ease but just like a loan is offered based on certain parameters and guidelines laid down by the financial institutions the same applies to credit cards. A credit card will be issued if the applicant meets the eligibility set by the credit card company else (as expected) the credit card application would be rejected. There are multiple reasons for a credit card being rejected and we look at few here.
Ø  A Poor Credit History: This is one of the most common reasons for rejection of an application. Getting credit cards for people with bad credit score can be a challenge. Any card issuer would look at the credit report of the applicant to assess his/her creditworthiness and judge if the applicant is a trustworthy candidate. Somebody who has defaulted in past, is late in making payments etc is likely to do so and the credit card company is less likely to trust him/her and their application is likely to be rejected.
Ø  Too Many Credit Cards: There is no number fixed by card issuers to define as too many cards. However if the card issuer finds out from your CIR that you already have too many cards issued in your name they may reject the application.  Too many cards reveal overdependence on credit, credit hungry behavior and the also there is high likelihood of default in case of temporary loss of income and the person falling in a debt trap. A card issuer may consider it to be risky credit behavior.
Ø  Not Meeting the Eligibility Criteria: Not meeting the eligibility criteria set by the bank is also one of the causes of an application being rejected. The eligibility criteria could be related to the income level, job duration, credit score etc. Thus before applying for a card an applicant should check the eligibility criteria set by the card issuer and also make a free CIBIL check online to ensure that chances of the application being rejected are minimal.
Ø  Not Filling the Card Application Properly: While this may appear like a silly reason and one may kick themselves if the application is rejected due to this reason but it is also a probable cause. Often card applications are long and may require a lot of information and signatures. Oversight, impatience or lack of requisite knowledge can cause improper filling of forms which can result in an application being rejected. Not signing properly or using different signatures at different places could also cause problem. While this is something that can be remedied by filling in the form again correctly but may involve loss of time and delay in getting a card issued.
Ø  There is Charge-off in Your Credit Report:
If there is a noting in your CIR which states that there was a credit card balance in the past which was not paid then it could spell trouble. Any credit card company is not likely to trust you; if you defaulted on credit card balances in the past then what is to say that it won’t happen again. In such a scenario getting a card could obviously be tough.
Ø  Already High Debt Burden: Even if you are paying your dues on time and comply with the other eligibility criteria set by the card company your card application could be still denied. This could be due to a high debt burden. If the card issuer feels that your debt to income ratio is high; meaning you have a high debt burden in comparison to your monthly income they can deny you a card. Additional debt in the form of a card could put you at risk of default. This is calculated putting your credit card balances and loan dues together as against your income.
Ø  Your Address Could be to Blame: Unlike in the past where most of us spent our entire lives living in the same house or even city this does not happen anymore. Due to job compulsions and the quest for better opportunities and lifestyle people often keep moving. Sometimes inadvertently you may land up at an address which is on a defaulter’s list and you may be unaware of this. Thus in such a situation you can bear the brunt without any fault of yours.

Hopefully the above discussion can help smoothen your process of getting a card issued and there is less likelihood of a card application being rejected. Credit card applications involve the card issuer asking for your CIR which is generates a hard enquiry and impacts the credit rating.


Thursday, 22 December 2016

Have a Bad CIBIL Score, and Need a Personal Loan?

Personal loans are incredibly helpful when you need a huge sum in a short period of time. Thanks to the increasing demand for the same, banks too these days are coming up with a variety of attractive offers, low interest based schemes, and additional perks to  allow more and more people to get a personal loan. However, one thing they almost no bank is ready to compromise with today, is CIBIL score. No matter how good your relations are with your lending institution, how high is the value of your assets, and what your background is, if you are looking for a personal loan with low CIBIL score, then you are in for a big trouble.
It is unfortunate how many people are completely unaware of the importance of CIBIL score or credit score in their lives. In most cases a loan applicant learns about their credit history and score, only when they apply for a loan and their application gets rejected.  Bad credit score is the biggest obstacles that you usually have to face when you want a personal loan. However, the good news is that you can improve credit score, but it's at the cost of labour and time.
What Should I do to Improve CIBIL score?
The first thing you need to do, is to understand your current position. To do that you have to get a copy of your CIBIL report, which can be easily download from CIBIL's official website. You can also get your free credit score from www.freescoreindia.com. All you have to do is fill-out an online form, and submit a few documents. Once it is done you can get your report by paying a small fee.
A CIBIL score(which varies between 300 and 900) can be divided in three categories:
·         Excellent: A score is considered average it is falls within the range of 700-900. If yours is within this range, then you needn't worry much, for you can easily get a loan of your choice. In fact, with a score good like this you can even bargain for an attractive interest rate from your financial institution.
·         Average: A score is considered average if it falls within the range of 500-700. Most people have a score within the same range. If yours is an average score, then your chances of loan approval are also, well- average. You may have to apply for a loan at several banks, and other financial institutions, before finally getting an approval.
·         Poor: Any score below 500 is considered poor. If yours belongs to the same category, then it means you are in big trouble. Getting a loan is almost impossible for you, unless you make improvements first.
If you are having a hard time getting a personal loan approved, then here are a few things you can do to improve CIBIL score, and hence improve the likeliness  of approval -
·         Inculcating Good Payment Habits: The first step towards credit score improvement is instilling good repayment habits. Whatever loans, and/or credit cards you have, be sure to start making their payments on time. Timely payments are essential for score improvement, and every single payment counts. So, arrange your expenses accordingly, so that you won't have to miss a single payment again. 
·         Report Analysis: It is worth checking your own report for errors/discrepancies. Sometimes your credit score can take a beating just because of a small mistake. For instance, you might be paying your instalments for a particular loan on time, but if your bank provides incorrect information to CIBIL, even if accidently, then they may be led to believe you are not a responsible credit user, and deduct your score. If you find a mistake or error in your report you can have it corrected by informing your financial institution of the same.
·         Credit Hungry Behaviour: Do you have several existing loans and credit cards? Do you like to apply for loans frequently? If your answer to any of these questions is "yes", then maybe it is the reason behind your poor credit score. CIBIL deems such kind of behaviour as "credit hungry", and it reflects poorly on you. To fix it, you must become picky with your loans, and only use credit when absolutely necessary.
Credit improvement is often an uphill battle, but if you are persistent and willing to change your actions, then building  a impressive score is possible. Of course, if you want to facilitate the process, and need guidance for the same, you can also consult a professional, such as CreditSudhaar, which has a number of credit management experts.


Thursday, 15 December 2016

5 reasons why people with 750+ credit score get rejected

Having a good CIBIL score is essential in getting an approval for your loan or credit card application. However, there are times that financial institutions may reject your loan or credit card application despite you having an excellent credit score. Why? - Your credit score is just one among the many factors that institutions take into consideration. If the other factors are not up to the mark then the institutions will reject your loan or credit card application. In this article, we will look at what some of those factors are that result in your application getting turned down.

1) Insufficient income - You must be able to show lenders that you are earning a good sum each month. The reason financial institutions look at your income is that they can ascertain whether or not you will be able to pay your EMIs on time. If they think that your income is insufficient for you to make timely payments then they will reject your loan or credit card application. Keep in mind that banks and other financial institutions will look at your debt to income ratio before sanctioning a loan. Higher debt to income ratio tells lenders that you run the risk of missing out on payments. It is best to wait until you get a salary increment to send in your application.

2) Mistaken for a loan defaulter - Banks and other financial institutions maintain a loan defaulter list that comprises of people that institutions will be reluctant to lend. The loan defaulter list will have the name, age, address and other personal details of the loan defaulter. If the information that you have submitted match with a loan defaulter by mistake then your loan application can be turned down. There have been incidents where new house owners found themselves marked as loan defaulter on account of the previous house owners being in the loan defaulter list. This happens when the bank’s database automatically connects your address with the previous owner. If this has happened to you i.e. you have been wrongly listed as a loan defaulter, you can inform the bank about the same and submit your loan application.

3) Comments in credit report - Checking your credit report on a regular basis is a must. Other than comprising your personal information and credit score, your credit report will also contain comments from your previous lending institutions. The comments can determine whether your loan or credit card application gets approved or denied. One of the remarks that financial institutions would not like to see is the term “settled.” Settled means that you were unable to make payment on time in the past and the creditor has agreed to accept a lower payoff than what was originally owed.

4) Inadequate tax-paying history - Banks and other financial institutions like to see a few years of tax-paying history before giving out a loan. Institutions mostly prefer those applicants that have been filing income tax for at least 2 years, and keep in mind the longer you have a favourable tax-paying history the better. The applicants who have always paid their taxes on time are more likely to get their loan applications approved compared to those who attempt to avoid paying taxes. Lenders can use your tax-paying history as a measure to judge your creditworthiness, besides the use of credit score.

5) Availed too much credit the previous year - Lending institutions will be hesitant to accept applicants who have availed too many loans the previous year, even if they have managed to make the repayments. Lenders will have their own policies whereby they may restrict themselves from lending to individuals that have availed a lot of credit the previous year. Even if you hold a good credit score, financial institutions do not prefer applicants who are credit hungry. They will see such applicants as high-risk clients.

As you can see, it is not just your credit score that plays a role in getting your loan or credit card application approved. Lenders go through a series of things before judging how you will behave as a client. Make it a habit to regularly check your credit report as it will help you stay aware of its contents. Get in touch with the respective financial institution if you think they have made an error - such as wrongly listing you as a loan defaulter. Also make sure to always pay your taxes on time as lenders will assess your financial behaviour from this. And while you are looking into all these measures, make sure to continue putting into practice the different ways to enhance credit score. Always maintain a CIBIL score of at least 750 at all times. Lending institutions require that their applicants be financially disciplined, so ensure that you do just that.



Thursday, 8 December 2016

Ways to Remove your Name from Defaulters' List

Priya applied for a home loan. After completing all the documentation meticulously and submitting it to the bank she was feeling happy at the prospect of getting he own house. However her happiness was short lived as her loan application was rejected.  On contacting the bank she discovered that her application was rejected because of a low credit score. Her credit rating was low because of her credit card payments default a couple of months back (her credit card had been stolen). Whatever the reason might have been she was on a default list which made her a risky customer.
I am sure none of you intend to be in a position like Priya but some may find themselves on a loan defaulter list due to one reason or another. Here it is important to mention that no credit agency maintains any defaulters list. Credit rating agencies just collect and analyze data that is provided to them by all lenders about various individuals. Being on a defaulters list means that there has been some default in the credit history due to which the lenders may be hesitant to lend you.
How to Remove Your Name from Defaulters List?
If for some reason your name is on a defaulters list you need to act fast and get it removed from there as soon as possible. Getting loans with bad credit can be difficult just like for Priya; apart from that it is important to maintain a good credit health for being overall financially stable. Below we discuss ways that can help you getting your name removed from a defaulters list.
·         Check Your Report: The first thing obviously is to access your Credit Information Report to find out if you are or can be on defaulters list. It is not a good idea to be only reactive and act only when you come to know that there is problem as by that time it is too late to do something immediately which means that by then your loan application would already have been rejected. It is better to be preemptive and keep checking your score that you can take action when required.
·         Identify the Cause: After you access your CIR the next thing is to identify the problem that has caused you to be on the defaulters list. There can be multiple reasons for this. Sometimes the problem may be genuine while sometimes it could be due to an error. Thus there can be three broad reasons for a name appearing; the first is there is an error because of inaccuracy of personal details or some other person’s details entered in your report. The second reason is an erroneous reporting by a lender and the third obviously when you have actually defaulted.
·         Contact the Rating Agency: In the first scenario where the problem is due to some inaccurate details, sorting the problem can be fairly simply. If some other individual’s loan default is reported in your CIR or you have accessed a wrong report due to entering a wrong name or PAN details then let the credit agency know and they will rectify the problem. If the problem is because of wrong data sent by a lender then the rating agency cannot do anything at their end. They will contact the concerned lender and ask them to look into the matter. No rating agency can make any changes at their end without getting the requisite details from the concerned lender. Then we come to the third cause; an actual default. This is something which will require effort and working upon by you. You need to contact the lender and work out a solution. Most lenders are willing to negotiate as long as you are reasonable. If there are unpaid installments pay them at the earliest; though there is bound to be some negative impact on the rating but the future negative reporting will cease.
·         Follow Up: Once you have taken the requisite action that is either contacting the rating agency or talking to the lender you need to follow up. If the rating agency contacts the lender there will be some time lag before the necessary changes are made in the CIR. Similarly of you pay your dues then the change will reflect only in the next reporting by the lender to rating agency. So you need to follow up to check if the desired change has been made in your score. If not then you need to find out why and then take action accordingly. There is no need to take a full CIR but you could just access the free credit score; this will let you know if any change has occurred in the score.
So if for some reason you find yourself denied a loan because you are on a defaulters list then the above information can help you deal with situation.




Wednesday, 30 November 2016

Does credit score actually impact the loan approval?

If you are planning to take a loan to meet your immediate cash requirements, the last thing you would want is to face a rejection. Banks consider various factors relating to your past financial situation to determine whether you will be able to pay back the loan that you are requesting. You must have heard that most banks these days use the credit score and credit report to evaluate your loan application. A person who has a very good score of above 750 most likely gets approved. A person with a bad credit score may have to face a rejection. But is credit score the only factor that is responsible for a loan application approval? Does it mean that a person with a less than perfect score cannot secure loans? Let’s explore.
A credit score is a reflection of how a person has handled his past credit facilities. If you have a long history of timely payments of loan instalments and credit card bills in the past you get a high score. This assures the bank that you are a responsible borrower. While a number of missed or delayed payments or over dependence on debts brings down your score and signals the bank that you are a risky borrower. Banks looks for safety of the money before they extend loan to a customer. Hence it is obvious that they will give some weightage to this number. They will even offer better interest rates and terms to borrowers with a high credit score.
If you have a high score and an attractive credit report banks will definitely have a positive view about your profile but there is no guarantee that your loan will be sanctioned. Similarly a low score does not necessarily mean rejection.  There are other parameters too that are considered to analyse your repayment capacity before a final decision is taken.
Income- Being a reliable payer in the past is one thing and affording a new loan is another. The credit score only tells whether you are a responsible payer. But it is actually your debt to income ratio that determines whether you can afford a new loan. Banks compare your monthly income (income from salary, bonuses, dividends, interests) with the total monthly household expenses. If you have sufficient savings to cover the monthly loan payments banks will look past your CIBIL score and most likely approve the loan. As a rule of thumb if your debt to income ratio is 30% or lower then you are most likely to qualify for a loan from a reputed lender. If you have a lot of liquid assets like savings, stocks or government bonds that can be immediately converted into cash to service the loans in case you experience a financial setback, then you will be viewed as less risky by the bank.
Down Payment- If your credit score is on the borderline, then banks may approve your home loan application if you make a sizeable down payment. A bigger sum of down payment reduces the loan amount and lessens the risk to the bank.
Secured loan- If your score is low, bank may ask you to provide collateral or a guarantor. If you do so, they may be willing to give you loan, though at a high rate of interest and for a shorter tenure. In case you apply for a gold loan, banks will most likely not bother to check your score, since the gold itself provides enough security against any default.
Subprime loans or loans for bad credit score- If your credit score is below 600 you may not be approved by the market leading lenders. They have strict guidelines and cut offs below which they out rightly reject applications. However there are lenders who consider parameters other than the CIBIL score and offer loans for bad credit. They let you explain the reason for why your credit history went bad. If they are convinced with your rationale you can secure these loans. The only downside is that these loans often come with a very high rate of interest and a lot of hidden charges.
When you are out in the market to secure a loan your full financial profile is evaluated to assess the risk associated with lending you money. A high credit score definitely removes a lot of risk from the equation but it is just one hurdle crossed. The other important factors like your income, job stability, liquid assets, savings, current debts, down payment, collateral equally influence the bank’s final decision.