Applying for loan, keep credit score high: CIBIL

Applying in for a loan, check credit score. To ascertain credit worthiness of individuals every bank are referring to Credit Information Bureau (India) Ltd (CIBIL) rating.

On an average 79% of loans approved are of customers with a credit score of 750 or above. Addressing a press conference here on Thursday, CIBIL senior vice-president (customer relations and communications) Harshala Chandorkar informed customers need to maintain a sound financial history. “It works both ways. Risk index ensures loans from banks and NBFCs are given to customers or corporate. It also helps customers with faster processing of their loans.”

CIBIL consumer bureau has an estimated 406 million database which includes 220 million consumers. Every month records are updated and a CIBIL score is applicable ahead of any loans, she added. Simply put, CIBIL TransUnion Score or credit score are set by banks for every individual.CIBIL already has in place a rating mechanism for individuals based on credit score. It can range from 300 to 900 – a higher score means better credit worthiness.

Score is based on past performance (30%), credit type and duration (25%) along with leverage (25%) and other factors (20%). Credit information is governed by RBI regulations. Besides banks, the information can be accessed by telecommunications and insurance companies. However, telecom companies use the data to set credit limit on post-paid customers only. For purpose of transparency, a bank can view an individual’s credit score only when he/she applies for a loan.

However, individual can seek information on his/her credit score from the bank directly or can apply to CIBIL for the same. For a sum of Rs 500 a customer can access his CIBIL report. The process can be offline or online at cibil.com after paying a fee.

Courtesy: Times of India

Reposted By: Credit 4 Loan

How an old default history may ruin the chances of a new loan

Imagine this: You and your friend walk into a bank’s branch to apply for loans to buy similar cars ahead of Diwali. The bank offers you a loan, but turns down your friend’s application despite identical earnings and terms.

The reason: your friend still has an outstanding unpaid bill of a few hundred rupees on an old credit card that she no longer uses.

Welcome to the world of 360 degree dynamic credit-worthiness.

Banks and credit card issuers have started scrutinising customers and their repayment pattern with a fine tooth-comb while processing loan applications.

“I did not realise that I was not eligible for any loan until I approached a bank to raise funds to buy a car. I was pointed out that I had not settled a mere Rs 150 with a multinational bank many years ago,” said Ashish Gupta ( name changed), a Delhi-based executive of a multi-national company.

Not just that. Increasingly, lenders are collating data from multiple credit information companies to test consistent loan repayment track record.

Also, even if you have had a high credit score all this time but have been irregular in repayment just one or two times, it would get registered in your credit score.

This could prompt banks to reduce your credit card limit or sanction a loan lower than the amount applied for.

Consumers can purchase their credit scores directly from firms such as Credit Information Bureau of India Limited (CIBIL), Experian Credit Information Company of India, High Mark Credit Information Services and Equifax Credit Information Services among others to know their specific “credit score.”

The ‘score’, a three-digit number ranging between 300 to 900, helps banks in estimating the likelihood of repayment of loan based on the individual’s past pattern of credit usage and loan repayment behaviour.

The closer the score is to 900, the more confidence the bank will have in the individual’s ability to repay, and therefore, sanction loans faster.With the government actively pushing to increase electronic transactions, including payments in credit and debit cards, banks said customers’ “credit scores” would be critical for credit card issuance and loan approvals.

“We are very careful about the credit scores of customers and it is not enough to get a high score just once, it is an ongoing process and it analysed continuously to ensure that default on credit cards do not rise as it, touching over 9% about 10-12 years ago,” a senior executive at a large private sector bank who did not wish to be identified told HT.

“Information on consumers’ financial habit is no more restricted to just one or two banks, information pertaining to this is now in the system and it could be accessed by any lender,” a chairman of a public sector bank said.

Courtesy: Hindustan Times

Reposted By: Credit 4 Loan

Credit information companies may cull client feedback from Facebook, Twitter to finalise scores

Independent credit information companies may soon cull information and client feedback from social media sites like Facebook, Twitter and Yellow Pages to arrive at credit scores. Some small businessmen, however, are worried that their rivals may potentially misuse the platform to harm their prospects.

Experian, which provides information to companies, gathers a lot of information from the social media space such as comments on Yellow Pages, consumer forums, company websites and published reports.

“We are working with a private sector bank to look at using information that’s available in the social media space for credit evaluation of customers,” said Mohan Jayaraman, managing director, Experian Credit Information Company of India.

Experian also has a fraud prevention service called Hunter to check costly application frauds.

Under this product, it screens and highlights potentially fraudulent applications, enabling organisations to identify fraudsters before they become customers. Information on social media will be used to detect frauds in the small and medium enterprises space. Typically, a credit report is an individual’s credit payment history across loan types and credit institutions over a period of time.

Jayaraman said that they are looking at the correlation between social behaviour/credit information and their credit rating. The project is at an exploratory stage. Credit rating companies use unstructured data like the ones on Yellow Pages, Facebook or Twitter to rate bank clients in other markets.

There are four credit rating companies in India — Credit Information Bureau India, Equifax Credit Information Services, Experian Credit Information and High Mark Credit Information.

Author: Economic Times

Reposted By: Credit 4 Loan

Don’t let the summer heat beat your credit score

It’s that time of the year when the day starts becoming longer, the scorching sun gets harsher, schools take a break and the sign of mangoes signal the onset of summer. It’s also that time when parents scout for last minute travel deals to locations far-off from the summer heat. And like the rest, Mayank and Neha have been planning a short summer vacation for their 5 year old daughter Kiara.

After scouting through various travel websites Neha finally arrived at the best deal for the family, which not only gave her an attractive discount on her hotel stay but also a 15% cashback on her credit card, a deal that would save her family a substantial amount.

But Mayank was not too keen on swiping the credit card and rather preferred paying outright cash. His displeasure comes from an earlier experience just a couple of days before his bachelorhood ended! Having swiped his credit card for the trip, Mayank then forgot to pay that month’s credit card bill in the entire melee of the post trip excitement and wedding thereafter, thus adversely affecting his credit score.

After deliberating and debating, Neha and Mayank finally decided to swipe the credit card to pay for the holiday. Although Mayank made sure to discuss with Neha and put down some ground rules on credit card usage so that it does not adversely impact their credit reports and CIBIL TransUnion Score.

Decide a budget and stay within that

Mayank and Neha chalked out the total budget of the holiday down to the daily meals, holiday shopping and commuting costs. It was mutually agreed to stay within this set budget to avoid undue expenses.

Avail travel insurance

The couple also sought to purchase considerable travel insurance coverage to be on the safer side in case of loss of baggage or theft during the holiday.

Set payment alerts

They activated and ensured alerts are kept for payment of all the credit card bills both on the phone or their emails before the due date. Late payments are negatively viewed by lenders because this indicates that you are having trouble servicing your existing obligations.

High utilisation of credit limit

While increased spending on the credit card will not necessarily affect one’s credit score, an increase in the current balance of your credit card indicates a higher repayment burden and may negatively affect your credit score. It’s always prudent to not use too much credit. Mayank and Neha mutually decided on a credit card spending cap which was way lower than the limit on their credit card.

Ensure timely payment

The couple committed to make regular and timely payments of the credit card bill in full every month. Paying off dues before the due date every month is the best way to avoid credit card debt.

Review credit report

Mayank and Neha also accessed their credit reports before jet setting on the holiday to ensure that their credit history was up to date and they both had a good credit score.

Mayank was prudent and had learnt from his past mistakes as a bachelor when he was not financially responsible. And like Mayank, many of us tend to make the same mistake, be it as a bachelor or even as a family person. Better late than never; ensure financial prudence while planning for this summer holiday to ensure that you have access to finance for all your future aspirations.

Author: Rediff

Reposted By: Credit 4 Loan

Education loan default can impact CIBIL credit score

Non-repayment of education loan can now affect one’s credit score, a top official of Credit Information Bureau (India) Ltd (CIBIL) has said.

“The education loans have to be paid once one completes his/her course and gains employment. Also, like any other loans and credit cards, education loans are also reported to CIBIL and get reflected in the borrower’s CIBIL Report and impact the CIBIL Trans Union Score,” said CIBIL Senior Vice President-Consumer Services and Communications Harshala Chandorkar.

CIBIL Trans Union Score is a key parameter relied on by banks while processing loan applications.

According to CIBIL data, the outstanding education credit, including for study within the country and abroad, stood at Rs 63,800 crore as on March 31 this year.

The data released by CIBIL throws significant light on education loan trends in the country.

While the demand for educational loan is need based, the number of new loan accounts opened in calendar year are almost same over the last five years, it said.

Noting that the third and fourth quarters of each calendar year witness a spurt in education loans, the data says about 1,30,000 education loan accounts were opened in the fourth quarter of 2014.

However, the average sanctioned amount continues to grow over time, it added.

“Average sanctioned amount in fourth quarter of 2014 was Rs 6 lakh, while in fourth quarter of 2013 it was about 4.5 lakh. In recent period, loans with amount less than Rs 1 lakh has reduced below 10 per cent of total sanctions while loans with ticket size/amount of more than Rs 5 lakh have gone up to almost 30 per cent of the total sanctions.

“In fourth quarter of 2014, loans of ticket size of more than Rs 5 lakh were around 30 per cent of total sanctions while in fourth quarter of 2012, loans of more than Rs 5 lakh comprised about 22 per cent of total sanctions,” CIBIL said.

It says delinquency on education loans has decreased over the past year.

“Delinquency for 90+ days amount overdue was around 3.50 per cent in fourth quarter of 2013 which has lowered to 2.70 per cent in fourth quarter of 2014,” says the data.

Stating that bad loans from education segment are very high, the Reserve Bank’s Deputy Governor R Gandhi had asked CIBIL and banks to “counsel” the youth on good credit behavior during the CIBIL Trans Union Annual Conference in March, CIBIL said in a release.

Author: Economic Times

Reposted By: Credit 4 Loan

Why retail customers end up paying higher interest rates than corporate defaulters

When Reliance IndustriesBSE 2.44 % with its triple-A rating goes to a bank for a loan it is sure to get the best terms possible. A company rated many ranks below may end up paying 5 to 6 percentage points more than Reliance. That reflects the difference between good credit and bad credit.

But when it comes to retail individual borrowers, banks do not provide the same benefit on cost of borrowing even if the applicants have a top credit score. More than 15 years after the credit information bureau, CIBIL, was born, neither are individual borrowers benefiting from good behaviour and sound financials, nor are banks treating retail customers the way they do companies, which are charged based on their financials.

Credit bureaus have helped banks in reducing their bad loans from the retail portfolio, and CIBIL assigns scores ranging from 300 to 900 based on the ability to repay with historical financial behaviour. Still, retail borrowers have continued to pay almost similar interest rates whether their score is 600, 890 or even 900.

All that CIBIL, the biggest credit information bureau, says is, “Higher your credit score, higher your chances of loan approval.” Almost four-fifths of bank loans to retailers are for those with a score of more than 750. This is akin to lending only to companies with triple-A to single-A, and not to those with lower ratings.

“Credit score helps retail customers in getting a loan,” says SBI’s Arundhati Bhattacharya. “We don’t give a loan unless a customer has good credit score. At present, we don’t offer an interest rate benefit to retail borrowers for a good credit score.”

Interest rates on home loans, car loans, or loans against property for investments or starting businesses are almost fixed at banks’ discretion. Home loans are charged between 10% and 13%, but within the bank, there is hardly any difference in interest rates between an individual with a credit score of 600 and the one with 890, or even 900.

In developed countries such as the US, credit information bureaus rank customers as prime, sub-prime and Alt A. Banks charge interest rates based on their rating, and do not just use that as a tool to decide on giving a loan.

“In advanced economies customers that are highly rated demand finer interest rates,” says Romesh Sobti, managing director and CEO, IndusInd Bank. “In India, banks run on the basis of portfolio pricing. Credit score has evolved, but it is being used to decide loan eligibility of an individual.” That retail borrowers are not deriving the benefits for good behaviour is partly attributed to the fact that consumer activism is not prevalent unlike in the West and that the regulator has not been pushing the case for banks to end the discriminatory stance between corporates and individual borrowers.

Furthermore, Indian banks, which are saddled with huge bad loans from lending to companies, partly offset their losses by charging more from retail customers. “Retail customers are paying for corporate clients,” says Ashvin Parekh, managing partner of Ashvin Parekh Advisory Services.

Economic slowdown and bad lending decisions on the part of banks has left them saddled with defaults. While the recovery is a long and difficult process, banks tend to offset their losses by charging other customers.

The banking sector has taken a loss of over Rs 50,000 crore as loans given to companies have turned bad at the end of March 2015. The economic slowdown and volatile recovery has taken a toll on corporate balance sheet.

Banks have restructured debt to the tune of Rs 2,86,405 crore at the end of March 2015 which is up 18.22% from Rs 2,42,259 crore last year. Loan defaulters include Bharati Shipyard, ABG Shipyard, GTL, Essar Steel, Sterling Oil Resources, KS Oil, Deccan Chronicle and Kingfisher Airlines among others, and their debt runs into thousands of crores.

Bad credit calls on the part of banks besides postponing the problem of bad loans will ultimately hurt good borrowers, for whom the cost will go up, Reserve Bank of India governor Raghuram Rajan has said.

“I am not worried as much about losses stemming from business risk as I am about the sharing of those losses — because, ultimately, one consequence of skewed and unfair sharing is to make credit costlier and less available.” Rajan said.

These huge bad loans are one of the reasons banks are reluctant to lower their lending rates even after the Reserve Bank of India reduced its policy rates. Indeed, the RBI governor had to publicly criticise banks for not doing so, after which banks reluctantly reduced the rates.

Although big lenders to retail customers such as SBI, ICICI and HDFC Bank may not be deciding on lending rates based on individuals’ credit score but rather, lend on the fixed-ticket rate, smaller banks such as Federal Bank do so to gain market share and boost their presence.

“We use the Cibil TransUnion Score to give retail customers a finer interest rate on loans,” says R Babu, consumer banking head at Federal Bank. “Credit score of 580 onwards get an interest rate advantage which could be around 200 basis points.”

Lenders like Federal may be few and far between to make a meaningful impact on the lives of retail borrowers in the next few years. But the transformation to credit score-related lending rates like in the West may be possible in the distant future.

“Using credit score to give customers an interest rate advantage is work in progress in India,” says Mohan Jayaraman managing director, Experian Indian Credit. “Very few banks are using this as a tool for rate differentiation. Globally, credit scores are used as an interest rate differentiation tool. This would be the natural progression in India as well but it will take time.”

Author: Economic Times

Reposted By: Credit 4 Loan

What if your cheque bounces? 4 reasons why you should not take it lightly

Kumar, a businessman, always prided himself on being financially well organized. From maintaining a monthly financial budget to keeping accounts, he was sure that he was keeping a tight leash on his numbers, be it personal or business-related. Despite this, it came as a jolting shock to him to know that he had a poor CIBIL score. On further research, he learned that an unintended and inadvertent cheque bounce was the culprit

Cheque bounce, in fact, is one of the most common financial offences in India that can lead to disastrous consequences for the issuer. Here is a look at the various ways in which a bounced cheque can affect you:

Penalty by the bank: If your cheque happens to bounce due to insufficient funds or any other technical reason like signature mismatch, both the defaulter and the payee are charged by their respective banks. If the bounced cheque is against the repayment of any loan, you would have to additionally bear the late payment charges (which vary from Rs 200 to Rs 700) along with the penalty fee charges by the bank.

“The penalty charges for cheque outward return are close to Rs 300 for most banks, while charges for cheque inward return are about Rs 100. The exact penalty charges vary with banks and are different for different account types. Premium accounts usually have higher penalty charges,” says Adhil Shetty, founder & CEO of BankBazaar.com.

Negative Impact on your CIBIL score: A bounced cheque can dent your financial credit history. Even a single bounce can impact your CIBIL score irreparably to such an extent that you can possibly be denied a loan in the future. The best way to keep your CIBIL score healthy is to make sure your cheques are never dishonored and that there would be at least a few thousands more than the minimum balance for your account even after the cheque is encashed.

Filling of civil and criminal charges by the aggrieved party: If you are lucky, you can get away with only a small fine paid to the bank for a bounced cheque. On the other hand, if your stars are aligned against you, the aggrieved party that does not receive the promised funds can file a civil or criminal case against you as an issuer of the cheque.

“If the cheque dishonor is willful, the defaulter can be prosecuted under Section 138 of Negotiable Instruments Act, 1881 or Sec 417 and 420 of the Indian Penal Code (IPC) 1960. Under Section 138, the aggrieved party may send you a legal notice first. If you are found guilty as a willful defaulter, you can be punished with a prison term of two years and/or a fine as high as twice the cheque amount,” informs Shetty.

Under Sec 417 and 420, a non-bailable immediate warrant can be issued. However, in both the cases, a case of cheating has to be proven. If more than 1 cheque is bounced, the payee can file separate suits against each dishonoured cheque, which can compound issues for the defaulter.

The payee, however, cannot straight away go the legal way. “He can re-present the returned cheque within 3 months from the date of the cheque, giving a second chance to the issuer. If it is returned the second time too, then he can go the legal way within 30 days of the receipt of Cheque Return Memo. On receipt of a legal notice or summons, the defaulter can settle the payment amicably out of the court at any time or proceed with a lawyer for hearing, at the court where the complaint has been registered,” says Shetty.

Other Risks: As per the RBI guidelines, banks can stop issuing cheque book facilities to any customer booked for repeated cheque bounce offence at least four times on cheques valued at over Rs 1 crore. If you have kept any collateral security with the bank for any loan and if repayment EMI cheque bounces, the banks are well within their right to issue a legal notice or deduct money from your account.

“Other than insufficient funds, cheque dishonors can happen in case of signature mismatch of the drawer on the cheque as per the bank’s records. Overwriting on cheques without authentication and issuance of cheques that have expired validity are also reasons for cheque bounce. However, legal support can be taken only if a clear case of cheating can be proven. Legal route cannot be adopted if the issued cheque is against a donation or gift,” observes the CEO of BankBazaar.com.

No need to say that always make sure that all the cheques issued by you are honored on time. If you happen to exhaust the money in your account before the cheque date, inform the payee about it through writing and issue stop payment / cancellation at your bank, or infuse sufficient funds into your account before the date of the cheque. Also, do not issue a non-account payee cheque or a cheque without crossing it in order to avoid the cases of forgery.

Author: Economic Times

Reposted By: Credit 4 Loan

Need an education loan? Banks may shut door on you

Securing an education loan for the upcoming academic session is set to be a difficult task, with several banks not keen on lending to students owing to a large number of defaults. The default rate, credit experts said, is high – 5% to 10% – in the education loan segment as against home and car loans (1.5%).
As a result, the growth rate of education loans has been steadily declining. Data from the Reserve Bank of India (RBI) revealed that in 2014-15, the segment grew just 5.7% year-on-year compared to 9.2% in 2013-14, 10% in 2012-13 and 10.36% in 2011-12.

“There is no fall in demand for loans, but the restriction is at the supply points,” said Rajiv Raj of creditvidya.com, an online credit advisory portal. “The defaults are highest in loans of Rs 4 lakh and below, where there is no collateral required.”

Education loans became popular in India after 2001, when the Indian Banks Association (IBA) prepared the ‘model education loan scheme’ to improve accessibility and affordability of education. While during the initial years, the default rate was within limits, it jumped 10%-12% after the global financial crisis of 2008.

KRS Murthy, former director at the Indian Institute of Management-Bangalore (IIM-B), said the job market scenario is crucial as banks take that into consideration before deciding whether to pass loans or not. “It’s fair, as that is how the economy works,” said Murthy. “Apart from certain sectors such as manufacturing, IT and finance, a hiring slump is expected in other sectors this year, further increasing chances of bad loans. Bad loans are the primary reason for the fall in growth rate of education loans.”

A bad loan is where repayment is not made as originally agreed upon by the borrower and the lender.

“Asset quality is a big concern for banks as the job market is not robust or is not paying enough for borrowers to pay off loans,” said Anuradha Rao, who heads personal banking at State Bank of India (SBI), the country’s largest public sector lender.

Adding to the reluctance of banks to disburse education loans, the IBA has listed only 1,100 accredited institutions.

“For admission to a private dental college in Delhi, I applied for a loan of Rs 15 lakh from a private bank. My application was rejected as the college was not in the list of approved institutes. I had to finally approach a private financer, who charged a higher rate of interest,” said Anagha Bhowmik, 20, a second-year student of dental medicine.

While some like Bhowmik are willing to pay a higher interest rate to secure a loan, there are others who need to find ways to repay their loans.

Srikant Ramesh, 25, is juggling two jobs to pay off his education loan of Rs. 4 lakh. An MBA from a tier-two college in Mumbai, Ramesh works in a mid-day shift at a telecom company, where he earns Rs. 18,000 a month, which is not sufficient to pay the EMI and support his family. The Thane-resident is forced to drive a radio cab during spare time. “My loan is for seven years at an interest rate of 12% per annum. I end up spending 70% of my earnings on the monthly instalment,” he said.

Ramesh is not an isolated case. A large number of students are often in a fix when it comes to repaying their education loans. The repayment process usually starts after the ‘moratorium period’, which is either a year after the end of the course or six months after getting a job, whichever is earlier.

The percentage of students taking a loan and the amount varies based on institutes and streams. According to experts, getting loans is more difficult for students who are not applying to top institutions or those who want to pursue off-beat courses. At premier institutions, such as the Indian Institutes of Technology (IIT) and Indian Institutes of Management (IIM), 30% students from a batch usually apply for loans. Students pursuing engineering typically apply for loans in the range of Rs. 7 lakh to Rs. 10 lakh, while those studying management tend to borrow between Rs. 10 lakh and Rs. 40 lakh.

While some top institutes such as IIM-B have started their own financial aid departments, where help, apart from scholarship from the government, is provided to students, others have tied up with various public sector banks to offer loans. Central Bank of India, for instance, provides a loan of up to Rs. 20 lakh with no collateral for students of IIMs. SBI also has special education loans for students securing admission to IITs, IIMs, NITs, AIIMS and other reputed institutions.

Also, a recent proposal by the central government is likely to encourage banks to disburse more education loans without worrying about defaults. The government is looking to create a Rs. 1,000-crore credit guarantee fund for education loans that banks can draw upon in case of defaults. It aims to guarantee a cover of up to 75% of the loan amount.

Bankers, however, are not entirely convinced. “While education sector needs such financial assurances, which will also benefit meritorious students, the risk factor for banks has not been taken into consideration entirely,” said a Canara Bank official, who did not wish to be named.

Credit Score Scare

The Credit Information Bureau (India) Limited (CIBIL) had recently announced that non-repayment of education loans will affect one’s credit score. A credit score reflects the financial health of an individual and is an important parameter for obtaining loans in the future.

Author: Hindustan Times

Reposted By: Credit 4 Loan

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