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Your CIBIL score or credit score is an important factor in determining whether you will be approved for a loan or not. CIBIL scores are generated based on your credit history which includes past credit taken and payment patterns in relation to them. A high score represents strong creditworthiness while a low score indicates low creditworthiness. Low scores will brand you a risky borrower and lenders will be hesitant to approve your loan application.
A CIBIL score ranges from 300-900, 300 being the lowest and 900 being the highest. Your CIBIL score should be closer to 900 to get the best deals on interest rates for loans. A CIBIL score of 750 and above (750-900) is considered as ideal by majority of lenders like banks and non-banking finance companies (NBFCs).
|CIBIL score range||What does it mean for your credit health?|
Making money in this world is not hard, provided you have one key ingredient – Money. We live in times where we need money to make money, and we often spend precious moments of our lives thinking how to make this money. With banks and lending agencies opening up in every town and city, one might think that getting money will become easier, but this might not always be the case. Given the risk involved in lending, almost all financial organisations rely on certain criteria to gauge the repayment capacity of an individual. A credit score is perhaps the single biggest determinant when it comes to you availing a loan, which makes it critical for us to maintain our scores.
Not only does a good score improve our chances of getting a loan/credit, but also helps us get a better interest rate (if played smart). While we give ourselves a makeover before approaching a lending organisation, paying attention to our score and giving it a makeover is just as important.
There are many reasons for a low CIBIL score. A borrower’s score can reduce because of his/her own errors and due to errors made by banks. Generally, mistakes made by banks include wrong information sent about a borrower to CIBIL and failure to update records among others.
The main factor that affect the CIBIL score of a person is his/her own behaviour. The way borrowers deal with their finances can increase or decrease their scores. Mostly scores fall because of past behavior of the borrowers. Some of the common errors that borrowers make are:
Now that we know why the credit score is important, let us take a look into what you can do to improve your score. The need to improve the score will arise only when your credit score is in trouble and you are planning to apply for a new loan or a credit card. If we are to assume that your score is not good then these are the things that you can do to help it improve.
Checking your Credit Reports regularly is a good idea because it will tell you two things that are absolutely critical to your credit score. The first will be the loan or credit card where the defaults or delayed payments exists that have brought down your score. The second thing it will tell you is the information that is recorded in the credit report. This helps in fixing the credit score because if you notice that there is negative information, in the form of defaults or delays in payments, mentioned on the report you can always approach the bank and CIBIL to get the situation corrected.
If you have applied for a loan or a credit card and your application has been rejected, the information will be recorded in your credit report. If you go and apply to another bank immediately then they will see your low score and the previous rejection and may reject your application. The best thing to do in such cases is to not apply again and wait for the score to improve.
One more reason why you should avoid applying for loans and credit cards too many times is that every time you apply for credit, the bank will ask CIBIL for your credit report and the inquiry will be recorded in the report. The enquiry by a bank can also cause the score to come down after each request for your report. This means that you suffer two disadvantages, the first being that you display a credit hungry behaviour and the second that your score comes down even if you have every intention and capability of paying back the loan/card on time.
If there are loans which you have been delaying the payments of then you should make it your priority to start becoming prompt with the payment. If you are struggling with the current EMI that you have to pay then you can approach your bank to help you restructure the debt to make it easier to pay.
When it comes to credit cards, the best thing to do is to not come too close to the limit of your credit cards. You should also make sure that you are not paying back only the minimum amount due on your cards, you need to pay back the entire amount or at least a sizable amount.
Many times people opt to settle a credit card or loan. What this means is that they approach the bank and ask for a deal that will allow them to close the debt for an amount that is lower than the actual amount due. While banks do, at times, entertain such requests, the settlement does reflect on the credit report and will have a negative effect on the score or a bank's willingness to offer fresh credit.
If you are applying for too many loans or are always near the limit of your credit card then your score is likely to come down since such activities display a credit hungry behaviour. The best thing to do is not to take a loan until unless absolutely necessary and make sure you don’t come close to your credit limits on the cards.
When it comes to loans there are two types of loans, secured and unsecured. If you take too many unsecured loans, banks tend to see it as a negative and might be inclined towards declining your loans. What you can do to is to take both unsecured loans like personal loans and secured loans likes car or home loans. P.S Credit cards also counts as unsecured credit.
This is actually a situation where you could suffer even if you are not at fault. In this scenario, if you are the joint applicant for a loan someone else has taken, and they have defaulted on payments then you too will lose out in your credit score as it will reflect in your report as well. The best way to avoid this is to ensure that the loans and cards are being paid for on time.
While it is true that a bad credit score can be damaging towards your future credit requirements, the situation is not completely beyond repair. The only thing you need to keep in mind is that it takes at least a few months for the scores to improve so you need to strap in for a bit of a wait before your scores start showing any improvement.
A Credit Card can affect your Credit Score. Read this and use it wisely to positively impact your Credit Score. Paying only the minimum due, maxing out your credit limit, skipping payment due to a dispute and multiple rejected applications affect your Credit Score negatively.
Doing all things right and still facing problems with keeping your CIBIL score, wondering what you can do more? There are several factors that affect your CIBIL score, not just bad credit behaviour in terms of payments and credit limits etc. Credit choices and their related areas can also affect your score. Some reasons are listed below:
Credit Utilization - When you use the option of credit you should always keep in mind the Credit Utilization Ratio. This ratio is a comparison of the amount of credit you have used to the amount credit you have balance. This ratio amounts to 30% of your actual score. So let’s take an example of Mr. Pandey, who has 5 credit cards, with a total of 10 lakhs of credit limit on all of them, and he decided to close 3 of the 5 cards since he actively used only 2 cards. After she followed the procedure to close the 3 under-utilized cards, his credit limit fell from 10 lakhs to 2.5 lakhs. Mr. Pandey made most of his spending on credit cards and his monthly expenditure would amount to 2 lakhs on his 2 active credit cards, due to his under-utilization of the other 3 cards his credit score drops significantly.
Loan Enquiries - If you want to buy a new car or get a loan to buy your dream home, you would like to check with few banks before you make your decision. Making multiple enquiries can raise a red flag against your name and in turn affecting your score drastically. For every enquiry you make with a financial institution, you enquiry gets recorded, and affects your score making it difficult for the bank to decide to provide you with the credit. Every enquiry brings down your CIBIL score. Let’s take the example of Mr. Pandey who wants to buy a villa in the suburbs of his city, he contacts 5 different banks for a loan of 80 lakhs, to ensure he is getting the best deal. Each of these enquiries have been recorded in CIBIL. With each record of enquiry Mr. Pandey is now eligible only for 65 lakhs, despite having a good repayment history.
Repayments - Confused? How can repayments lead to a lower CIBIL score? Well, if you suddenly pay off your credit cards bills with a huge amount of money, it can affect your score. It can make your financial records look unstable and in turn could lead to a lower score. Whereas repayment on time in an effective manner will have a positive influence to your CIBIL score. Let’s again take the example of Mr. Pandey, whose uncle expired and in his will left him with 30 lakhs, since he has received such a huge sum, Mr. Pandey decides to pay off his 2 lakh credit card bill with the hopes of increasing his credit score for his good repayment before time, but when the bank receives this payment, they are suspicious of the transaction and notes the same, thereby decreasing the score rather than increasing it.
If you have missed payments on any of your loans over the years, your credit score would be negatively affected. A higher utilization pattern equals to more repayments and, therefore, negatively affect your score.
More number of personal (unsecured) loans would also affect the score in a negative way since such loans have a high rate of interest compared to car or home loans and, therefore, more likely to result in defaults.
If you are in urgent need of moolah and applied for credit from several lenders, it will have a negative impact on your score since lenders will then be wary to issue a fresh loan while evaluating your creditworthiness.
A CIBIL score is a representation of your entire borrowing history. It’s a representation of a trend, which means that if you’d defaulted on a loan in the past, merely paying off a few credit card bills on time won’t raise the score drastically. You’ll need to thoroughly involve yourself in a routine of honouring payments on time, every time, taking more secured loans as compared to unsecured loans and never missing a credit card payment. The score will improve gradually, as you keep honouring your debts.
The Peer to Peer (P2P) lending market in India is still at a nascent stage. As per a report from the Financial Express, the P2P market is clocked at Rs.300 crore in the country. Being a non-traditional lender, the P2P market offers easy transaction process and is soon becoming a popular choice of investment option. P2P is fast becoming an easy investment option for people who do not want to go for market linked investment options. There are a majority of people who still consider multiple investment options like mutual funds, equities, debt funds etc., however all investors are not equipped to take advantage of market-linked investment options; especially senior citizens. An investor can easily earn between 12-18 per cent on these platforms.
As the P2P lending market is in a nascent stage, it will most likely not receive any mention in the budget. India’s GDP growth has slipped to a five-year low of 5.8 per cent in January-March quarter. The corporate and MSME sector by banks and traditional NBFCs has witnessed slowdown in credit flow. The report further added that overall digital lending in India will record an increase of 48% by 2023, from 23% at present. In 2017, Reserve Bank of India (RBI) notified P2P as non-banking financial companies (NBFCs) and devised guidelines for the sector. A large number of P2P lending platforms have also been mushrooming in the country. The central bank has said non-banking finance companies (NBFC)- P2P firms should have a net owned fund of not less than Rs.2 crore or such higher amount as the bank may specify. NBFC- P2P has a cap of Rs.10 lakh both in case of lending and borrowing.
As per RBI guidelines, P2P cannot provide or arrange any credit enhancement or credit guarantee. Players need to undertake credit assessment and risk profiling of the borrowers and disclose the same to their lenders. Since the RBI’s October 2017 guidelines, P2P lending and borrowing has witnessed growth trajectory and has potential to scale up in the coming years, provided it gets some incentives the government to fuel the growth.
26 June 2019
TransUnion CIBL has released a report that says Indian women have surpassed men when it comes to borrowing credit. As per the latest report, here has been increase of 48% in women borrowers between 2015-2018. This is higher than men borrowers who grew by 35% for the same period. Giving further insights the report suggested that 8.6 million women who are first-time borrowers, are opening new loan accounts per year. Around 66% of these women are from Maharashtra and four southern states Karnataka, Tamil Nadu, Kerala, and Andhra Pradesh.
Harshala Chandorkar, COO, TransUnion CIBIL stated that more women borrowers will need credit owing to the rise in education of women, increasing consumption of consumer durables in tier I and tier II markets. The rise in women borrowers is also due to a surge in number of working women. Women’s demands for consumer loans, personal loans and two-wheeler loans has recorded year-on-year increase by 31%, 19% and 14% respectively. The average CIBIL score among Indian women has registered an increase with age as per the data and was now stands at more 770. Tamil Nadu and Kerala were the two states that had the lowest borrowing risk with an average CIBIL score of 781. Women under 35 years had an average credit score of 773, while women between the age group 35-45 had a score of 776, and those above the age of 45 years had the highest average score of 785. As per the report, the 38% of women borrowers check their CIBIL score regularly.
8 March 2019
The one factor that is common in loan, credit card, fixed deposits, and other form of borrowed sum is interest. Interest rates are an important element of the economy.
Let’s learn more about interest rates:
What is interest rate?
In simple terms interest rates is the lease or rental charge that is levied by the lender to a borrower for using the asset. When you borrow the money, the interest rate is applied on the principal. Banks lend money to people and companies and charge interest to the borrowers for using the money. On the other hand, people deposit money in the bank for in the form of savings account and fixed deposit account. Banks pay money to people in the form of interest in order to encourage them to save more money.
How interest rates work?
When you take a loan or don’t pay the credit card bill, banks charges interest rate to the money that has been borrowed. These days banks offer competitive interest rates and they differ from bank to bank. The interest rate of the loan also changes from person to person depending upon factors like income, eligibility, age, and so on.
The Reserve Bank of India (RBI) determines monetary policies. Banks decide the rate of interest based on these policies. Banks take into consideration several factors like inflation, industrial production interest, among others. These factors are taken into consideration while calculating the repo rate. A repo rate is a rate at which the RBI lends money to the commercial banks. The supply of money in the economy is controlled by factors like cash reserve ratio, repo rate, reverse repo rate, and so on.
A credit score is a measure of your creditworthiness. It ranges between 300-900, 900 being the highest. It is an important factor that is taken into consideration by lenders like banks and non-banking finance companies at the time of offering you loan. Credit scores are calculated by the credit bureaus in the country after considering factors like credit history repayment behaviour and so on. In order to become eligible to get a loan or a credit card, your credit score needs to be at least 750 and above. A higher credit score increases your chances of getting quicker loan approvals and availing loans at cheaper interest rates. There are four credit bureaus in the country – TransUnion CIBIL, CRIF HighMark, Experian, and Equifax. All the credit bureaus in the country are licensed by RBI. You can check your credit score for free from any of these credit bureaus.
Secured and Unsecured loans
The interest rate differs depending on the type of loan. There are two types of loan – secured and unsecured. Secured loans are the loans that are backed by collateral (car loan) while unsecured loans are like credit cards that are related with any collateral.
7 March 2019
A Securities and Exchange Board of India (SEBI) member has reportedly summoned the chief executive officers of four mutual fund institutions and one credit ratings agency against Zee Entertainment Enterprises. According to IANS, Member SEBI Madhabi Puri Buch has summoned the four CEOs of Birla MF, ICICI MF, HDFC MF and RELIANCE MF and the CEO of ratings agency Brickworks. All the four CEO’s will be questioned on the matter in an apparent case for punitive action by SEBI. Zee Entertainment had denied any role in demonetisation-related transactions that are being probed by Serious Fraud Investigation Office (SFIO). On January 27, Zee Chairman Subhash Chandra stated that an agreement had been reached with lenders; the next morning his son said 96-97 per cent lenders have approved. However, no documents were signed off by lenders for even a week thereafter, and all announcements to that effect were patently false and misleading, added the report.
3 February 2019
Securities and Exchange Board of India (SEBI) has started examining credit rating agencies (CRA) who failed to spot any kind of tension with Infrastructure Leasing & Financial Services (ILFS) Ltd. The market regulator is also asking these agencies, how did they continued to offer the highest rating to ILFS it started defaulting on debt. Ajay Tyagi, Chairman, SEBI told Bloomberg that the regulator has started adjudication proceedings against three credit ratings agencies in the IL&FS case. IL&FS was rated AAA and the credit rating agencies failed to detect the asset-liability mismatch. Only after IL&FS began defaulting on debt obligations, these CRAs downgraded the rating resulting into a credit market crisis and forced the government to take over the infrastructure group to contain a contagion.
In November, SEBI released tighter norms for credit rating agencies as IL&FS, India’s largest infrastructure development and finance company defaulted on its debt. IL&FS defaulted in payment obligations of bank loans (including interest), term and short-term deposits and failed to meet the commercial paper redemption obligations due on September 14. The defaults also jeopardised hundreds of investors, banks and mutual funds associated with IL&FS.
18 December 2018
The increasing meddling of the government in central bank’s affairs will take a toll on the Indian banking system, according to Standard and Poor's (S&P). The global rating agency was stressing on the recent resignation of Urjit Patel as governor of the Reserve Bank of India (RBI). S&P also said that currently, there is no material change in the central bank's level of independence, especially with regards to its adoption and implementation of prudent policy. The RBI has displayed a a robust institutional culture as compared to its regional peers. In a bid to restore the health of the financial sector, the central bank was focuses on "four R's"--Recognition, Recapitalization, Resolution, and Reform. The RBI's actions in recent years have materially improved accountability and transparency in the banking system, since asset quality reviews were introduced by former governor Raghuram Rajan. S&P also added that its assessment of India's banking system continues to factor in its relatively weak governance and transparency.
17 December 2018
In a recent trend becoming popular in India, potential employers are tracking an applicant’s credit score before okaying the application.
At present, the three number digits are being used to analyse a person’s creditworthiness but according to the latest trend, the same will also impact their job prospects.
What this means is, a candidate mustn’t just worry about doing well in the interviews, they will also need to make sure to keep their credit history. A HR from a leading company has said that doing so can bring down the extent of irresponsible employees joining their company.
She further went on to say that a lower credit score shows a person has been poor with their finances and that could possibly act as an indicator into a person’s habits and lifestyle. For instance, there are also companies that are analysing profiles based on the debt a person has. In case he or she has a high debt and an erratic repayment history, chances are their predicament can affect their ability to perform better in their job.
15 October 2018
A CIBIL score is a measure of your creditworthiness. It represents your ability to repay the loan amount. It is an important measure which lenders like banks and non-banking finance companies (NBFC) take into consideration before approving your loan or credit card application.
What is a CIBIL Score?
A CIBIL score is a numerical representation of your ability to handle the credit. It is a 3 digit number between 300-900, 900 being the highest. A CIBIL score is calculated by TransUnion CIBIL, which is one of the oldest credit bureaus in the country. Lenders generally consider a CIBIL score of 750 and above is ideal. A higher CIBIL score increases your chances of getting a better credit card with higher rewards and benefits, lower interest rates for loans, as well as quicker approval for your loan or credit card applications.
Here’s how you can improve your CIBIL score”
• Having a good balance of credit: There are two of types of credits - secured and unsecured credit. In order to improve your CIBIL score it is important to strike a good balance of these two loans. A secured loan is a loan given out by a financial institution wherein an asset is used as collateral or security for the loan. Your assets like house, gold, and others are kept as collateral against your loan amount that corresponds to the asset’s value. On the other hand, an unsecured loan is wherein you don’t have to keep any of your assets as collateral. Loan against property, Car loan are examples of secured loan while credit card, personal loans are examples of unsecured loan. When you have a good balance of secured as well as unsecured loans, it suggests that you are capable of handling both types of loans.
• Maintaining a low credit utilisation ratio: A credit utilisation ratio, is the a ratio of total credit utilized by customers on their card in respect to the total amount of credit available in their card. It is essential for customers to maintain a low credit utilization ratio. According to experts, you should ideally spend only 20% to 30% of your credit limit as it will be beneficial to maintain your credit scores in the long run. A higher credit utilization ratio shows that you are overusing your money and will not be able to pay back the balance amount.
• Pay all the bills on time: It is extremely important to pay your bills on time as your repayment accounts for 35% of your credit history. Avoid making delayed payments as it will affect negatively on your credit score. Make sure to pay your credit card bills and other EMIs on time. There are several simple ways that will help you pay your bills on time. You can give standing instruction to your bank to pay off your credit card bill automatically before the due date. Also, you should always pay the entire bill amount. Never pay minimum amount due on your bills as it will reflect badly on your credit score. It suggests that you are struggling to repay your credit debts..
16 August 2018
In a survey conducted by Discover, a financial service company, it was found that one-fifth of the credit card users believe that checking their credit score could bring down their score. It is important to understand that checking one’s credit score does not impact your credit score. Checking your credit score is a soft inquiry and has zero effect on your score. However, when you apply for a loan or credit line, the lender will make a hard inquiry into your credit score which can reduce your score by a few points.
It is recommended that a soft inquiry about your credit score could help one keep track of their finances more effectively. This could also help prioritize any outstanding dues or other financial obligations. Keeping check on the credit score could also encourage responsible credit management.
6 August 2018
In order to get an approval on your loan application, you need to have a high credit score. A low credit score increases your chances of not getting a loan from banks and non-banking finance companies (NBFC). A new credit rating system has been introduced by CASHe, a digital lending company for individuals who are seeking an instant loan but have a low credit score. Dubbed as ‘The Social Loan Quotient’ (SLQ), the unique credit rating system will scan social behaviour of the applicants and show the credit score.
The new rating system from SLQ will help a large number of people who have no credit history and are thereby denied credit. The SLQ platform will leverage big data analytics, AI (artificial intelligence), and predictive tools. The CASHe platform will enable customers’ to learn about their scores within few seconds as they are generated in real-time. As a result, customers will be able to know if they are qualified for a loan instantly. Once the loan application process will be completed, customer’s will get to see their personal SLQ score. This will provide the user with a reliable tool for accessing his/her creditworthiness.
Ketan Patel, CEO, CASHe said that the main aim of the platform is to focus on individuals who have very low or almost no credit history. The platform is looking forward to revolutionise the digital lending space in India. At the same time it is eyeing to encourage other credit institutes and agencies to avail SLQ as to assess creditworthiness of mass India.
30 July 2018
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