Glossary

Asset Classification (AC) – It is important to note that some banks report DPD as per the Asset Classification norms defined by RBI, which are as follows: 

                         



Actual Payment Amount – Is the amount you have paid to you lender if it is different from the EMI Amount. This may be more or less than the EMI Amount.


Amount Overdue - Indicates the total amount that has been paid to the lender in a timely fashion (includes principal and interest amount)


Cash Limit – Applies to credit cards specifically, It is the amount of cash you are permitted to withdraw from your credit card.


CIBIL – Credit Information Bureau of India Limited


Credit Information Reports (CIRs) - A report on a loan applicant’s willingness and ability to make payments in a timely manner in the past.


Credit Rating (CR) – A judgement of a person’s ability to repay debts. The rating is often based on a person’s current and projected income and past debt payment history. Also called a credit score.


Credit Score – Is a number, between 300 and 900, that reflects a person’s credit history.


Control Number (CN) – This is your report number and is essential if you need to raise a Dispute Requests.


Collateral – Is provided to a lender as security to protect the lender in the event you are unable to repay your loan. This may be property, shares, gold, etc.


Credit Limit – Applies to credit cards and overdraft facilities. It reflects the total amount of credit you have access to with regard that credit card or overdraft facility.


Creditworthiness – The ability of a consumer to receive favourable consideration and approval for the use of credit from an establishment to which they applied.


Current Balance – Is the amount you still owe on a particular c credit card facility. Lender, typically take 30-45 days after your payment is received to update this information with CIBIL.


Dispute – If a consumer believes an item of information on their credit report is inaccurate or incomplete, they may challenge, or dispute the item. CIBIL will investigate and correct or remove any inaccurate information or information that cannot be verified.


DPD (Days Past Due) – DPD or Days Past Due apears in the Account information section of your CIR. The DPD indicates how nary days a payment on that account is late that month. Anything other than ‘000’ or STD is considered negative by a lender.


EMI Amount – Is the EMI (Equated Monthly Instalment) that you pay on the loan.


Enquiry – Enquiries are added to your report when you apply for a loan or credit card and the lender decides to access your CIR. Details such as the name of the loan provider size and type of loan are captured in this section. Please note that the date of the enquiry may differ from your actual application date because the lender may access your CIR a day or more after you have applied.


High Credit – Applies to credit cards and facilities. It reflects the highest amount ever billed (including interest and fees) for that particular credit card or overdraft.


Ownership – This field tells the lender who is responsible for payments on that loan or credit card. There are 4 types of indicators that can appear on your CIR:
1. Single: You are solely responsible for making payments on the accounts.
2. Joint: You and someone else bear joint responsibility to payments on these accounts. this wiIl also reflect on the other individuals CIR.
3. Authorized User: This is used for add-on credit cards that you may have. While this reflects on your CIR, lenders know that you are rot responsible for paying dues on that particular account.
4. Guarantor: A guarantor pledges to repay a loan on behalf of a third party who has taken a loan. Hence, he provides a guarantee to the lender that he will honour the obligation, in case the principal applicant is unable to do so.


Repayment Tenure – Is the term at your loan. This field is to be read with the ‘Payment Frequency’ field in order to accurately understand the term or the loan. For example, 120 at a monthly payment frequency would mean the term of the loan is 10 years.


Sanctioned Amount – This is the loan amount disbusmed is Applies to account types other than credit curds aid overdraft.


Settlement Amount – When an amount owed on a loan account in disputed, the individual and lender settle at some amount in between. lt’s what the lender believes is owed and what the individual believes he should pay. This is the amount the individual has agreed to pay. The rest of the amount (that the lender believes is owed) is written-off by the lender.


Suit-Field / Wilful Default – In case the lender has filed a suit against you, there is specific reporting prescribed by the Reserve Bank of India (RBI). This is as follows:
1. No Suit Filed (or the field will be blank); 2. Suit filed; 3. Wilful Default; 4. Suit filed (Wilful Default)


Written-Off Amount (Principal) – This field reflects the principal unpaid written-off by the lender. It follows that the difference between the total and principal written-off amounts is the interest amount that has been written-off on this account.


Written-Off Amount (Total) – When a loan is written-off there is an interest and principal component. This field reflects the total interest and principal amount written-off.


Written-Off and Settled Status – If this section is populated the lender has either restructured your loan by offering you different terms (extend the loan tenure or reduced the interest rate, etc) Written off this amount, or settled at some amount less than what the lender believes it was owed.
The possible values are as follows:
1. Restructured Loan; 2. Restructured Loan (Govt. Mandated); 3. Written-off (WO); 4. Settled; 5. Post (WO) Settled

Source: Secondary

Can balance transfers hurt your credit score?

Many credit card companies offer free credit card balance transfers in order to entice consumers to choose their service over a competitor. In addition, credit card companies may offer a grace period in which no interest is charged on the outstanding balance. With proper diligence, a savvy consumer can take advantage of these incentives and avoid high interest rates while paying down the principal. But be sure to read the fine print, as many credit transfers involve hidden charges, such as one-time fees on the balance transfer. Undergo various aspects of balance transfers that can either help your credit or hurt it:

• Every time you apply for credit, a hard inquiry is made on your credit report. Each hard inquiry has the potential to lower your score. If you apply for five different cards, you could lower your credit score by several points. To keep the negative effect on your credit at minimum through the application process, do your research and only apply for one card. After transferring a balance to a new card, keep the old account open.
• Depending on the right circumstances, a balance transfer can be a good way to pay down credit card debt. By initially applying for several different cards with low introductory rates, you can negatively affect your credit. A few percent of your credit score is based on the length of time your credit accounts have been open. The longer you have your accounts, the better your score. By opening several new accounts, you bring down the average age of all your credit accounts, thereby hurting your credit.
• Closing a credit account can negatively affect your credit but by keeping existing accounts open, your average account age remains high. If possible, find a card with a credit limit much higher than the amount you need to transfer. Exhausting your credit limit brings your credit utilization ratio down. Finally for maintaining a good credit score, you will have to make payments without missing any deadlines.
• Source: Secondary

Partial amount recovered after a year long battle, says a cyber crime victim!

A clearing agent, who lost Rs 20 lakh in a matter of half an hour to cyber crime, has got back only a part of the amount after fighting a year-long battle. However, the police are yet to make any headway in the case and find out the culprits.

The Ballard Pier Metropolitan court recently ordered release of Rs4.89 lakh to Rajesh Rele from one of the banks, where the stolen money had been transferred in smaller amounts via net-banking. Rele has been asked to furnish a personal bond, which means that he is under the obligation of returning the money if any claimant comes forward and is notified as the rightful owner.

Gamdevi resident Rele is a partner in M/s Eastern Clearing and Forwarding Agency. To make payment towards custom duties he had activated the phone banking option, allowed by his bank in Fort.
              

On May 16, 2013, Rele received a missed call on his mobile phone. When he returned the call, he found that an unknown person was on the other side. Few hours later, Rele's mobile phone services were suspended. Concerned, he contacted his mobile operator. He was surprised to learn that his service had been deactivated on 'his' request.

Rele informed his mobile operator that he had not placed any request to deactivate his service. It was then he was asked to check whether his bank account was secure. To Rele's dismay, a total of Rs 20 lakh had been usurped and the money had been transferred to different accounts in bank in Delhi and Kolkata through netbanking.

He rushed to his bank and directed the accounts to be freezed. A Delhi account where Rs 7 lakh was transferred was with the same bank as his. Thus the amount was claimed within few days. However, the remaining money had been moved to accounts in private banks and to accounts of individuals.

Advocate P Runwal, who appeared for Rele, told the court that his though his client went to the cybercrime police station at Bandra Kurla Complex, they refused to entertain his complaint. Rele then approached the MRA marg police station, which a registered an FIR after 12 days.

"Till now there has been no headway in the investigation and the only assistance received from the police is that they wrote letters to the bank to freeze the accounts," Runwal informed the court.

Rele then started writing to banks regarding recovery of his money. A private bank that had received Rs4.89 lakh in the account of one of its customers from Rele's account asked him to get a court notice before it could share the client's details. Notices were then sent to the person, asking him to appear before the court.

After a hearing over months the court finally accepted Runwal's arguments that even after serving notice to the person, in whose account Rs4.89 lakh had been deposited, there was no response and thus the money should be released.
To learn about Identity Theft, visit www.cibilconsultants.com
Source: Secondary

It results in paying more for your loans, if you have poor score!

People are increasingly becoming dependent on credit for a variety of reasons, such as buying or renovating their homes, going for a vacation, buying gadgets, and so on. Availing of loans actually smoothen cash flow during hard times. Hence, it is essential to know what your credit score is, how it is computed, the importance and, of course, ways and means to acquire and maintain good a credit rating.

Credit scoring and its mechanics

Availing of a credit means that one is borrowing money with a promise to pay it back within a specified period of time, with interest. Credit score is a statistical method to compute the possibility of a person paying back the money that he has borrowed. Credit bureaus, such as Credit Information Bureau-India (Cibil), issue these scores based on various parameters, such as current debt, credit type mix, credit utilisation, recent behaviour, time length, credit history and frequency of applications for new credit and, of course, repayment capability. The score assigned by Cibil ranges between 300 and 900. A score closer to 900 depicts the confidence in the ability of a person to repay the loan. A good credit score not only determines whether a person qualifies for the loan or not, but also increases the chances of availing of the loans faster.
                               

Importance of credit score

When a person applies for a credit card or a housing loan, his credit score is checked. According to a person’s credit score, bankers will compute what risk he poses to them. From the lenders’ point of view, increased credit risk means that a risk premium must be added to the loan. If a person has a poor credit score, lenders will lend him money at a higher rate than someone who has a better credit score. The differential interest, owing to the poor credit score, will have a significant impact on the equated monthly installment (EMI).

Ways and means to acquire a good credit score

Timely repayment of a loan and, also, the correct amount — paying less than what is due will negatively affect your credit score — is important. Don’t ignore the overdue bill. If you are facing difficulties in repayment, you should call the lender to make an arrangement. If you inform the lender about your problems, they are often flexible.

Be aware from whom and what type of loan you propose to avail. Generally, credit from non-banking finance companies carries higher interest rates and rigid terms and conditions. One must keep the outstanding debt as low as possible and avail of credit only when it is absolutely essential, keeping in mind the current and near-future cash cycles.

Source: Ssecondary

Why you should buy Long Term Debt Funds?

Long Term Debt Funds will deliver Double Digit Returns reads the headline on popular finance portal. This is one of the examples, In last 3-4 months, you must have come across similar headlines multiple times if you are a regular investor. At max, the reason given was that with the drop in Interest rates, Bond yield will drop which will increase the Bond Prices. In short, Drop in Interest Rate will benefit the Long Term Debt Funds the most as they invest in Government of India Bonds and Corporate Bonds of long term maturity. Though there is no standard definition of Long Term Debt Funds but in my opinion any debt fund with Average Maturity of more than 10 years can be safely termed as Long Term Debt Funds. These funds are normally benchmarked against the G-Sec yield of 10 years or Govt of India Bonds. As of today, the yield of 10 year G-Sec / Bond is 7.799%.

Movement of Average maturity of debt fund gives the fair idea how the interest rates will move in near future. In last 6 months, the average maturity of almost all Long Term Debt Funds, Dynamic Bonds and Income Funds have increased considerably. Average Maturity of the best performing fund in this category i.e. ICICI Prudential Long Term Fund is now 19 years. 6 months back it was around 11 years. IDFC Dynamic Bond fund which is consistently rated as “Consistent Performer – Debt Funds” in CRISIL Mutual fund ratings, Average Maturity is now 15.39 years. It clearly implies that Industry is anticipating further rate cuts by RBI to fuel growth in the economy. Any rate cut will result in lower Bond yield. Lower Bond yield will increase the Bond Price, therefore, these mutual funds may deliver double digit return. If you invest in right debt funds then you can always beat the returns of traditional popular debt instruments like Fixed Deposits, Recurring Deposit, Post Office Savings Schemes etc.

Co-relation between Bond Yield and Bond Price

Before you invest in Long Term Debt Funds, you should understand the concept and co-relation between Bond Yield and Bond Price. Though in all the posts it was mentioned that with the cut in the interest rate, Bond yield will drop thus it will increase Bond Price. This relation can defined in 2 ways which don’t have any co-relation with each other. One is the scientific justification and another is Sentiments i.e. Demand and Supply theory.

Though these calculations are very complex but let’s understand with an easy and simple example. Assuming Long Term Debt Funds bought a Bond A of Rs 1000 with the maturity of 10 years at the coupon rate of 9%. In this case, Bond Price is Rs 1000 and Average Maturity is 10 Years. The Bond yield is 9%. If there is no change and status quo is maintained then these 3 data points will remain the same. The fund house will happily receive Rs 90 i.e. 9% of Rs 1000 as an annual returns. The average return of Long Term Debt Funds will be fixed 9%. The real game begins when interest rate either increase or decrease. Let’s check what will be impact on Long Term Debt Funds in these 2 scenarios

(i) Interest Rates Increase: Now assume that RBI increased Repo rate and Interest Rates are now 10%. In this case, fund house will still get Rs 90 as an annual return but as the interest rate is 10% therefore Bond Price will drop to Rs 900 i.e. absolute return will remain fixed at Rs 90 only but now this Rs 90 should be 10% of Bond Price to adjust the Bond Price. Therefore, reverse calculations fix the Bond Price at Rs 900. The investor will lose in this scenario as the value of his bond is now Rs 900 whereas he bought for Rs 1000. Let’s check why the price of a Bond A dropped by Rs 100. Let say, the mutual fund house buys another Bond B after interest rate increased (Offered after interest rate increase). The Coupon Rate is now 10% and Bond Price is  Rs 1000. The maturity of Bond is 10 years. In this case, fund house will get Rs 100 as an annual return whereas in Bond A, the fund house is earning Rs 90 only. Face value or Bond Price of both the Bonds i.e. Bond A and Bond B is Rs 1000. But Bond A will return Rs 90 and Bond B will return Rs 100. In case of status quo, For 10 years Bond A will return Rs 100 less than Bond B therefore price of Bond A is now Rs 100 less than Price of Bond B. To conclude, in case of Long Term Debt Funds if the interest rate increase then the returns drop. It can be negative also depending on the fluctuations in the interest rate cycle. In this example, we considered Bond for simplicity purpose but same co-relation exists in G-Sec yields of different maturities.

Secondly, on sentiment front the demand of Bond A will not be there if price is more than Rs 900 because the investor will buy Bond B with the higher yield at 10%. At Rs 900, the yield of Bond A is not adjusted as per market condition. Therefore besides scientific calculations, sentiments will also pull down the price of Bond A to Rs 900. If there is further anticipation of an increase in interest rates then Bond A will take further beating and may trade below Rs 900.

In this scenario, Long Term Debt Funds will decrease Average Maturity as the instruments with short maturity will gain maximum from the increase in interest rate.

To conclude, Bond Price is adjusted according to the current yield. Bond price will drop if the current yield is more than the yield of Bond and vice versa. Let’s understand what will happen when Interest Rate decrease which is the current scenario.

(i) Interest Rates Decrease: Currently interest rates are decreasing. RBI has cut the Repo rate twice by 0.25% each. In this same example of Bond A. Assume, Interest Rates are now 8%. The fund house will still get Rs 90 as an annual return on Bond A. Bond Price will be adjusted to the extent that this Rs 90 is 8% of Bond Price. Therefore, Bond Price will increase from Rs 1000 to Rs 1125. The Bond will be traded at a premium of Rs 125 i.e. 12.5%. The NAV of Long Term Debt Funds will increase to the same extent. Again let’s assume that Long Term Debt Funds buy another Bond C after interest rates are decreased. Bond Price of Bond C is same Rs 1000 and Coupon Rate is 8%. Assuming same maturity of 10 years, annual return from Bond C will be Rs 80 against Rs 90 of Bond A. In this case, compared to Bond C there will be more demand for Bond A and market sentiments will pull the price to around Rs 1125 till the Bond yield is adjusted to 8% i.e. at current rate. Long Term Debt Funds which bought Bond A at face value will get the double advantage of higher yield and appreciation in Bond Price. In Short, Long Term Debt Funds which bought at Rs 1000 will gain maximum in this scenario.

Long Term Debt Funds

As it is always mention that before you invest in any financial instrument, it is advisable to understand how to it works. In the current scenario, you can invest in Long Term Debt Funds and stay invested for next 24 months to 30 months till interest rates are dropping. The advantage of understanding the investment philosophy before investment is that it signals when is the right time to exit.

If you are risk averse investor then very simple philosophy is to invest in Long Term Debt Funds when interest rates are falling. You may shift your investment to short term mutual funds when the interest rates start increasing. Another option is to invest in Dynamic Bond Funds as they change investment strategy with interest cycle. Following are some of the Long Term Debt Funds suggestion from my end. 

1. ICICI Prudential Long Term Fund – Regular Plan (Average Maturity: 19.05 years)

2. Birla Sunlife Dynamic Bond Fund – Retail (Average Maturity: NA, roughly near 10 years)

3. IDFC Dynamic Bond Fund – Regular Plan (Average Maturity: 15.93 years)

4. DSP BlackRock Strategic Bond Fund – Institutional Plan (Average Maturity: 11.60 years)

5. UTI Dynamic Bond Fund (Average Maturity: 13.63 years)

Disclaimer: You must have observed that Dynamic Bond are preferable funds compared to pure Long Term Debt Funds. The reason being, Dynamic Bond Funds are flexible in nature as they increase the Average Maturity when interest rates fall and accordingly decrease the maturity when interest rates start increasing. Currently, Dynamic Bond Funds are like Long Term Debt Funds for me. You don’t need to actively manage these funds. To hedge risk, Average Maturity of portfolio ranges from 10 years to 20 years.

Long Term Debt Funds are Risk Free

Now you must be wondering we discussed price fluctuations of Bond Price and if interest rate fall then they may give heart attack and now they are Risk Free…That’s correct, Long Term Debt Funds are risk free because price fluctuations are normal during the interest rate cycle. The principal invested in risk free in Long Term Debt Funds. At the time of maturity, Principal amount i.e. Bond Price is redeemed to the investor. In short, if the investor or Long Term Debt Funds held the bond for 10 years then Rs 1000 will be redeemed irrespective of current Bond Price. Only fluctuation is in returns, but the principal is safe and secure.

Visit- www.cibilconsultants.com
Source-secondary

Loan Against Insurance Policy

Loan against Insurance Policy is not so very common in India. One of the major reason is that the most of the policyholders are not aware of this option. Secondly, the penetration of insurance is very low in India. In fact, if we remove Income Tax benefits attached to the Insurance Policy then penetration will be negligible. Insurance Premium is either considered as a waste of money or is paid for investment purpose. Both, India psychic and Insurance industry are responsible for this sorry state of Insurance products. 

What is Loan against Insurance Policy?

You can avail Loan only against Life Insurance Policy. Only exceptions are Term Insurance Plan & ULIP. Pre-condition is that Life Insurance Policy should have completed 3 years. In short, traditional insurance policies like Endowment Plan, Money back policy etc are eligible for Loan against Insurance Policy provided policyholder is paying the premium for 3 years. IRDA banned loan against ULIP in 2012. Some insurance companies do provide loan against ULIP but it depend on the fund you have selected & NAV of the ULIP. For ULIP, the loan amount is 40%-50% of Fund Value. As a thumb rule, for any life insurance policy which has the surrender value, you can take Loan against Insurance Policy. Surrender Value is basically the amount which the policyholder will get if he/she decides to close the insurance policy before maturity. The surrender value of policy keeps increasing with the policy term depending on your insurance product as you accumulate bonus over a period of time. Normally surrender value of the policy is 30% of the Policy Value. Loan against Insurance Policy is one of the best way to raise funds during emergency situation. You can avail loan from your insurance provider or pledge the policy to banks. 

Loan Amount: Its a complex calculation which depend on Surrender Value of the Policy, No of Premiums Paid & No of years Completed / Remaining. There is no scientific calculation to arrive at Loan Amount. As a thumb rule, you can assume that 80%-90% of the surrender value can be availed as Loan Against Insurance Policy. For example, if your insurance coverage is Rs 10,00,000. The surrender value will be Rs 3,00,000 therefore you can avail a loan of between 2.4 Lakh to 2.7 Lakh. If you have accumulated an additional bonus of Rs 1 lakh then Loan eligibility will be approx 3.2 Lakh to 3.6 Lakh. Another method which is used by LIC to calculate loan amount is approx 50% of the premium paid. Assuming, for a policy of Rs 10 Lakh, you have paid a premium of Rs 8 lakh at the time of availing Loan Against Insurance Policy. You can get a max loan of Rs 4 Lakh. Normally, Insurance provider will not share how they have calculated loan amount but it is the FINAL WORD.

Rate of Interest: The interest rate charged by the insurance company is variable and depend on the existing interest rates. Currently, it is around 10% – 12%. Interest is payable every 3 months, 6 Months or yearly basis. In some cases, there is minimum commitment period of say 6 months. The borrower has to pay interest for min commitment period even if the loan is cleared before 6 months. Please note that Interest Rate is variable and is revised annually. 

Documents Required: You need following documents to avail Loan against Insurance Policy

(a) Original Insurance Policy

(b) Deed of Assignment: Under Deed of Assignment, the benefits of life insurance policy against which the loan is taken will be assigned to the bank or insurance company. The policy will act as collateral or security till the loan is repaid. The assignment can only be executed by the policyholder and it has to be endorsed on the policy document. In short, you transfer the title of the policy till the loan is repaid. Future premiums are paid by the policyholder only.

(c) Payment Receipt for the Loan Amount: Normally, the Loan is disbursed through NEFT therefore advance receipt is required

(d) Cancelled Cheque

Repayment Options: Repayment options also vary. For example, in case of insurance provider like LIC you need not pay the Principal amount provided you are paying the interest on time. Now you must be wondering how will insurance company recover the principal amount. At the time of maturity or claim, principal outstanding will be deducted from the policy value. Balance amount will be paid to the beneficiary or policyholder. If the policy is pledged to a bank then you need to pay the principal amount as per amortization schedule. Normally, the repayment period is 6 months.

Loan Processing Fees: A nominal fees of Rs 250 is charged.

Time Taken to Process Loan: Banks and Insurance provider claim that the loan will be processed in 2 days time, but it may take up to 7 days time.

Default on Repayment of Loan / Future Premiums: In case of default in repayment or payment of future premiums, the insurance policy will lapse. The insurance company also reserves the right to recover the principal / interest due from the surrender value of the policy. The threshold is surrender value of the property i.e. if principal + interest outstanding equals to surrender value then your policy will be terminated.

Loan Closure: Upon the repayment of Loan, Insurance Provider or Bank will reassign the policy to the policyholder by an endorsement in the policy.

Insurance Provider or a Bank?: Some people are in a dilemma whether to avail Loan against Insurance Policy from a bank or Insurance Provider. It is suggested to avail Loan against Insurance Policy only from the insurance provider. The reasons are:

(a) You need not repay Principal which will be adjusted from Maturity / Claim amount. Though it is not advisable but still, it can be an option in case of emergency.

(b) Banks charge higher interest rate

(c) The loan from a bank is basically overdraft facility against the pledging of an insurance policy. Any overdraft facility is reported to CIBIL. If you default on Loan against Insurance Policy from the bank then it will impact your CIBIL score negatively.

Benefits of Loan against Insurance Policy

(a) CIBIL Score:  People with low CIBIL Score can also avail the loan.

(b) Alternative to Personal / Consumer / Short Term loan: Loan against Insurance Policy is best alternative to low-value loans like Personal Loans etc. Reason being, interest rates are lower compared to unsecured loans. The interest rate on a personal loan is average 14%, but the interest rate on Loan against Insurance Policy is 11%.  

(c) Chances of Application Rejection: There is no fear of application rejection except on technical grounds like signature mismatch etc. Whereas in unsecured loans income details, credit worthiness etc are checked therefore chances of rejection of an application are high.

Summary: Insurance policy provides financial security to dependents in case of any unfortunate event. Loan against Insurance Policy should be the last option for a policyholder. It should be availed only for emergency situations. Even if the loan is availed, it should be repaid within 6 months – 1 year so that benefits of the policy can be restored.
Visit: www.cibilconsultants.com
Source-secondary

Secured Credit Cards and Your Score

Secured Credit Card is a Blessing in Disguise. Because Life is unforgiving and so as Poor CIBIL Score / Credit Score. Once an individual is in this sad situation, it is very difficult to come out. A borrower is at the mercy of a lender for CIBIL Score. There is no place for human emotions in the mortgage industry. In many cases, it is observed that there was “No” intent of a borrower to default on payment. Such a default is also known as non-willful default. The irony is that both willful and non-willful defaulters are being beaten with same the stick. In case of non-willful default, the intention of a borrower is to clear the dues but he just need a little support to put his financials back on track. Banks and financial institutions treat him like a criminal. In such cases, CIBIL Score can be easily spoiled but it may take years to repair the CIBIL Score. You spent years to build, but it can be destroyed within few months. It's not like that only because of a bank but customer is also equally responsible.

We cannot blame or fix 100% responsibility of the banks. As a borrower, we should follow credit discipline and plan for unforeseen circumstances in life. Still it is not possible to foresee every unforeseen circumstance. As it is mentioned that banks should be a bit lenient towards the non-willful defaulters. There should be completely different CIBIL reporting mechanisms for non-willful defaulters provided bank is convinced about the same. At the end of the day, too strict credit regime will decrease no of potential borrowers in the system which will impact the business of the banks in the long run. More and more entry barriers will reduce no of potential borrowers. Too much compliance’s are not good for any industry or sector. It kills the sector as such or it may lead to a scenario when almost everyone start flouting the rules. Best example, is of  Value Added Services offered on Mobile. Too many compliance’s / entry barriers killed this golden hen. A person subscribed to financial news and stock alert but then stopped using due to double opt in etc. Thankfully, mobile apps replaced the SMS service. The second example is of Wealth Tax, due to too rigid compliance, non-compliance was common. Too strict compliance on credit approval process will kill the concept of credit, it is not good for both banks / financial institutions and growth of the economy. Non-willful defaulters should be treated separately and 2nd chance should be given to the defaulters to repair the CIBIL Score. Currently, there are not many options to repair CIBIL Score except Secured Credit Card and few others.

Secured Credit Cards – Fact Sheet

Secured Credit Card is best suited to repair the CIBIL Score. Secured Credit Card can be correlated to Home Loan. As Home Loan is backed by Collateral i.e. Property is Mortgaged similarly Secured Credit Card is backed by Fixed Deposit. One of the misconceptions is that good CIBIL score is required to avail Secured Credit Card. It is not true as Secured Credit Card is backed by security like Fixed Deposit therefore banks don’t check CIBIL Score before they issue Secured Credit Card. In other words, we can say that Fixed Deposit Amount is mortgaged to the banks, therefore, there is no need to check Credit History. Moreover, the risk is very less compared to Home Loan which is high value purchase. Secured Credit Card is also known as Credit Builder by some of the banks. It’s a win-win situation for both banks and the individual. Banks get double business i.e. Fixed Deposit and credit card whereas an individual can build a good credit score. Functionality wise it is as good as Debit Card only i.e. you can only use the money available in your account.

Banks offering Secured Credit Card: ICICI Bank, Axis Bank, SBI Dena Bank etc. SBI Dena Bank card is issued against Fixed Deposit in Dena Bank.

Fixed Deposit Amount: Most of the banks define minimum fixed deposit amount before they issue Secured Credit Card. This amount is Rs 30,000 for SBI Dena Bank Card whereas ICICI bank issue Secured Credit Card with min FD value of Rs 20,000.

Credit Card Limit: Credit limit of Secured Credit Card also vary from bank to bank. ICICI bank offer max credit limit i.e. 85% of Fixed Deposit Value as a Credit limit. Lowest is 50%.

Fixed Deposit Interest Rate: Bank offers interest rate as offered to regular fixed deposits.

Fixed Deposit Tenure: Vary from bank to bank but normally it is 2 years. ICICI bank offers minimum tenure of 6 months

Liquidity of Fixed Deposit: Bank will put a lien on the Fixed Deposit linked to Secured Credit Card. In short, you cannot withdraw Fixed Deposit. In case of a default in payment on Secured Credit Card, Bank will liquidate the fixed deposit to recover the amount due.

Charges: Banks charge joining fees, annual fees, processing etc to issue Secured Credit Card. Please compare the charges before finalizing.

Documentation: For Secured Credit Card, minimum documentation is required. Banks need only identify proof. Income Proof is not required. If you have existing relation with the bank then no documentation is required.

Important Points

1. No Credit History: Not many people are aware that besides CIBIL Score repair, Secured Credit Card can be used to build credit history from scratch. In many cases, loan of a potential borrower is rejected because there is no credit history. In case of “No Credit History”, CIBIL Score will showNA or NH. Banks inform the customer that CIBIL Score is low, but it is not the case. It’s an irony that no one lends, an individual cannot build credit history till someone lend. Therefore, Secured Credit Card will come to your rescue.

2. Use and Pay on Time: Once you get Secured Credit Card, make a point to use it on the regular basis. Most importantly, make all payments on time. Any default on payment can further damage your CIBIL Score. Always make a point to utilize max 30% of credit limit else it shows credit hungry behavior. For example, if your Fixed Deposit is of Rs 1,00,000 and Credit Limit is 85% i.e. Rs 85,000. In this case, never utilize credit card for more than Rs 25,500 i.e. don’t spend more than this amount through credit card

3. Secured Credit Card should be reported to CIBIL: In many cases, it is observed that banks don’t report the Secured Credit Card to CIBIL database. A person was using this card for more than a year. After 1 year, he realized that it was not reported to CIBIL. Therefore, it is mandatory to check your CIBIL report after 60 days from the date Secured Credit Card is issued. If the details are not reported to CIBIL then you can request the bank to report the same. If it is not reported to CIBIL then whole objective behind Secured Credit Card is defeated.

 4. Don’t expect overnight results: Don’t expect overnight results. A good credit behavior followed for 18 months to 24 months will yield the results. Reason being, CIBIL reports the credit behavior which has to be established.
Visit- www.cibilconsultants.com

Source-secondary                          

How to Cancel Credit Card?

In Banking Sector, there is no standard process defined to Cancel Credit Card. As a result, most of the times credit card user end up with low CIBIL score due to unintentional payment default. Many suffered in past, thankfully some noticed before it impacted their CIBIL Score. Credit Card is both a blessing and a curse depending on how you use it. Some people have habit to experiment with credit cards. It is most dangerous game. They apply for new credit card when they receive new offers and cancel credit cards which are not in use. This habit can cost you heavily if process to cancel credit card is not followed properly. Daily people receive multiple cases wherein my clients suffered after few years because process to cancel credit card was not followed properly. Banks demand huge amount as credit card dues along with penalty and fine. Though customer claim that they placed cancellation request but in the absence of any written proof, legal stand of customer is on weak front. In this post, lets check out the fool proof method to Cancel Credit Card

Step 1: Decision to cancel credit card:  Until and unless you have compelling reason to cancel credit card, it should be not be cancelled. Temptation to opt for new credit card with mouth watering offers should be avoided. It shows credit hungry behavior. People should not opt for more than 2 credit cards. Lastly, before you cancel credit card, please give a thought that now it is very difficult to get new credit card. Once decided, you should not revisit your decision based on offers by bank to retain credit card as it create confusion in entire process. Bank may offer 2000 loyalty points or offer freebies at later stages to convince you to retain the credit card. You should simply stick to your decision.  From this point onwards you should stop using credit card which you are planning to cancel.

Step 2: Cancel ECS / Auto Debit Instructions linked to Credit Card: This is one of the most common mistake. Sometimes under ignorance we are not aware or keep track of ECS / Auto Debit mandates linked to credit card. This is especially true for utility bills, insurance premium etc. Before initiating cancellation process, you should pull out last 3 months credit card bills and check for all such transactions. Now you should cancel all such ECS and Auto Debit Mandates. Cancellation of these mandates take few days time. After placing cancellation request, ideally you should wait for one credit card billing cycle to check whether all the mandates are cancelled or not.

Step 3: Amount Due as on Date: After step 2, you can call the helpline of bank to check what is the current amount due (as on date). Inform them that you would like to cancel the credit card and clear balance outstanding as on date. Common mistake from customer’s end is that they clear amount due as per last billing cycle but un-billed amount is pending/unpaid. It is advisable to check balance outstanding as on date.

Step 4: Make Payment: You should clear the complete balance outstanding / amount due as on date. After making payment, wait for few days to reflect it in your credit card statement. If payment is made through net banking then it will be credited in credit card account next day. In case of cheque payment, it may take upto 10 days.

Step 5: Place cancellation request through Credit Card Helpline: After you cleared amount due against credit card and your credit card billed and un-billed outstanding is NIL you are ready for golden moment. You should call helpline no of bank to place request for credit card cancellation. Don’t forget to take the reference no of your request to cancel credit card. For most of the credit card holders, process ends here i.e. they simply place request to cancel credit card and there is no further action.

Step 6: Submit Physical Request at nearest branch: As a next step, you must submit physical copy of your request to cancel credit card at nearest branch of the bank. In many cases, bank branch refuse to accept the application but please note that bank cannot refuse. If bank refuse, you can request bank employee to mention on application that he/she cannot accept this request. Do mention in physical application / request that you have already placed request through helpline and mention reference no shared by call centre. You can also mention that you are destroying the credit card from your end. Don’t forget to take acknowledgement from bank employee along with bank seal, employee name, employee id, signature and date.

Step 7: Confirmation Call from Bank: It is very critical that your latest mobile no is updated in bank’s record. Reason being, bank will give confirmation call on your mobile no after receiving cancellation request. If you are not reachable or mobile no is wrong then bank may reject the request without your knowledge. During confirmation call bank may offer freebies to retain the credit card but you simply reject. Some banks give 2-3 confirmation calls. During 1st confirmation call you may check how many days bank will take to cancel credit card, Issue NOC and update in CIBIL database. Normally credit card is cancelled immediately after confirmation call.

Step 8: NOC cum No Due Certificate: It is absolutely necessary to obtain NOC from bank against Credit Card. This is the only proof that you have actually closed credit card. One of the case, that man cancelled credit card in 2008 & took NOC from bank. After few years when he checked his CIBIL Score he was shocked to observe balance of Rs 78000 against the credit card. Thankfully he had NOC from bank. Immediately after his complaint, CIBIL record was cleared in record time of 7 working days without any questions asked.

Step 9: Update CIBIL Database: Normally banks update CIBIL database within 45 – 60 days from date of cancellation of credit card. To be on safer side, you consider 60 days from date of NOC. After 60 days, its result time i.e. whether your succeeded in exam to cancel credit card or not. You can pull out your CIBIL report to check status of credit card. It should be closed in CIBIL database with NIL outstanding.

With this the process to cancel credit card is completed and you can sign a relief. Any default on credit card impacts CIBIL report badly therefore it is very critical that process to cancel credit card should be taken seriously by the customer. You might have observed that it may take upto 6 months to cancel credit card considering the no of steps involved. As mentioned in the beginning that cancellation of credit card should be the last option. In short, cancel only if you are facing operational problems with banks which cannot be resolved.
Visit- www.cibilconsultants.com

Source-secondary

Your Credit history need to be good to get a mortgage.

Your credit history is one of the most important parts of your application when applying for a mortgage. Bad credit or a low credit score will compromise your ability to get a mortgage, because lenders will consider you at risk of defaulting on your loan. While it is possible to get a mortgage with a bad credit rating, you might have to make some concessions in regard to interest rate and the loan amount.

The good news is that negative information on your credit score is not permanent, and positive changes in your credit habits will begin having an immediate impact on your score. Additionally, lenders use other factors to determine loan eligibility.

 • Pay bills on time each month: Particularly those for Credit cards & Loans, Bill payments will have directly impact your credit score and paying bills on time is a positive first step in improving a bad credit history.

• Check your credit history: Before applying for any mortgage, you should always check your credit report carefully; you can obtain a copy of your report from one of the major credit bureaus, which are CIBIL, Equifax and Experian.

• Manage your mortgages: People with bad credit may get approved for mortgages far below their desired amount, but having any type of mortgage on your credit report will improve your score, so consider a more modest home and fix it up.

You should also avoid making lots of applications for credit, as these searches will affect your credit rating.

You may also wish to speak to your current account provider to see what mortgages they offer and explain to them your credit history situation. If they have no products suitable for you, then at least you know without having to make an application.

Source: Secondary