Get CIBIL score right, ensure your application is not rejected

“Most people do not know that there is such a thing as a CIBIL score. They come in thinking that if they are currently earning enough, then getting a loan will not be a problem. Then they get upset when their loans are rejected because of a low score,” said an ICICI Bank manager, who did not wish to be named. Credit Information Bureau (India) Ltd. (CIBIL) is a credit information company licensed by the Reserve Bank of India .

“CIBIL collects and maintains records of an individual’s payments pertaining to loans and credit cards. These records are submitted to CIBIL by banks and other lenders, on a monthly basis. This information is then used to create Credit Information Reports (CIR) and credit scores which are provided to lenders to help evaluate and approve loan applications,” the company says on its website. “All loan applications are based on a CIBIL score. This also creates a chicken and egg situation since you do not get a CIBIL score unless you have taken credit at some point,” Mr. Gaurav Chopra, co-founder of Indialends, told The Hindu.

There are a host of issues surrounding the credit score that consumers do not know about, Mr. Chopra explained. “People may know that their credit history is being tracked, but they don’t know there is a single score. They don’t know about the 750 limit. They don’t know that, if their loan application gets rejected, then that further lowers their score. They don’t know the various factors that affect their score.”

The ‘750 limit’, as confirmed by many banks and by CIBIL , means that banks will in most cases only give loans to borrowers with acredit score of 750 or more. The score ranges between 300 and 900. According to CIBIL, there are four main factors that affect your credit score. The most obvious of these factors has to do with your payment history. “Making late payments or defaulting your EMIs or dues (recently or consistently) shows you are having trouble to pay your existing credit obligations and will negatively affect your score,” says CIBIL.

In addition, consistently high utilisation of your credit limit on your credit card, and a resultant large balance in your current account, is likely to negatively affect you score.

The mix of your loans also makes a difference. “Having a balanced mix between secured loans (such as auto, home loans) and unsecured loans (such as personal loans, credit card) is likely to have a more positive affect on your score,” CIBIL says.

And finally, having many new loans or recently issued credit cards negatively affects your credit score as this suggests you are credit-hungry.

Several banks also confirmed that if an individual’s loan application is rejected due to the applicant having a credit score lower than 750, then that rejection lowers the score even more.

This may seem unfair, but it makes sense from the bank’s point of view, according to Mr. Sanjay Bhattacharya, a former managing director at State Bank of India.

“The CIBIL score is aimed at repeat defaulters. If a person with a low CIBIL score, which means that he is a repeated defaulter, asks for one more loan and is rejected, then his score will fall. The assumption is that he is trying to cheat,” he said.

There are several ways to improve the credit score. To start with, always make all your payments—including phone and electricity bills—on time and use credit conservatively.

The number of credit cards you carry significantly affects your credit score, said Mr. Chopra. The more cards you have, or the more card applications you make, the more credit-hungry you seem. “The best situation is to have a single credit card and to regularly spend on it and make the payments on time. Just that will get you a high CIBIL score,” he said.

Vigilance is also crucial. “Monitor your co-signed, guaranteed and joint accounts monthly. In co-signed, guaranteed or jointly held accounts, you are held equally liable for missed payments. Your joint holder’s negligence could affect your ability to access credit when you need it,” CIBIL warns.

Author :- http://www.thehindu.com/

Reposted :- http://credit4loan.com/

Getting a loan is difficult but these things can make it worse for you

Bad credit behaviour is bad because it ruins your chances of getting any kind of funding from the banks or financial institutions. And while it is not rocket science to understand why your loan application has been rejected, we still feel its important to send you reminders about what it really means to have a 'bad credit behaviour'.

Skipping EMIs

Have you missed out on paying your monthly EMIs on any of your loan. This is quite a common trend often observed amongst young consumers, who often take loans and delay the EMI payment. "Default on the monthly payment will occur if sufficient fund is unavailable in your linked account. Defaulting on loan EMIs is detrimental to your CIBIL TransUnion Score. So ensure you pay your loan EMIs month on month and have adequate funds in your bank account for the loan EMI debit," said Harshala Chandorkar, COO, CIBIL.

Defaulter! Defaulter!

Not everyone is Vijay Mallya, who defaults on Rs 9,000 crore loan and still have a good credit score. We are aam aadmi, so defaulting isn't an option for us. "Delay or default on credit card bill payment: Forgetting to pay your credit card bill on the due date or not paying your credit card bill at all can hamper your credit score drastically. Ensure you set up payment alerts on your credit card bill and make the payments before or by the due date," she explained.

Settling down

You may think it is a wise idea to settle your outstanding credit card bill or loan but believe it or not, it is often considered to be bad credit behavior by the banks.

"If the customer has partly paid the dues and settled a loan or a credit card then the status will reflect as "Settled" in the credit report. It is important to understand that though there will be no impact of the "settlement" flag on the customers CIBIL TransUnion Score, his credit history will show a "Settled" status in his CIBIL Report and there will be Days-Past-Due reflecting on the report since the payment on the loan has not been timely. Each bank has its own policy of viewing at a "Settled" status and will decide on the consumers future loan applications accordingly. Therefore it's best to not ever get into a loan settlement," pointed out Chandorkar.

Crossing the limits

No, we aren't trying to scare you. We are only talking about your credit card limit, which if reached and worse exceeded can adversely impact your credit score. "Spending more than the assigned limit on your credit card or spending close to the limit on the credit card may affect your credit score to some extent. Therefore ensure that you spend well within the limit on your credit card," she noted.

Author :- http://www.businessinsider.in/
Reposted :- http://credit4loan.com/

Is a higher credit limit good for you?

A higher credit limit can help you build a better credit history. Take the case of Devendra Kumar. Kumar spends almost Rs 40,000 on his credit card every month. Though he pays off the entire bill in time, his high credit utilisation of almost 80% (credit card limit is Rs 50,000) is a red flag for lenders. It implies that he is at the risk of exhausting his card limit and could have trouble repaying his dues.
Credit bureaus take the credit utilisation ratio into account when calculating an individual's credit score, which is then used by banks to determine one's loan eligibility. "While computing the overall score, 20% weightage is given to credit utilisation and recent credit behaviour of the consumer," says Harshala Chandorkar, Chief Operating Officer, CIBIL. A high credit utilisation ratio means a lower score.
Now, if Kumar get's his credit limit increased—subject to the credit card issuer's conditions—his credit utilisation ratio will come down. For instance, if the credit limit is raised to Rs 1.5 lakh, his credit utilisation ratio for spending Rs 40,000 a month will fall to 27%. "A credit utilisation ratio of 20-30% is preferable. In case the ratio is higher, the applicant is seen as credit hungry," says Naveen Kukreja, Managing Director, Paisabazaar.com.  Banks may charge a higher interest on loans to individuals with a low credit score (high credit utilisation)."They are seen as risky customers," says Aditya Agarwal, Founder, Wealthy.in.

Most banks revise users' credit card limit from time-to-time based on their repayment history, transactions, outstanding loans and rise in income. A cardholder can also request the issuing bank for a hike in credit limit. There is usually no additional cost involved, though an increase through a card upgrade may attract charges. Another way of increasing one's credit limit is by opting for multiple credit cards. However, holding mutliple cards is not the best way to secure a higher credit limit, especially, if you are a shopoholic—you may end up lowering your credit score. A single credit card with a higher limit is a the best solution, says Adhil Shetty of Bankbazar.com. You will also save on the annual fee on multiple cards. 

Author :- http://economictimes.indiatimes.com/

Reposted By :- http://credit4loan.com/

You Can Stop Your CIBIL Score From Declining

Your CIBIL score may just be a three-digit number but in today's date has immense significance in your life. If you maintain a high CIBIL score of 750 and above out of 900 at all times, you can be assured that you will get access to timely credit at competitive rates. But as much as the need to keep up a good CIBIL score is being widely advocated, not everyone can understand its impact.

Most people are confused about why does one's CIBIL score drop and don't have a clue as to how to arrest its fall. A few credit fumbles here and there and you may land up with a poor CIBIL score is all that they vaguely know. However, there is no reason to be intimidated as improving or increasing one's CIBIL score is no rocket science. In fact, it lies in your own hands and you can easily stop your CIBIL score from declining by following financial discipline in these few steps.

Avail credit only when necessary 

Credit cards issuers are mostly chasing the young and the upwardly mobile with n-number of credit card offers. Most representatives make the offers sound so good that youngsters end up taking many more credit cards than they need. With simultaneous spending on all such cards, spending patterns go out of hand sooner than they know it and they are left with a mountain of debt. The rule of thumb therefore advocates that you should not be using more than two credit cards at a time and keep a strict vigil on its use.

Don't buy anything you cannot afford to with cash on your credit card

While credit cards are supremely convenient they may wreak a havoc in your financial life. Financial prudence therefore states that you should not buy anything that you can't afford to pay for in cash with your credit card. A credit card gives you the time to use plastic money in lieu of instant cash, but this is for a limited period of 28-30 days, after which you are expected to pay back your outstanding amount in full. It is therefore a cardinal financial sin to buy anything on your credit card that you otherwise cannot afford or will make a serious dent in your monthly expenses.

 Pay your outstanding amount in full every month 

This is a must do if you are using a credit card. All outstanding bills must be paid off within the stipulated time frame. If you follow this essential rule of credit use, there are slim chances of things going wrong with your CIBIL score. The moment you let go of this discipline, it is very easy to lose control and sooner than later you are likely to find yourself in a situation where you are paying off only the minimum amount each month on your credit card and have gotten yourself into a credit trap fair and square!

The outstanding payment rule also holds true to all the other types of credit that you are using. If you have availed of any other loans, make sure you keep your accounts furbished for the timely deduction of your EMI from your savings account. Missing a single payment once or twice may not make a difference but if its becomes habitual it will have a negative impact on your CIBIL score. In fact, you should have an emergency fund as a standby at all times that you can dip into anytime that allows you to pay your loan EMIs on time even if anything else goes wrong.

Keep credit utilization low

Even if you have been granted a high credit limit, make sure that you keep your credit utilization between 30-40 per cent at all times. Credit utilization is also one of the important factors that impact your CIBIL score and it is important to keep this under control in order to maintain a good CIBIL score. A higher credit utilization is not only an indication that your expenses need to be controlled, it can also bring down your CIBIL score.

Keep a close watch on your CIBIL score

This is another important aspect that most people overlook. Even those who are aware of CIBIL do not bother to check their CIBIL scores because they assume that things are automatically right. But this may not always be the case. Because of the large volumes of data that banks handle, mistakes creep in the dissemination of information about your credit usage that may seriously hamper your CIBIL score. If you do not carry out periodic checks of your CIBIL score and CIBIL report, such discrepancies will only crop up at the time you make a loan application and thus for no fault of yours your loan application may be rejected. It is therefore financially prudent to check your CIBIL score and CIBIL report at least once or twice a year.

Thus, as you can see, if you just maintain financial discipline and good credit behaviour you can indeed stop your CIBIL score from a decline. Just as maintaining a good diet and exercise is necessary for your physical health, so is financial discipline for your credit health that in turn leads to a high CIBIL score.


Author :-http://profit.ndtv.com
Reposted By :- www.credit4loan.com

A good credit score doesn't mean lower interest rates

If you thought a high credit score will fetch you lower interest rates on home loans and car loans, you can't be faulted because that is how it works in several other countries. But not in India, because the country is yet to implement the risk-based pricing for retail loans, and as of now, the credit score is used only for deciding one's eligibility for retail loans.
Banks say that retail loans are given on very thin margins. "Even if a customer has a high credit score, we cannot reduce the interest rate as the spread or the mark-up over the bank's base rate is pretty thin. We do not distinguish between customers while giving home loans or auto loans. The score will decide only your eligibility for a loan and not the final price you pay for the loan," say bankers and credit rating agencies.Rajnish Kumar, managing director of State Bank of India (SBI), who is in charge of retail loans, told dna, "We follow a uniform rate of interest for all our home loan and vehicle loan customers and not distinguish them based on their credit scores. All customers get the bank's current rates of interest on home and auto loans. Credit score allows us one more screening of customers, but the interest rates are enjoyed by all customers who get the sanction."
Harshala Chandorkar, chief operating officer, Cibil, says that the credit scoring helps customers access finance easily and faster by accelerating the loan approval process. "A good credit history gives the borrower an acceptability and helps them build a reputational collateral. Some banks are trying to correlate the credit scores to the cost of loans and we shall gradually witness risk-based pricing becoming a norm in the industry. A higher Cibil TransUnion Score will facilitate faster and affordable access to finance," says Harshala.
If you look at the interest rates of various players in the market, one easily draw the conclusion that there is a thin margin available for them, and that the competition is getting hot. As of now, State Bank of India (SBI), ICICI Bank and HDFC have the lowest home loan rates at 9.5% for women borrowers and 9.55% for general category home loans. ICICI Bank has a fixed rate of interest for ten years at 9.5% to 9.55%, while HDFC has fixed home loans of tenures two years, three years and ten years. The ten-year fixed HDFC home loan is priced at 9.75% and Axis Bank has a fixed loan for 20 years at 11.75%. The home loans have a tenure of up to 30 years.
Mohan Jayaraman, managing director at a credit-rating agency Experian, said better credit scores in developed markets mean lower interest rates. "Unlike in the developed markets where a better credit score can fetch you a lower priced loan, credit scores in India are used more like a benchmark on your credit history. It gives some information on your repayment capacity and sanctions are faster for a higher credit score," says Jayaraman.
A senior officer with Canara Bank also confirmed that a uniform pricing is followed by banks while they sanction retail loans. "Credit scores only help them understand customers better through their credit history. Loan is sanctioned on the basis of the credit score, but the pricing is based on the interest rates that the bank announces from time to time," says the banker.
Another banker said, "RBI is very sensitive about differential pricing when it comes to retail customers. So, the pricing is uniform. Even when banks launch special schemes for new customers at rates lower than those for existing customers, there is a lot of explaining do."
But a loan sanction will depend on your credit score.
So, what counts for a higher score? Cibil says the TransUnion score is arrived at by analysing the consumer's past performance on her debt obligations. This, according to Cibil, is the most important criterion and contributes approximately 30% weightage to the score. Type of loan availed, whether secured or unsecured loan, and the duration of credit history established contribute an additional 25% to the score. The total amount of credit exposure contributes another 25%. Other factors such as credit utilisation, recent credit behavior contribute the remaining 20% to the score.
Jayaraman adds, "We try and analyse how many times a consumer comes to the market to raise loans. If it is very often, then his scores may be low as it reflects that he is relying on borrowings for his needs. The Experian credit score will help banks reduce the layers of investigation on the customers. A higher concentration of secured loans like home loans is generally considered more secure than unsecured loans."
Cibil tries to gauge the amount of credit the consumer is using, if any accounts are past due, how old the consumer's lines of credit are, and the type of credit he has – whether it is all credit cards.
The increased limits on the credit card may be good news for you, but if you reduce utilisation of the credit card limits, you will get a better score. It is always prudent not to use too much of credit, says Cibil. Late payments are negatively viewed by lenders because it indicates that you are having trouble servicing the existing obligations.

Social media and digital transactions may soon determine your Cibil score

MUMBAI: Credit Information Bureau (Cibil), India's oldest and biggest credit information company, is in talks with the government to broaden the ambit of the Credit Information Act that will allow it to use alternative sources of data for deciding the credit worthiness of loan applicants.

"As of now, we are tied up by the Credit Information Act, which restricts the people we can work with," said chief operating officer Harshala Chandorkar. "We are in discussion with the regulators and the finance ministry so that the scope of the Act can be widened. But this requires regulations to change because it pertains to the confidentiality of an individual."

Credit assessment is becoming data-driven with information being collected from various sources like social media and digital transactions to determine the credit worthiness of an individual. A lot of financial technology startups are using their own data analytics as credit assessment tools.

There is huge scope for banks to lend to first-time borrowers for whom credit information is not available with them and other financial institutions. Therefore, while the change in regulations would take time, Chandorkar said Cibil would launch a new product which would give banks some information regarding lending to first-time borrowers.

"While we provide a Cibil TransUnion score for people already having a loan account or a credit card now, in a few months, we would be able to help the banks take a call for a person who might have just passed out of college. For such cases, we have devised an `emerging consumer score'," Chandorkar said. She said Cibil would look at people similar to the applicant and check if there is a score that can be given to those people. Thus, banks would have some reference points before lending.


Author:-  http://economictimes.indiatimes.com/

Reposted by:- www.credit4loan.com

You may be five steps away from a perfect CIBIL score

Maintaining a high credit score is not at all difficult. You just have to ensure prudent use of credit.
Have you ever wondered why there is such a clamor of late to maintain a high CIBIL score? Is all the information you are absorbing about CIBIL score and CIBIL report confusing to you and you have no idea how to get the perfect CIBIL score? What is the formula for success when it comes to achieving the perfect CIBIL score! Well, you may be happy to know that it is not difficult at all, and you may just be a few steps away from the perfect CIBIL score. Read on to find out how you can get there soon.

The importance of your CIBIL score

Your CIBIL score plays a very important role in your life today. Unless you have a perfect CIBIL score of 750 and above, it is unlikely that you will get access to credit when you need it. The Reserve Bank of India has made it mandatory for all lenders to look at the CIBIL score of any individual as a part of their credit assessment process. This means every time you apply for a new loan or a credit card, the lender looks at your CIBIL score to assess whether or not you are credit worthy.

In fact, your CIBIL score is not just relevant to your possibility of getting credit but may also impact your employment prospects. Corporations these days are increasingly asking for probable candidates to submit their CIBIL report along with other documents to assess whether or not they are responsible with their own credit and thus may prove to be an asset to the company by way of trustworthiness and responsibility.

Thus, there is no doubt about the fact that maintaining a high CIBIL score is of paramount importance. A perfect CIBIL score of 750 and above will open up doors of credit when you need it the most. But what must one do to achieve it? Well here are five steps that will take you closer to your goal.

No late payments

This is numero uno among rules when it comes to using credit. Whenever you have availed of a loan or a credit card, make sure that you are making timely payments or keeping your accounts furnished for an EMI to be deducted. Even a single late payment of 30 days and above will impact your CIBIL score negatively. In fact, with CIBIL considering mobile and other utility payments as a part of credit score assessment you must remember to pay all your bills on time too, to have the perfect CIBIL score.

Credit utilization

This is another important factor when it comes to your CIBIL score. Financial prudence says that your total credit utilization or the amount of credit you are using as against the total amount of credit been made available to you should not exceed 30%. This is a discipline you must maintain when you are using your credit cards. If used judiciously, your credit cards can build your CIBIL score, but if you tend to go overboard and end up overspending on it, you not only run the risk of lowering your CIBIL score, you may end up in a debt trap that may be difficult to get out of in a hurry.

Mix of credit

You must keep in mind that when it comes to your CIBIL score the type of credit that you are using also matters. Having too many unsecured loans such as too many credit cards or personal loans will impact your CIBIL score negatively. On the other hand, if you have a good mix of credit say a home loan and couple of credit cards or a vehicle loan and a personal loan, i.e a mix of secured and unsecured debt, your CIBIL score will remain high.

Too many hard inquiries

If you are in the habit of applying for every new credit card that come your way or checking out a loan for its prospects by making an application for the same, you need to stop doing so immediately. Each new application for credit results in a hard inquiry in your CIBIL report as the lender you have applied to checks out your CIBIL report. Too many hard inquiries on your CIBIL report does not augur well for you as it portrays you as “credit hungry” and makes lenders wary of lending to you.

An error free CIBIL report

CIBIL has to handle a large amount of data that comes in daily from the lenders who send information about their loan and credit card accounts to CIBIL. There is no way for CIBIL to apply a filter and see that all the information that is coming in from the lenders is correct. The onus is therefore on you to check whether the information that is relevant to you is correct. Thus it becomes very important for you to keep a strict vigil on your CIBIL report by checking it out at least once or twice annually. This is to ensure that your CIBIL report remains error free and your financial health is up to the mark

Thus as you can see, attaining the perfect CIBIL score is not at all difficult. By just maintaining financial discipline and consistency in good usage of credit you can ensure that your CIBIL score remains perfect at all times.

Author:- www.moneycontrol.com
Reposted:- www.credit4loan.com

Peer to peer lending: What you should know

While P2P platforms are gradually getting visibility, there is no regulation in place for such lending. While the RBI is constantly monitoring the growth of P2P lending, the borrowers and lenders remain at high risk until RBI comes out with a clear regulation policy.
If you are looking to raise funds for your business, bank loans are easily available under various lending schemes. However, procuring banks loans for business is not a cakewalk since business loans form a high risk category for banks.
So, if you are hoping to borrow funds without any collateral security or for a unique project which the bank may consider as high risk, you can consider a newly emerging alternative—peer-to-peer (P2P) lending, which is slowly becoming an acceptable alternative mode of lending. The numbers of P2P lenders have increased substantially, even attracting investments from angel investors.

Understanding Peer to Peer lending
Peer to Peer, or P2P, lending is a new concept in India, but has been active in the developing world for quite some time. It is based on the basic principle that you as a borrower get funded by multiple individual lenders. Therefore, unlike traditional loans, instead of borrowing one lumpsum from one lender, you borrow smaller amounts from multiple lenders.

So for example, if you need Rs. 5 Lakh for a project or for some commercial activity, you disclose your requirements on a P2P lending platform and investors willing to invest in your project will fund your project. The P2P platform will charge a processing fee from both the borrower and the lender.
Loans on offer by P2P Lenders

P2P lending offers micro finance, consumer loans and commercial loans. Personal and education loans are also available through P2P lenders under consumer loans. The popularity of P2P lenders, however, is for commercial loans where individual borrowers and lenders support one another financially.

Loan amount and interest rates

While there is no common body regulating the working mechanism of P2P Lending, each P2P lender has a different cap on the loan amount and interest rates. On an average, you can hope to get a personal loan between Rs. 25,000 to Rs. 5 Lakh. The upper limit for commercial loans can be as high as Rs. 30 Lakh. The loan tenure ranges from 6 months to as many as 5 years. Interest rates can be quite high and are in the range of 12-36% depending on the type of loan, the loan amount and tenure.

Working operation of P2P lending

To apply for a loan, you will need to register with a P2P lending portal. You can also sign up as a lender if you wish. To be eligible as a borrower, the P2P portal seeks your details, including your educational details, financial details, and employer details, etc. The portal will then check your credit worthiness by checking your credit reports like CIBIL etc, as part of their in-house verification.

Once the P2P lending portal verifies and lists you as a borrower, you will have to disclose all details, including the type of loan you need, the work you will be doing once you get the loan and all other details a possible lender should know. If any lender gets interested in funding you, he will approach you through the P2P portal.

RBI and regulatory concerns

While P2P platforms are gradually getting visibility, there is no regulation in place for such lending. While the RBI is constantly monitoring the growth of P2P lending, the borrowers and lenders remain at high risk until RBI comes out with a clear regulation policy.

For example, a borrower can go to multiple P2P lending portals and sign up and avail multiple loans for the same project. Any loans taken from P2P lenders will not get reflected in your credit score, which is again a high risk proposition for lenders. Each lender can offer you a loan at a different rate of interest as there is no regulation policy common for all P2P portals.

What you should do as a borrower or lender

Borrowing from banks or NBFC is a safer way of borrowing as compared to P2P portals. If you are still looking at P2P loans, or to register yourself as a lender, make sure you read the terms and conditions of the portal in detail. Each P2P lender will have different terms and conditions, so make sure you are fully aware of what you are getting into. Since there is no safety net for P2P lending, make a P2P loan your last priority unless RBI regulations are put in place.

P2P lending is gaining popularity and is a great way for people to raise money without the need for collateral security. However, without RBI regulation, such lending and borrowing remains a high risk affair.

Author:-www.moneycontrol.com
Reposted By:- Credit 4 Loan