Wednesday, 30 March 2016

How bad credit can tow away your dream car?



In this day and age where every conceivable transport you take to work is choc o block, getting your own car is no longer a luxury. Not only can you take your car to work, it becomes a huge relief for your family as well as they know you are on a safe ride. Not to mention the joy rides you can take with your loved ones at your own will!
If you are dreaming of getting your car and are researching what may be the best options for you, here is something you need to right away, and no we are not talking about saving up for your car! Apart from augmenting your savings, you need to improve your cibil score as bad credit can tow away your dreams of owning of your own set of wheels. Here are the steps you need to follow to increase your CIBIL score before you go ahead and book that car of your dreams.
Check your CIBIL report
First things first you need to know where you stand. So get onto to the CIBIL website and follow the instruction to lay your hands on your CIBIL score and CIBIL report. If you are at a level of 750 and above you have little reason to worry. However, if your score is below the level of 750, you need to make some efforts to bring it at a satisfactory level.
Are errors pulling your score down?
If you are fairly sure that you have been doing things right as far as credit behavior is concerned, look out for errors in your CIBIL report. Sometimes due to the volume of data that banks handle wrong information may be passed on to credit bureaus. There may also be a case where a banker may not have closed a loan account that you have already repaid in full and your CIBIL report may be showing that you are a defaulter. If you spot any of these errors in your CIBIL report you will have to raise a dispute with CIBIL. Dispute resolution may take up to a month depending upon the nature of the error, so make sure you have that kind of time buffer.
Increase your CIBIL score
If you intend to buy your car in about six months to an year from now, you have enough time to spruce up your CIBIL score, just in case you have made some errors with regards to the way you have handled credit. This needs to be rectified right away so make sure you go about making timely repayments on all your outstanding loans including your credit card. That is half the job done. Next, ensure that your credit utilization or the amount of credit you have used as compared to the total amount of credit made available to you is between 30-40%. Finally, do not apply for any other loans or credit cards in quick succession just before you make an application for a vehicle loan. This will make you seem credit hungry and will not put your case in good stead when lenders are considering your loan application.
 Do bear in mind that the RBI, the central banking authority has made it mandatory for all banks to consider the CIBIL report of an individual as a part of their credit assessment process. Thus if you do not have a satisfactory CIBIL score, it is likely that your loan application can be rejected at the very beginning.
Research before your purchase decision
Armed with a good CIBIL score, you are ready to check out lenders and compare car loan interest rates. Before you approach a bank, make sure you have done adequate research yourself. You can use the services of various web aggregators who provide auto loan EMI calculators and comparison charts that will help you make an informed decision.
Also make sure your papers for your car loan application such as salary slips, identification documents and the likes are in order so that your loan application can be processed swiftly in a hassle free manner. Once you have a good CIBIL score you will also be at a vantage point to bargain better with your lender on your car loan interest rate.
A trustworthy customer is always a prized catch for any bank and a good CIBIL score may just be your ticket to a car loan at an attractive rate of interest. Once your loan goes through it is only a matter of time till your dream car arrives at your doorstep! So enhance your credit score and get ready to be known as a car owner!


Wednesday, 23 March 2016

What Credit Score Do I Need To Get A Car Loan?



If you need a personal loan or a car loan, is the same credit score acceptable for both types of loans? Well if you have a very good credit rating like above 750 then obviously you do not need to worry because anyways you will be eligible for both loans at the score. However if let’s say the applicant’s score is 650 then will the loan application be denied for both the loans outright or  can you get one loan and not the other?  Is there a basic level of credit score predefined by lenders, below which a loan is not available or are there other considerations also that impact the decision.
Credit Score and Loan Approval
Credit score affects the lenders decision for accepting a loan application, however there are other factors also. It is possible to get loan for low credit score at higher rates; for secured loans like car and home loans a bank may be willing to consider a low rating as they have an asset to cover the risk but for a personal or education they might not be willing to do so.
Another factor that will contribute to the decision making process will be the size of the loan and the LTV (loan to value) ratio. Obviously for a lower score the lender will be willing to offer a lower LTV and reverse for a higher score. When lenders look at credit ratings they also consider the reason for it being low, a poor track record in paying obviously throws up a red signal but if the score is low due to a skewed balance between unsecured and secured loans then the lenders might be willing to take a more lenient view. So a host of factors apart from the credit rating go into a lenders decision of sanction a loan.
So What Score Do You Need to get a Car Loan?
Like discussed above the credit score required can vary as per the loan type; here let us discuss what score is required if one is looking for a car loan. If one were to compare car loan interest rates one would realize that there is variation at which loans are offered by different vendors. NBFCs and co-operative banks are generally more flexible in their term and conditions, though they may offer loans at higher rates.
Banks like ICICI and Axis Banks offer loans at a CIBIL score of more than 750 while HDFC accepts a 780 plus score for a car loan.  L and T Finance offers it at 640 and more but at a rate higher than the above three banks. Some NBFCs may be willing to offer a loan at a score of around 500 also but their interest rates are an exorbitant, almost 15% compared to a 10% range of a mainstream bank.
Some banks like Union Bank of India may go beyond the credit score when deciding whether to accept a home loan or an auto loan application. The bank uses an internal model for scoring, which they use for making this decision. They take into consideration the applicant’s age, income, job stability etc for accepting or not accepting a loan application.  As stated earlier banks do consider other factors; if the score is lesser than the accepted level but the applicant is working for a reputed organization and has a stable job then the bank may be willing to be flexible or the bank may offer a lower LTV.
Generally rather than a fixed number banks may be willing to look at a range. For a score that is in the range of 720 to 40 banks will go the extra mile to check about the reasons for the low score. A score of 670 to 720 means some issues but the lender might be willing to consider lending as long as the applicant has a reasonable explanation or is able to convince the lenders about his repayment capacity. 600-660 implies problems and it is at the lender’s discretion if they want to make an exception. A score below 650 is an indication that you need to approach a NBFC if you do not have the time to wait and improve CIBIL score but you should be prepared to pay higher interest rates.

Thursday, 17 March 2016

Five Things That Don’t Affect Your Credit Score


Your credit score is not a permanent writing on the wall. It changes with your credit upkeep behaviour. What ‘is’ and ‘is not’ good credit maintenance may often be confusing. You may think you are displaying responsible financial behaviour only to find out it’s not accelerating your CIBIL score as expected. It’s time to debunk some myths and get a good solid perspective on what works for a credit score and puts it in the high-performing zone and more importantly what cannot touch the number in any possible way – good or bad. First, let’s go back to the basics.

What is the implication of this all-important CIBIL score and who has the power to change it? The three-digit CIBIL score is not a randomly generated slot-machine number. It is the combined result of inputs from member institutions from whom you have borrowed credit in some form – loans or credit cards. If you have ever made a credit card application to a bank, the way you have handled the money will be passed on as information to CIBIL, whether you still have the card or not. This information includes the length of time you have had the credit card, the number of transactions you have made, how timely you have been with your repayments, whether you show a pattern of reaching the maximum limit, whether you scrape by with minimum payment or clear off the debt every time you draw credit. In a nutshell, this is the kind of information that determines your CIBIL rating. This is just one example of credit behaviour. Similarly, the credit behaviour of every loan or credit facility you have availed of – whether a higher education loan or a car loan, is fed into your CIBIL score. The CIBIL algorithm crunches out your 3-digit number based on these inputs. When we talk of financial responsibility, it is with regard to credit responsibility. 

So, what are the common assumptions that lead you to believe that your CIBIL score might be affected, when in reality they don’t?

Gender is a non-bender
Man or woman – you are equal in the eyes of CIBIL. There are no special brownie points for belonging to either sex. It all comes down to how you have handled the money from lending institutions – your unique money personality. Though studies reveal that a woman is more debt-shy and men tend to carry more debt than women in some domains, like a land mortgage loan, it all boils down to the approach you have towards being financially responsible. Belonging to either gender does not by default earn you a higher score. Being money-wise, does.

Assets don’t count
Your savings / current account, insurance policies are not within the purview of CIBIL. If you fail to pay your insurance premium, your CIBIL score will not punish you. On the other hand, if you prefer to pay your way through debit cards, your 3-digit number will not automatically improve. Though, you might argue, that is the highest form of financially responsible behaviour, CIBIL understands only your attitude towards credit. 

Income has nothing to do with it
Your income is a potential factor when you apply for loan, for example, private personal loans. And that is exactly where its power over your score ceases. If the loan has been approved, it is on the basis of your repayment potential. Once this is factored in by the credit card company, your income has no say in your score. That means, a low income doesn’t indicate a low score and vice-versa. Of course, it helps your score if you have the right intention and means to honour the credit given to you – so a steady income is an advantage in repayment.

Checking your score repeatedly does not devalue it
No. When you check your own CIBIL history, it is a “soft” enquiry. Soft enquiries don’t hurt your score. In fact, if you check your score regularly, you are ensuring its health and that is commendable. But, beware of “hard enquiries”. For example, if you have approached multiple lenders to get the best car loan interest rates and these lenders make enquiry into your credit history, your score will take a temporary beating.

On-time bill payment is not tonic for your credit score
You may be religious in your habit of paying off all your monthly dues – rent, utility bills and medical bills. It shows you are disciplined, organized and dependable. Unfortunately, this financially responsible behaviour has no visibility with CIBIL. Why? The same reason. These payables are not debts to a lending institution.
Good financial attitude towards your credit is all that matters in a good score. You income, gender, education, employment, assets, social and economic accountability have no bearing on your credit score.

By Team Credit Sudhaar


Thursday, 10 March 2016

Maximize Your Credit Score by Using Credit Cards Wisely


“With a credit card, come a great credit responsibility”
-          Anonymous

Often you must have read about what a menace a low credit score can be. Apart from its “dream shattering” effects it can lead to social embarrassments for you. You may even be declined a job offer due to a poor score. And, most importantly, it can dent your financial confidence. But, hey, don’t lose heart. We are here to help. This article will guide you in your quest to improve CIBIL score and maintain it.

The idea of working towards a better CIBIL score is no rocket science. Among the different ways that you can adopt to improve your score, one of the most effective and easy way is to use your credit card. It can take you to the summit of your credit score.

How dependable is a credit card?
A credit card can be your best friend if you know how to use it wisely. It can be used in your time of need, just like a good friend. In today’s age, it is highly unlikely to meet someone who does not have a credit card. As you may know, credit cards are plastic money with a predefined credit limit. You can spend it upto that limit at a point of sale, for online transactions or even withdraw cash through an ATM. It gives you instant credit which you can enjoy for a period of usually 30 to 45 days, depending upon your payment cycle. You can apply for a credit card through any of the banks.
Your existing score, average monthly income and repayment history is all that a bank will consider to determine the limit on your card. It varies from an individual to another. Please note, before you apply for a credit card, your existing score is considered in approving your application. With an unfavourable score you may be declined the opportunity of using a credit card. However, there is light at the end of the tunnel. You can apply for a secured credit card in such a case. Using this card with planned expenses and repayments you can enhance your score and then apply for a regular credit card.

How does it help me build my score?
When you are sent a bill with all the expenses you have made in a month, then these are what you can do:

1.       Pay the amount due on time: A late payment will not only attract a late payment fees, but it will also reflect poorly in your credit report and score. It will suggest that you are not a dependable credit user. Frequent missed payments, will have adverse effects on your score.

2.       Pay atleast the “Minimum Amount Due”:  By paying at least the minimum amount that is due before the due date, you can ensure that no late payments are mentioned in the report.

3.       Do not use the entire credit limit: Experts believe, using your limit in entirety shows you as a “spendthrift” and that you are building excessive credit on your account which you may not be able to handle in future. Do note, using the entire limit has no direct bearing on your score, but it does shed a negative light on you.

4.       Set Alarms or make use of reminders: We all carry smart phones these days. Setting alarms or reminders for your due payments will help you pay on time. Thereby, you have it all sorted and do not have to worry about any late payments.

5.       Set Auto Debit instructions on your salary/ savings account: This means, every month on the due date there will be an auto debit of the requisite amount from your account. Now, even if you do not have the time to make the payment, you can be assured, that you are well taken care of.

6.       Stop applying for too many credit cards: You can shortlist the credit cards on the basis of all benefits that suit you. Do not take credit cards to just fill up your wallet or to show off in your social circle. This is so because it will be evidence of your “credit hungry” behaviour.

7.       Don’t throw away your old cards: Keep your old cards with you just like you keep your old jeans. An old card proves that you are a seasoned player of the credit world and are aware of how to prudently use your credit.

Is there a flip side too?

Yes. Experts advise that you must aim to make the payments on your card in full. Often because with the help of a credit card we can leverage our monthly budget & we tend to exceed our means. When we are not able to pay the amount in full, the late fees and interest levied, together help build the outstanding into a huge amount that may become burdensome. All this will make future lenders wary of getting involved with you financially.

Also, when you decide to cut down on your credit cards, do make sure that it is reported to the banks as “paid in full” with no balance outstanding. A report of “settlement” will again shed a poor light on your account.

Don’t have too little cards. Just have an appropriate number where you can justify the usage of credit vis-à-vis the credit limit available to you.

Summary

Remember all credit information is reported to CIBIL every month. Your score and report mirrors your credit performance. A diligent behaviour will reflect in your report and score and tell prospective lenders about your credit responsible past. Be meticulous in your financial planning to achieve your economic goals.
Happy credit to you J



Wednesday, 2 March 2016

Why You Should Care About Your CIBIL Score?


Before discussing the importance of the CIBIL Score let us have a brief look at what the CIBIL Score is. CIBIL Score is a three digit number that sums up the credit health of an individual. The credit score reflects the repayment history of the individual, it also takes into account the credit mix, credit utilization ratio and also whether one is credit hungry or not.
Any lender when lending money would like to be sure about the safety of the amount in the borrowers hand. i.e. they want the full amount to be returned back and on time. This is where the credit score comes in; apart from this a credit score could be useful in other situations too. So you should definitely care about your CIBIL score and if required try and increase CIBIL Score too.

Helps in Getting a Loan Sanctioned:
The most obvious and important use of the credit rating is in getting loan applications approved. A low CIBIL rating can spell trouble; for applicants who have low credit rating getting a loan sanctioned can be difficult. If the lender is not satisfied with the repayment potential or the intention of the borrower then they would not like to extend a loan to that person. A low credit score means that the application will not be processed further and will be rejected at the first step. So whether one is looking for small personal loans or a big housing loan, a good credit score is a must.

Can get you Better Deals:
Another reason which makes it important that you care for your CIBIL score is that a good score paves the way for you to get preferential rates or some special discounts. Lenders may be willing to lend to those with a low risk potential at lower rates. A good CIBIL rating indicates a lower risk level and lower the risk, lower the interest rates tend to be. Though this might not be true in every case but the prospective borrower can negotiate better rates and since he has a bargaining chip in the form of healthy rating he could go to a lender who is willing to a lend at  a lower rate. It is possible to negotiate a waiver of the processing fee too.

May Help You in Getting a Job:
This may sound a not so obvious advantage of being credit healthy but this is definitely the way forward. As of now few industries like the banking and finance may be asking prospective employees to submit the credit reports as part of the back ground check but this trend will soon catch up as employers want people who can be trusted and do not become a liability to the company due to their irresponsible credit behaviour. Those looking for top management positions are also being increasingly asked to provide their credit history; top management positions require disciplined organized people who plan ahead and have integrity. A credit reports exhibits whether the applicant has these qualities or not. There is no short cut to improve credit score fast, so you may miss a lucrative opportunity due to a poor credit rating as the opening won’t be left vacant till the time you manage to improve the score.

Aids Faster Processing:
Loan processing takes time as the lenders have to make their due diligence. A low score will require a bank to make extra enquiries, deliberate more on your loan application and take extra care and time before they can accept your application. A healthy score indicates that the applicant can be trusted; the lender does have to spend time being sure about the applicant’s credit worthiness which makes processing of a loan application faster. There are times when you may require a personal loan due to an emergency, a quick home loan as there is special deal available or an education loan before the last day of applying to a college. In such instances getting your loan processed quickly can make or break a deal. Being armed with a good credit score will help you to get quick access to credit.

Apart from the above reasons, you need to care about your credit score because it is an indicator of your overall financial health too so stay credit healthy always.