Tuesday, 29 December 2015

Getting Loans after a CIBIL Default


There have been instances when a person has been denied a loan or a credit card by a bank or financial institution owing to a bad credit report. It is often difficult to understand the real reason for the same, and what can be done to correct it.
Today, there are four credit bureaus or credit information companies in India, namely CIBIL, Equifax, Experian and CRIF High Mark. Of these, CIBIL is the oldest and hence very often, the term ‘credit report’ or ‘credit score’ is understood to be available only with CIBIL. However, all bureaus offer the same, and you can choose to avail of a report from any or all of them.

What is a credit report?
Credit bureaus maintain records of your credit history by way of a credit report. A report details information about your previous loan or credit card history, the payment pattern, length of credit history and the amounts outstanding.
A credit score constitutes part of the report and is essentially a three-digit summary of this information. When you apply for a fresh line of credit, the prospective lender scrutinises this all-important document to determine your creditworthiness, prior to taking a decision on the loan application.
These reports (and the score therein) are available for purchase on payment of a nominal fee from the bureaus, and it is always a good practice to keep track of your score by availing of this facility.
What is a credit default?
If there have been defaults on your card or loan account owing to delayed or skipped payments, this information will reflect in your credit report. Information is reported to bureaus by the concerned lenders, and it is subsequently analysed and maintained by the bureau. Note however that the bureau independently does not maintain a loan defaulter list.
To avoid being categorised as a defaulter, ensure that all payment on outstanding debt is made on time. If you are finding it difficult to meet the commitments, consider getting in touch with the concerned lender and working out a mutually beneficial solution, for example, by arriving at a settlement option that provides waivers or discounts on the current outstanding in the account.
How will a default affect my financial health?
While it may seem to be so, life isn’t over after a credit default! Yes, the situation may be seemingly impossible to get out of, but it can be done over a period of time. Unfortunately, while there is no quick-fix solution available, given time you can work towards improving your credit health.
Let us assume that you want to apply for a fresh line of credit, say an auto loan after a default has been reported to the bureau. A lender does not make a credit decision solely on the basis of a score; hence chances are that your loan will be sanctioned, albeit at a less competitive rate of interest.
In case your credit score has plummeted, you should not lose heart. Loan for low credit score or loan for bad credit score can be attained with following right approach. The first thing to do is to check your credit report. As mentioned, call for a copy of your report from any of the credit bureaus and go through it in detail. Try and work out a solution towards clearing as much outstanding debt as possible.
Further, consider applying for a secured loan product such as a gold loan, to start the process of rebuilding your score. To make this possible, be diligent with payments and ensure without fail that the EMI is serviced before the due date. Slowly, over a period of 12 months or so this account will start to reflect as ‘good’ debt on your report and will be a solid step towards bettering your score.
With this information on your report, a bank or financial institution is able to determine both your ability and intention to repay any outstanding debt. Timely payment on this loan account will therefore convey to a lender that not only do you have your finances sorted in order to pay the debt but also the very clear intention to do so.
Credit counselling is another good option to consider when you want to improve your score after a default. With the help of trained credit counsellors you can work out options that will, over a period of time, help you rebuild your score. At a later date, you will also be guided as to how you can not only maintain your score but enhance it subsequently.
Hence, to summarise, a default is not the end of the road, and you can indeed rebuild your financial and credit health.

Thursday, 24 December 2015

Paying to a Collection Agency – Check on the Following


Have you defaulted on your repayments to bank or other lending institutions? In case the answer is yes, then not only will your name reflect in CIBIL defaulter list but you would also be chased by the appointed collection agencies.

Having a collection agency contact you is never a pleasant experience. They work with an individual’s creditors (whether a bank or financial institution) to recover money when the person has failed to repay debt taken from the lender over a period of time. 
 
Historically, the very mention of a collection agency fills one with dread, but it is the unfortunate outcome of not repaying debt as per schedule, i.e. failing to service a loan or pay off credit card bills in a timely manner. In the recent past, agencies have been known to harass customers with phone calls and using intimidating language to get them to pay. If you do have any such call to your name, it is not necessarily the reason to hit the panic button. There are ways and means to work around the situation, let’s discuss what all you should know.

Confirm the authenticity of the collection agency – very often, scamsters pray on unsuspecting individuals by pretending to call from a collection agency. Hence, should you receive a call, the first thing to do is ascertain the genuineness of the caller – do not hesitate to ask for vital information such as the name of the agency, valid identification proof, and the amount they claim you owe. Remember, if someone declines to provide you this basic information, it is likely that you may be the unsuspecting victim of a fraud or scam.

Maintain detailed records – It is very important to have precise records of your interaction with a collection agency, so make sure you are diligent about it. Every time an agency contacts you, ensure that details regarding the conversation are recorded by you for future reference. This includes the name of the agency, the person/ representative you are speaking to, the amount you apparently owe, as well as the date and time that the conversation has taken place. It would also be wise to maintain a summary of your conversation. 
 
If you are contacted by any other means (apart from telephonically), maintain records – for example, copies of any letters sent to you, or emails. If you in return reply to an agency, be sure to keep a copy of that communication as well.

Request communication in writing – It is often easy for someone to go back on a spoken word, but it is not so with written communication. Hence, wherever possible, ask the agency to get back to you in writing and as mentioned above, maintain records of the same. 
 
If you receive any such communication, formulate what your response is going to be, and reply accordingly. Remember an agency cannot threaten any legal action, and if they do insist that they can, request for that in writing. If you fail to receive any such documentation, in all likelihood the claim is invalid and merely a tactic to extract payment.

Know your rights – As a consumer, depending upon the state/ area you live in; familiarise yourself with the prevailing law. If you are contacted by a collection agency, you should read up on the law/ rules and regulations laid down for agency operations, as well as those that protect you, the consumer.
With the fairly recent concerns with regards to the treatment meted out by agencies to customers, among the prohibited practices are:
  • Using threatening or abusive language
  • Calling before or post typical working hours, unless you have consented otherwise
  • Issuing threats such as carrying out legal action, which can only be done by the lender and not the agency itself
Speaking with an agency representative – Remember, the agency can request for information pertaining to your contact information. They are not privy to your banking or any other financial information, so if you are being asked for the same, firmly decline to provide it, unless relevant to the transaction you have defaulted on.

Do try and stay calm, getting flustered or getting angry and yelling at a representative may do more harm than good. Convey your willingness to work towards repaying debt, and if possible explore the possible options available to you to do so.

Making payments – Never make payments directly to a collection agency and/ or its representatives, no matter how much they urge you to do so. Also out of question is providing a personal cheque or transfer to someone’s bank account to settle dues. Instead, route all payments to the lender, and maintain proof of the same. 
 
Of course, not always does a person default on a loan or credit card payment willingly; it is also the rather unfortunate outcome of possibly dire financial difficulties. In such cases, before the case reaches the collection stage and necessitates being contacted by an agency, it may be prudent to contact the lender yourself. This may just help keep you out of the loan defaulter list. If possible, try to work out a modified repayment plan that you can easily honour, and eventually aim to pay off your debt fully.

Also, keep in mind that a default impacts your credit score negatively, hence ensure you take adequate measures to stay out of a loan defaulter list.

Tuesday, 22 December 2015

Your Loan will Save Money for You

So you are just about to give the down payment for your dream house that you have identified. The perfect locale, a beautiful view, and everything you’ve ever wanted. While you compare home loans to get best home loans rates to save money, it is very important to know that there are far more benefits to come your way? The opportunity to not just enjoy your new home, but also save some money, so that you get more bang for the buck?

How does this work for you?
Availing a housing or home loan not only makes buying property easier, but also comes with multiple reasons to cheer. Not only are your tax obligations reduced, but you can also plan your cash flow better. Let us take a look at the tax benefits you can enjoy on taking a home loan.
  • Pre-construction interest
If you have bought an under construction property, you could add up the entire pre-construction interest (up to Rs. 2.0 lakhs) and claim it in five equal installments, from the year the construction is complete. This in case of a self-occupied property, however there is no restriction on the amount in case your property is let-out.
  • Stamp duty and registration charges
Stamp duty and registration can add up to 8% to 10% of your property cost, and hence the provision of claiming tax benefit towards this payment under Section 80C comes as a relief. Of course, these can be claimed only in the financial year in which they were paid, to be deducted from the total income.
  • Interest paid
Each year, you can claim a deduction of up to Rs. 2.0 lakhs towards the total interest payable on the home loan towards purchase or construction of the house property, while computing the income from house property, as per Section 24(b) of the Income Tax Act, 1961.
If you’ve rented out your apartment, the entire interest for the year can be claimed as deduction.
Further, these interest payments will be accounted for as a loss under the head ‘Income from House Property’. This loss can be adjusted in the same financial year against other income, including salary. This works in your favour, as not only does your total taxable income decrease, but so does the tax thereon.
  • Principal repayment
Under Section 80C, principal can be claimed up to a maximum of Rs.1.50 lakhs.
Let’s assume that a housing loan has been jointly taken by a husband and wife, both of whom are earning. In this case, both can claim separate deductions when filing tax returns, to the extent of Rs. 1.50 lakhs each.
Now that you’ve got your home in place, and have an understanding of the advantages of a housing loan, let us see how education can (literally) benefit us! Yes, there are tax benefits on availing of an education loan too.
A Deloitte study shows the Indian education sector as a ‘sunrise sector’, because the market that is currently valued at US$ 150 billion is poised to take a leap.
Of course, rising costs play a role in every facet of our lives, and education is not left far behind. While it may be aspirational to study at some of the hallowed institutions in the country (and overseas), for some it may not translate into reality without financial aid. Instead of the traditional methods of funding education – dipping into your retirement savings, mortgaging or selling property or simply borrowing from an aunt or uncle – it may just be wise to have a student loan against your name.
For example, a four-year engineering course that costs approximately Rs. 6.0 lakhs now, may be in the range of Rs. 12.0 lakhs in six years’ time, and as much as Rs. 24.0 lakhs by the year 2027. So not only are you able to fund your higher education, but also avail of tax benefits.
By definition, ‘higher education’ refers to any course of study pursued after passing the Senior Secondary Examination or its equivalent from any school, board or university recognised by the Central or State Government or local authority, or by any other authority authorised by the Central or State Government or local authority to do so.
Let’s take a closer look at the tax benefits.
  • As per Section 80E of the Income Tax Act, 1961 the interest paid on an education loan can be claimed as deduction. However, what you need to know is that in order to claim this deduction your loan should be from any scheduled bank in India, or one of the two gazette notified financial institutions in the country.
  • Further, the tax benefit applies only to the interest component and not the loan principal.
  • What’s unique to education loans is that there is no upper cap on the amount claimable, and neither does rate of interest play a role.
  • Not only can you claim the deduction for yourself (if you are the student), but also if the loan has been taken to support the higher studies of your spouse, child, or a student for whom you are the legal guardian. However, this facility is not extended in the case of loans availed of for a sibling or any other relative.
  • The loan should be in your name, and can be for studies within the country and overseas both.

With all these attractive benefits stemming from home or education loans, the world is your oyster! Choose wisely, and choose well.

Thursday, 17 December 2015

Why should you compare credit cards before applying?


Shopping around for a credit card is important, because the deal you manage to get today will pay off in the coming years. Before you sign on the dotted line, make sure you know what you are signing up for, and make the credit card then work for you. Let’s take a look why comparing cards before applying for one is so crucial.








Annual Percentage Rate
This one is a biggie – the Annual Percentage Rate, or APR, is the rate of interest you have to pay on those occasions you do not pay your bill in full, or roll over part of the amount due. A majority of cards tempt users with introductory offers – either a lower APR, wherein for the first few months (or up to a year) you would have to pay a lower rate. In some cases, the interest rate can also be 0%. Hence, if you’re looking for a balance transfer or a way to reduce credit card debt, this option would work great. However, in the long run, you want to ensure that the card you ultimately sign up for does not have a very high APR, in comparison to others.

Rewards
Credit cards are favoured by a majority of the population worldwide owing to the host of attractive benefits and features they provide the cardholder with. When you make a purchase, reward points are automatically notched up on your card account, which can then be redeemed towards retail purchases, air travel, or even a gift card that allows you the freedom to buy what you want, when you want.

When you’re shopping for a card, make sure that you narrow down on those cards that give you the maximum rewards for regular spends such as grocery and fuel. If your card has handsome rewards only on premium or luxury purchases, you want to think a moment – after all, spending more to get rewards does defeat the purpose!

Credit limit
This is an important aspect of any credit card – the limit assigned to the cardholder by the issuer. When you apply for credit card, you need to ensure that the limit you are given on approval isn’t too high, or too low. The reason is, a very high limit may tempt you to spend beyond your means (remember, you ultimately have to pay off those card bills!), and an agonisingly low limit may not meet your requirements. For example, if you have larger monthly expenses they may not be met with a low limit.

The concept of credit utilisation ratio is one we must introduce here. When a limit is assigned to your card, do stay well within the same – generally, 30% of the limit is considered to be prudent usage. Regularly using a larger portion of the limit can indicate issues with solvency, as the cardholder obviously requires credit to make ends meet. A lower ratio conversely indicates that the individual is able to handle their finances judiciously.

Fees and charges
Remember, it’s not only about what you need to pay when you first get the card – over the lifetime of usage, you will need to factor in all applicable charges and fees, be it annual fees or on that unavoidable instance, maybe even late payment charges. Further, some cards tend to have higher charges on overseas transactions, so if you do travel abroad frequently, make sure that your card can support the same.

Customer service
Last – but definitely not the least – customer service is one factor that you cannot afford to overlook when you apply for credit card. Your relationship with the card issuer or bank does not end merely on receipt of the card, but continues over the lifetime of card usage. Hence, whether you need to get in touch with them for a quick question you may have, or issues with the card (which can sometimes occur), you need to be able to speak with someone who can address your concern with efficiency and ease. 
 
These are some of the more important reasons why you should compare credit cards before applying. Choose wisely and choose well, and make your card usage a happy and rewarding experience.

Tuesday, 8 December 2015

All you wish to know about Credit Score/CIBIL Score


With the advent of credit bureaus in the country as well as the world over, credit history is a term that is fast gaining recognition, and has come to be known as the key to an individual’s credit health and financial future. While there are no ways to increase credit score fast, it can be achieved over a period of time with some financial discipline.


What is a credit report?
In order to understand what credit history is, let us first understand what a credit report is. A document that is generated by credit information companies, or credit bureaus, a credit report contains detailed information pertaining to an individual’s credit history. Hence, this data includes the type of accounts (whether secured loans such as a home loan or unsecured loan such as a personal loan or credit card) held by the consumer, the length of credit history and the payment pattern (whether there are any payment delays or defaults, for example).

The information in a report is not generated by the bureau but is based on information reported by its members, i.e. lenders and other financial institutions.

What is a credit score?
Based on the information contained in the credit report, a credit score is generated. This is a three-digit numeric representation of this data, typically between 300 and 900. A higher score indicates the consumer’s creditworthiness, and offers myriad benefits at the time of availing a fresh line of credit, including the most competitive interest rates and other terms.

Why is credit history important?
As mentioned above, credit reports and scores are based upon an individual’s credit history. If your repayment track record, for example, shows delays, it could indicate to a lender that the extending credit to the said customer may not be worth the risk. A step further, if your account(s) show default, or skipped payments, the damage to your credit health is more severe. In this instance, a lender may choose not to lend at all, as it is very likely that this customer is unable to handle debt well and may default on payments going forward in the future as well.

How can one maintain a good credit history?
Maintaining a good credit history while may be challenging, is not an entirely impossible task. For starters, do ensure that you make timely payments on any outstanding loan or credit card payment – any delays or not paying up altogether can drastically affect your credit score. If you find it difficult to remember to may payments on time, consider setting up payment reminders on your mobile phone or tablet. Alternately, you could opt for various payment options including standing instructions or ECS mandate from your nominated bank account.

When you use a credit card, be judicious in your spending patterns. Every credit card comes with an inherent credit limit – that is the amount assigned to your card, available to you for spending. The ideal credit utilisation ratio is 30 percent, which indicates to a lender that you are capable of using credit well. A higher limit may indicate that the customer is not solvent, and relies heavily on credit to meet possibly even routine expenses.

If you plan to apply for a new credit card purely because it seems to be attractive, don’t. Every time you apply for fresh credit, an ‘enquiry’ is made against your credit report. Each such enquiry brings down your score, albeit for a short period of time. Hence, make that application only if you really do require that additional credit, not otherwise.
Let us assume you have a credit card that you have been utilising well for a fairly long time – that is, you have not defaulted on any payments and your credit utilisation ratio is also healthy. Well, instead of closing such an account, retain it, because ‘good’ old debt can have a positive impact on your credit score. Of course, this account needs to be maintained well in order for it to work in your favour.

Last but not the least; consider credit counselling to get the perfect credit solution. It can seem to be an impossible task to achieve and then maintain a good or healthy credit score. With an unstable credit history, your score needs to be pulled up to a better level, and working with trained counsellors from credit health management companies such as Credit Sudhaar can be of immense help. With the right credit solution for each individual based on their financial ability, this can be the perfect solution to see improvement over a period of time.

Advantages of good credit history
When your credit history is strong, you not only wind up with further credit at the best possible interest rates, but it can affect other areas of your life too – this incudes employment, getting a postpaid mobile phone connection, and even getting a prospective landlord to lease you a house or apartment.
Hence, do try and increase credit score, and while there may be no quick-fix solution it can definitely be achieved.


Tuesday, 1 December 2015

Should one check a probable spouse’s CIBIL score before marriage?



Traditionally, the use of credit scores was restricted to financial transactions, when an individual applied for a loan or credit card. Going beyond that now, other applications include checking the CIBIL score of a prospective life partner. Sounds unbelievable? Well, people are now looking at this option – and moving beyond horoscopes! – in order to ensure their financial well-being post marriage.
Essentially, you’ll find that people can be broadly categorized as spenders, those who save and those who can manage to delicately balance both. As a result, when on the lookout for a prospective spouse, people do tend to check credit scores to ensure that they are not marrying into the extremes – someone who spends lavishly may not have adequate savings, and conversely one who is thrifty may just be so frugal that they (and their spouse) may not really enjoy life. Obviously then, you would want to marry the person who can handle their money well. Like other factors the families take into consideration before marriage, knowing a prospective spouse’s credit score makes sure you don’t walk into a marriage not knowing what the finances of the other person look like.
Consider this. Let’s say you didn’t know a person’s CIBIL score when you got married, and realized within a short span of time that not only have you married the person, but also their debt (say a credit card with a history of default). When you see a credit report, any such loans or card outstanding can be pointed out immediately, and clarification sought.
Further, let us assume that at a later date, the couple would choose to purchase a house of their own. In this case, if either (or both) has a poor or bad credit score, chances are that their loan application may be denied, or offered at less than competitive interest rates and other terms. Do keep in mind that if you marry someone with a poor score, your individual score does not get impacted, or change. But what matters is this – as in the scenario explained above, if you decide to avail of a joint loan, there may just be negative repercussions.
So will marriage per se lower your credit score? Well, no. But let’s say you spend lavishly while shopping on honeymoon, and then neglect to pay off (or delay paying) those bills, there are chances that your score could take a hit. As always, whether single or married, ensure timely payment of all outstanding dues, whether on a credit card or loan account.
If nothing else, knowing your prospective partner’s credit score will help you understand their spending habits – and how well they manage their finances. If the score is not good, you may want to be wary when applying for a joint loan. If you still must, remember that you may just be exposing yourself to huge debt in the future, and you would need to pay it off as well.
Of course, not all loans are bad to have – for example, an education loan that your prospective spouse had availed of in order to take up a post-graduate program overseas. This being a valid debt, even if you see the loan ongoing, don’t hit the panic button. Just ensure you check that the loan is being serviced well, and you probably don’t have anything to worry about.
On a related note, do keep in mind that marriage itself is not always easy. When it comes down to it, you do not want to be saddled with an existing debt just because the person you chose to marry was lax about repaying it. Further, if there is one such loan (or card) to blot the credit score, what is to say there won’t be more in the future again? Money management is something that needs to be tackled well, and sensitively between a couple, and hence knowing the score prior to going ahead with that life-changing decision may not be a bad move at all!