Avoid home loan rejection this way.

Real estate is the most coveted investment instrument in the country. Buying a home, whether for investment or residential purposes, can take years to materialise and given the prices, few can afford to pay the money upfront. In such situations, buyers inevitably turn to banks for home loans.

Although the norms for approving home loans have eased in the recent past, don't expect it to be a cake-walk. One small mistake can result in you merely dreaming of the house, and never actually owning it. 

We look at factors that can play a crucial role in getting your loan approved or rejected.

                         

BAD OR LOW CREDIT SCORE

You cannot build a house if the foundations are flimsy, right? When it comes to loan approvals, banks use a similar analogy. If you have a low credit score, you will be denied a home loan out rightly even if you fulfill all other conditions. Credit score is considered to be the most important factor by the banks while disbursing a loan. 

Credit score reflects a consumer's behavior towards the financial transactions. In some ways, it is a mirror to his financial habits and underwriters base their decision and develop risk-based pricing based on the credit score.


So, if a person has defaulted or delayed the payment on any kind of loan or credit cards, it will have a negative impact on the credit score. Other factors like being guarantor to a person who defaults on payment of his loan can affect your credit report too if you fail to repay his loan. So, be very sure before taking up the role of a guarantor. There are credit rating agencies like CIBIL, Experian Credit Information Corporation of India, Equifax Credit Information Services and High Mark Credit Information Services that provide credit score to individuals. Once you submit your loan application, the lender seeks a copy of your credit report from the bureau. They analyse this not only for the credit score, but also to review the extent of existing loans / credit cards, performance of ongoing and closed loans. All these go in to the final assessment of your loan application.

A credit score provided by CIBIL is a three-digit TransUnion score which is derived from the credit history found in credit information report (CIR). A CIR is an individual's credit payment history across loan types and credit institutions over a period of time. It ranges between 300 and 900. It indicates the probability of default of a borrower based on their credit history.

To maintain a healthy credit score, one should ensure timely dues payment and avoid taking too many unsecured loans as it may be considered negative. But if the damage is already done, you can work towards improving it slowly. 

INCORRECT PERSONAL DETAILS IN CREDIT REPORT

Your credit information report contains your personnel detail, so wrong information can lead to a mismatch between the details on your loan application and credit report and hence lead to your loan rejection. If there is any change in the personal details, you must update your lender so that it is reported to the credit information bureau and is reflected in your credit report. Any individual can get the credit report for a nominal fee from the credit bureaus.

However, it is important to check the report for anomalies like a credit card listed in your report but not owned by you, or a loan on their name which they had never taken. Prospective borrowers can also apply directly to the credit bureau for their credit report for a nominal fee. This allows you to review the facilities listed against your name, seek corrections if you spot any anomalies like a credit card listed in your report which is not yours and to know your bureau score. All bureaus have dispute resolution forms on their websites which aggrieved customers can fill and send with relevant identification documents.

REJECTION OF LOAN BY OTHER BANKS

Some people tend to apply to multiple banks at the same time. However, remember that if your loan is rejected from one bank then it can have an impact on your credit score and hence lead to the loan being rejected by other banks too. It is better to wait for the reply from one bank before applying to another so that you know why your loan is rejected and get the same rectified.

NEW OR UNSTABLE JOB

Since the repayment of loan is of utmost priority to the lender, they would like to ensure that you have timely repayment capabilities when he disburses the loan. In case of salaried person a steady flow of income is determined by the stability of job. Since repayment of home loans is normally sanctioned for 15-20 years, stability of income in future becomes a necessary criterion to be assessed at the time of loan sanction. For example, if the borrower has a contract of employment with just eight months left in it, it is natural for the lender to enquire if the contract has been renewed in the past or whether the borrower holds any professional qualifications which would give comfort that alternate employment would be forthcoming.

It is a similar story when it comes to changing jobs. While it may give the buyer a higher income level, it gives a negative impression to the lender. It is generally advised not to change your job if you are planning to take a home loan in the near future. In fact, the financial strength of the employing company is also considered as one of the factors for the evaluation of the application. People working in a proprietorship company, having less than 50 employees & not having provident fund facility, face issues in getting a home loan.

AGE FACTOR

Age is one of the most important factors considered by the lender while disbursing a loan. Typically, they put a minimum age bracket of 23-24 years and maximum limit of 60-65 years for loan applicants. Assuming a 22-year-old, who has been working for the last three years, applies for a home loan and the qualifying criterion for that lender is a minimum age of 23 years with at least two years of continuous work experience, the lender would in all probability turn down such an application.

APPLYING WITH RELATIVES OTHER THAN SPOUSE/PARENTS

If you want to get a home loan of a higher amount, clubbing the income of your spouse is a good option. But while banks allow clubbing of income of the spouse, father and son, the same does not extend to every family member. Some banks are skeptical of clubbing the income of the siblings because in case of a dispute, the EMI could be delayed. Clubbing the income with any other relative is not allowed. Also, a co applicant can't be a minor.

LOCATION OF THE PROPERTY

Banks also make their decision to disburse loans on the basis of the project's location. Take for instance, Noida Extension, where a number of projects suffered due to lack of clearance and acquisition disputes in 2011. As a result, a number of public sector banks stopped sanctioning fresh loan sanctions in the area, as per news reports. All lenders have limitations with the geographic locations. If the property is beyond such limit, the loan will get declined. The technical valuation of properties in remote locations may also be lesser than the purchase cost; banks do try to cover the risk of funding in an under-developed area on case-to-case basis.


UNSATISFACTORY EVALUATION OF THE PROPERTY

You must ensure that you are buying a house at a price which is close to the market price. This is important because the bank does the valuation of the property itself and will give a loan of upto 80% of the property value after considering other factors like your repayment abilities.

UNCLEAR PROPERTY TITLE
In the event that the property does not have a clear and marketable title, or there are issues connected to the approvals from the relevant authorities, normally banks or home finance companies keep the loan sanction letter valid till the customer finds another property which has clear title and approval. So, before buying a property you must ensure that it is not involved in any dispute.

LACK OF REPAYMENT CAPABILITIES

Banks ascertain your repayment capabilities before disbursing the loan. It depends on the disposable income that is left in your hand after paying off existing EMIs. Banks generally give a loan which amounts to an EMI of upto 50% of the disposable monthly income. So, first assess your repayment capabilities before applying for a loan.

Source: Secondary

How cost of borrowing is related to credit score?

If you want to qualify for the most competitive loan and credit card rates then you need a good credit score. What’s more, you need it to stay that way. 

• How lenders decide whether to lend to you?

Banks and credit card companies use a variety of different information to give you a credit score, which determines whether they will lend to you and at what interest rate.

Credit scoring works by awarding points based on the information:
You provide on your application form ,the lender may already have about you, based on previous accounts you have with them, and on your credit report, which is held by agency called CIBIL.
              

• You’ll also get a better credit score if you:

own your own home and/or have lived at the same address for at least a year ,have a good credit history by repaying other credit agreements on time, for example your credit card, auto loan, gold loan, personal loan , overdraft , Cash credit facility, Consumer loan  or Housing  loan.Have evidence of stability – for example you are employed rather than self-employed, you’ve lived at the same address, worked for the same company and had the same bank account for a long time are not connected financially, through your mortgage or joint bank account, to people with a bad credit score.

• How a poor credit score affects your ability to borrow .............

A poor credit score can mean you’re  rejected with any credit facility or loan or  charged higher interest rates, given a smaller credit limit.

A lenders or banks or NBFC doesn’t have to give you the interest rate they are advertising or that you see in best buy tables on comparison websites.  You may be offered an interest rate that’s higher – this is what’s called your personal APR. 

Source: Secondary

Financial concerns to be aware of when traveling abroad!

Traveling to a different country raises financial concerns that don’t apply when traveling domestically. Here are some things to keep in mind if you’re planning a trip abroad:

Tracking exchange rates is easy. Thanks to the internet, it’s easier than ever to figure out the exchange rate for foreign currencies. Google has a simple converter that’s easy to use.

Get some foreign currency before you go. When you arrive in a foreign country, it’s a good idea to already have some local currency on hand to pay for expenses like transportation and meals. You can order foreign currency online through some banks and services, and most large chain branches can get you foreign currency if you give them advance notice. The rate they exchange your money for will be lower than what you see online, so you may want to shop around for the best rate.

Know how you’ll get additional cash while abroad. Check with your bank to see if your ATM card can be used at your destination to obtain additional cash, and ascertain what types of fees you’ll be responsible for. If the fees will be high, you may want to take as much cash with you as possible, but if fees are reasonable, you might want to wait to see if you actually need additional cash while you’re there.

Be aware of credit card conversion fees. You can likely use your credit card while abroad, but before you go on your trip, find out if you will have to pay any foreign currency conversion fees, or a fee for letting you make charges in a foreign currency. There are cards that don’t charge any conversion fees, so if your card issuer does impose a fee, you might want to get a new credit card before your trip. Alternatively, you can try to limit your card use while you’re abroad to locations that will charge you in dollars, rather than the local currency.

Carry a chip and PIN credit card. In other countries, merchants may only accept credit cards with chip and PIN technology because such cards are generally considered to be more secure (the card’s information is stored on the chip, rather than in a magnetic strip). If you intend to use a credit card while abroad, be sure to check which type of card is more common at your destination.

Consider the safety of your destination before departing. Some destinations, like Japan, are generally very safe for tourists, and many of the locals carry large amounts of cash without hesitation. In other countries, however, pickpockets are common, and tourists are a popular target of crime. Before you depart, check to see what kind of precautions are recommended for your destination. You may want to purchase certain types of gear, such as a money belt, to protect your valuables.

Travel with adequate insurance. Before you go abroad, check with your insurance providers – including your health insurance and driving insurance providers if you plan to drive – to make sure you’ll be covered. If your coverage is insufficient, purchase travel insurance for your trip. You hopefully won’t need it, but you’ll be happy you have it if you do.

Research the customs of your destination. Customs vary dramatically by country, so be sure to do your research before you leave home. Find out if tipping is common at your destination, and if so, is it normally added to your bill or are you supposed to calculate it yourself? How much is customary? Do merchants at your destination haggle, and if so, what’s the best practice for foreigners? If you know these types of issues before you arrive, you can avoid unpleasant surprises!

Declare your acquisitions when you return. When you return to the your country, you’ll have to fill out a customs declaration form and list what you acquired while abroad. Therefore, it can be extremely helpful to keep a list of your acquisitions as you make them, and to keep receipts for your purchases.

Visit: http://www.cibilconsultants.com/
Source- Secondary

Home loan: Fixed vs floating rates

Investing in a financial product, whether it is a home loan, involves your hard earned money. So it is important that you take time off to look at various aspects before rushing in to something. While applying for a home loan, the prior thing that will bother you is whether to choose fixed interest rate or floating interest rate. Let us see which option is worth for you?

Fixed versus floating dilemma

Home loan consumers often find themselves in a dilemma when it comes to choosing between fixed and floating interest rates. With fixed interest rate loans, the interest rate and hence the EMI remains fixed, whereas in floating rate loans, the interest rate or the tenure may move up and down. Nobody can predict which way interest rates will move and hence it all boils down to personal choice, cash flows and appetite for risk when it comes to choosing between the two.

In most cases you will also be given the option to switch from fixed to floating rates and vice versa. However, you will be charged for every switch that you make during the tenure of your loan. If you believe in taking risks with the hope that you will benefit when interest rates fall, you can opt for floating interest rates or else you can happily settle for a fixed repayment schedule.

Pros and Cons of Fixed Interest Rates:      

Since home loans demands a long term commitment in comparison to other loans, a fixed interest rate convey a sense of certainty in terms of loan repayment. People who are good at budgeting can get a clear vision of their EMI liabilities if they select for a fixed-rate home loan.

The major drawback with fixed interest rates is that they are usually 1 – 2.5 percentage points higher than the floating rate home loan. Secondly, if for any reason the interest rate decreases, the fixed rate home loan doesn’t get the benefit of reduced rates and the borrower has to repay the same amount every time. Another area of concern is whether the fixed rate home loan is fixed for the entire tenure or only for a few years. This has to be cross-checked with the bank while taking the home loan.

Pros and Cons of Floating Interest Rates:

Floating interest rate varies with market conditions and interest rates are bounded to a base rate and a floating element thereof. So, if the base rate varies the floating interest rate also varies. Although floating interest rates are cheaper than fixed interest rates, but the nature of monthly installments is uneven. This makes it difficult to budget with floating interest rate home loans.

Market Behaviour:  

Recently, fixed rate loans have gained popularity in India. Many financial institutions and banks are now engaging applicants utilizing fixed interest rate schemes. ICICI Bank has initiated a scheme proposing home loans up to 10 years at a fixed rate of up to 10.25%, while Citibank offers a fixed rate of 10.1% till September 2015.

Experts agree on the fact floating interest rates are a better option if the economic scenario promises a fall in interest rates in the near future. For a short term loans opting for a fixed interest rate would be beneficial whereas floating interest rate is recommended for people taking a home loan for a long tenure at this given time.

Visit www.cibilconsultants.com
Source- Secondary

Hidden costs disclosed!

While availing the home loan, most of us forget to factor in the hidden costs involved. Customers normally notice these fees or charges once the deal is done and by then, it is too late. These costs can influence the total cost of the product. The benefit of knowing about hidden costs involved is that these vary from one financial entity in the market to another and some institutions may wave these completely, if you negotiate. Let’s take a sneak peek at some of the additional costs that is borne by the borrower but not mentioned to him clearly at the sanctioning of the loan.

Processing Fee: A valid amount of money is charged by all housing finance companies which comprises a processing fee and other administrative charges. The specific amount for this fee differs from one bank to another however, is less for public sector institutions in comparison to private lenders.

Legal Valuation Fee: Before sanctioning the home loan, all housing finance companies carry out a thorough legal verification of the property. The borrower has to bear the charges as legal fees of the lawyer undertaking this kind of verification.

Interest on term before EMI initiate: There lies a certain division between the disbursement of the first loan installment and start of the EMI. During this period, definite interest is imposed by a financier which is termed as the broken period interest.

Prepayment Penalty: If the borrower chooses to prepay the home loan before the tenure gets completed, the bank will charge a prepayment penalty from the borrower. Plus, a service tax is also imposed on the prepayment penalty. But, as per RBI, this clause has been abandoned for floating interest rate home loans

Rescheduling fee: When the interest rate gets altered by the bank or in case the borrower determines to prepay certain portion of the outstanding loan amount. The home loan tenure and EMI structure has to be rescheduled to match the prevailing conditions, the borrower has to borne a rescheduling charge assessed by the bank.

Conversion Charges: The bank charges a certain amount, when a borrower decides to convert the home loan from a fixed rate type to a floating rate type or vice versa. Additionally, a service tax is levied as applicable.

Miscellaneous Fees: The banks may charge the customer several types of miscellaneous fees that are not mentioned earlier. Such fees incorporate charges for obtaining a copy statement of account and copy of original documents that have been submitted by the borrower while availing the loan.

So, ask the financial institution to give you details on the fees and charges involved, read these carefully and then take your decision accordingly.

Visit www.cibilconsultants.com
Source- Secondary

Financial health implications

No matter how reputed and reliable your brokerage house, bank and financial planner are, remember that it’s your money. Get involved. They will keep coming to you with numerous tips that they say are ideal for you; they may hard sell the products that they have to offer; they make call after call and send you mail after mail extolling the benefits of strategies. While considering everything that they say, do your homework and finally settle for what you think fits your portfolio requirement.

Here are a few simple snippets which will help you bring financial disciple in your life.
             

Never buy a product which you don’t understand

No matter what the company’s sales representative promises you or convinces you to believe, never put your money on something which you find too complex to fully comprehend and whose benefits you are not convinced about. So, first clear any doubts that you may have with the sales person and only then agree to buy it.

Shop for the best deal

If you are investing in a financial product, whether it is a loan or any other funds, involves your hard earned money. So it is important that you take time off to look at various options available in the market, compare them and then take a well-informed decision while choosing the right product. Each financial entity has its own terms and fees, and it is in your best interest to compare all the choices available and then pick out the best deal for you. A reduction of few basis points in the interest rate of your home loan or personal loan can end up in saving thousands of rupees for you over the long term.

Perform online research

As you get prepared for availing a loan, do not forget to carry out an online research on the best rates and schemes offered by different banks. There are different loan products available in the market as per different requirements. In addition to speeding up the buying process and making it less cumbersome, you also stand a great chance of getting your desired products at discounted rates.

Reveal the hidden costs

When you buy a financial product, you may forget to factor in the hidden costs involved which can influence the total cost of the product. Hidden costs involved vary from one financial entity in the market to another and some institutions may wave these completely, if you negotiate. So, ask the financial institution to give you details on the fees and charges involved.

Negotiate to gain a best deal

Every financial institution has its own interest rates and fees structure for customers which provide some scope to us to bargain for a better deal. However, before sitting on the negotiation table, you need to do your homework and get information on rates and charges prevalent in the market so as to assess the level to which you can bring down the price.

Visit www.cibilconsultants.com

Source-secondary

Coping with closing credit card correctly or not?

Credit cards are the easiest way to fall into a debt trap, i.e. a situation in which you borrow just to maintain your existing borrowings. There could be plenty of reasons to close your credit card: you have many cards, your card issuer increased rate of interest or maybe you don’t want to keep a credit card somehow. Any credit card cancellation must be in accordance with the banks exit policy or else it can come back to haunt the individual for pending dues. Before taking an initiative to close your credit card, find out whether closing that card affect your credit score. Undertake the following steps to close your credit card in the right way.

Pay Off the Balance

The bank will close your credit card only after it is free of any pending balance which is due to the bank. If you can, pay off the balance on the credit card before you close it. This will lessen the impact to your credit score and give you one less credit card balance to worry about. You can close a credit card even if you still have a balance, but your credit score may suffer. And, you’ll still have to make regular monthly payments (at least the minimum) until you’ve paid off the balance. Pay off your pending amount and keep a record of the payments made for future use in case of any dispute.

Communicate with the Customer Service

Once you have decided on which credit card to close first, the first step is to call the concerned customer service and intimate them about your closing card request. Call your credit card’s customer service using the phone number on the back of your credit card and follow up the request using a written communication either directly or through an email. Don’t be surprised if the representative tries to talk you into keeping your account open. For example, they may offer to lower your interest rate or enroll you in a rewards program. If you’re sure you want to close the account, don’t allow yourself to be convinced otherwise.

Check Your Credit Report

Review your credit report to make sure the credit card is reported as closed. This will allow you to keep a check on the extent of damage the credit card cancellation had on your overall credit score. Since credit utilization ratio decreases after cancellation of each credit card, it won’t necessarily hurt your credit score if it’s not reported as closed, but you want your credit report to be accurate about the status of your accounts.

Follow-up with a Letter

Once you pay off all pending dues for the concerned credit card, insist on getting a written acknowledgement to have a record of your credit card closed. After receiving a written confirmation letter only then you should destroy your card. Keep a copy of the letter for your records.
Visit: www.cibilconsultants.com
Source: Secondary

Paying home loan has beome easier! See how?

Buying a home is not merely a financial decision. It is an emotional decision too. Are you planning to shed the weight sooner rather than later of home loan? It may be prudent to do so as you become free of EMIs most important benefit of closing your home loan early is obvious – you become free of EMIs and heavy loan debt. It requires discipline and planning, but it brings you much closer to the proud day on which your bank hands you the ownership papers of your fully paid-up house. Have a look on the simple steps to prepay your loan easily and save money for the future ahead.

Just pay more

Start playing with mortgage calculators and see how adding a little payment to your principal here and there can shorten the length of your loan. If you pay a little more principal, you get a bonus. The lower your principal gets, the more every payment from then on is applied to principal, as less goes to cover interest expense. When you pay extra, make sure the extra is applied to the principal balance, not just set aside for the next payment. And before you make extra payments, read your contract and make sure you won’t have to pay prepayment penalties.

Consider your financial plan

With the financial safety net in place, it is time to build the corpus that you will need to close your home loan early. You should begin by taking a close look at all the ways in which you lose money each month. Evaluate the investments and the returns produce on them. Once you are assure that your investments are sufficient to take of financial security ahead. So, you can transfer the surplus to pay off your home loan debt.

Switch to partial payments

Many banks permit their customers to make partial payments of home loan in a year. If you are salaried, you can divert your salary hikes, yearly bonuses or incentives towards your repayments. Businessmen can similarly use any extra profits towards paying off the loan. Check if your bank will set up a biweekly payment plan. Some banks do it free; others charge. Ask the bank to credit extra payments toward principal so you save more on interest expense. Some banks set aside extra payments until the end of the year.

Cut down on unnecessary expenses

Want to pay off your home loan financial debt earlier as to lessen the financial burden every month. Try to cut your extra expenditures wherever possible and use that money to prepay your home loan, You may have to let go holidaying or some unnecessary purchases as they can backfire hugely. However, make sure that the cost attached to prepayment of home loan, if any, in the form of a penalty does not nullify the benefits.
Visit- www.cibilconsultants.com
Source Secondary

Check the categories and know debt for better benefits

At one point in our lives, many of us switch to debt as a method for making large purchases that we usually could not afford under normal circumstances. While encountering debt, you should know that there are several forms of debt: revolving debt, unsecured debt, secured debt and mortgages. It’s essential for you to review each category of debt thoroughly as not all debts are created equally and therefore some are considered to yield better benefits than others.

Revolving Debt

Revolving debt is an agreement made between a bank and customer that guarantees a maximum amount that can be loaned to the customer. Along with the commitment fee there are also interest expenses for corporate borrowers and carry forward charges for consumer accounts.  It is usually used for operating purposes, fluctuating each month depending on the customer’s current cash flow needs. Revolving debt can be unsecured, as in the instance of a credit card, or secured, such as on a home equity line of credit.

A line of credit and credit card are examples of revolving debt.

Secured Debt

Assets backing debt are considered security, which means they can be claimed by the lender if default occurs. A credit check is necessary for the bank to judge how responsibly you handle debt, but if you default on repayment, the bank seizes your assets, sells it and uses the proceeds to pay back the debt.

For instance, if you require a loan to purchase a car, the lender supplies you with the cash necessary to purchase it but also places a lien, or claim of ownership, on the vehicle’s title. In the event you fail to make payments to the lender, it can repossess the car and sell it to recoup the funds.

Unsecured Debt

This debt is not backed by an underlying asset. When a bank makes a loan with no asset held as collateral, it does so only on the faith in your ability and promise to repay the loan. It presents a high risk for lenders since they may have to sue to get the money they’re owed if the borrower doesn’t repay the full amount owed. As a result of this high risk, unsecured debt tends to come with a high interest rate.

Some instances of unsecured debt includes credit card debt, medical bills, utility bills and any other type of loan or credit that was extended without a collateral requirement.

Mortgages

Mortgages are the most popular form of debt and largest debt that many consumers confront in their lives. Mortgages are used by individuals and businesses to make large real estate purchases without paying the entire value of the purchase up front. Over a period of many years, the borrower repays the loan, plus interest, until he/she eventually owns the property free and clear. It typically carries the lowest interest rate of any consumer loan product, and the interest is tax deductible for those who itemize their taxes.
Visit: cibilconsultants.com
Source: Secondary

Credit card hacks!

Why do cyber thieves take the time to wreak havoc? Since hackers are going after the companies that hold your information, it’s hard to stop them from getting your information. All the same, you can take steps to minimize the damage. Here’s our guideline to deal with the uncertainty.

Ask for the new card

Call your bank and demand a new card. It’s not likely to put up a fight as the bank is responsible for paying false charges. In the event that the bank does, don’t back down on your demand.

Renew your password

If you have done any online business with the affected company – or you have an account with it – change your password right away. Make it more than 8 characters and difficult to figure out. If it’s easy for you to remember, it’s easy for a hacker to crack. While you’re at it, change and strengthen all of your passwords.

                    

Filing a complaint

Call the non-emergency number of your local police department. Say that you were a victim of identity theft and wish to file a report. This makes your status as a victim official.

Block your credit

You don’t want anybody opening up new lines of credit in your name. Blocking doesn’t allow anybody to access your credit report without your approval. Creditors probably won’t approve an application without having access to the person’s credit report.

Monitoring your account online

Don’t wait to check it when the statement arrives; check today. Keep monitoring daily for at least 30 days after your new card arrives. If you see fraudulent activity, call the bank and report it immediately. Often you can dispute charges online, but calling and talking to somebody assures that the issuer has record of your dispute.
Visit- www.cibilconsultants.com
Source: Secondary

Prepare to be named and shamed in public, if loan not paid on time!

Banks opt for offbeat tactics to tackle $49 billion of bad debts.

Under pressure to do more to cut a $49 billion mountain of bad debt, India's state-owned banks are reversing years of lax recovery efforts, naming and shaming smaller borrowers and even using big TV screens at shopping malls to advertise seized assets for sale.

India's bad debt pile, dominated by corporate loans, is at its highest in a decade, swollen by an economic slowdown, loose lending and, in many cases, banks' own failure to do enough to chase down rogue debtors.

Now, bank executives say pressure - from a government needing to accelerate economic recovery and from a central bank that wants company owners to take more responsibility - has left little choice but to get tougher and faster.

Tactics include targeting smaller borrowers with aggressive'name and shame' campaigns, with placards and groups of bank employees protesting outside offices, for example, and putting pressure on investors or executives at larger firms.

P.K. Malhotra, a deputy managing director at the State Bank of India, the country's largest bank, said his team received extra training, including in psychology, and was systematically chasing up payments, as others in the bank accelerated sales of seized assets.

"The focus (is) on getting court cases expedited. Less on the paperwork and more on the fieldwork," said Malhotra.

Executives say it's too early to measure overall success,but there have been some wins for India's bruised banks.

Suzlon Energy this year sold its German unit,Senvion, for 1 billion euros ($1.1 billion) in cash - less than what it paid to buy the asset in a deal completed in 2011. It crystallized a huge loss after banks piled pressure on the loss-making wind-turbine maker to cut its debt.

More than two dozen lenders led by SBI are looking for an investor in Electrosteel Steels Ltd, whose near-$ 1.4 billion bank loan is strained. Rather than 'evergreening' the loan - a process of regular review and renew - lenders are getting involved in the buyer talks, an individual with direct knowledge of the matter told Reuters.

EARLY WARNINGS
Gross bad loans at Indian banks rose to 3.1 trillion rupees ($48.83 billion) as of end-March, or 4.6% of total loans, according to central bank data. Including loans that are stressed but not yet classified as bad, total troubled loans made up 11% of total lending.

Banks say they are now moving faster to bring that down,stepping in at the first sign of trouble, sending out more officers to chase borrowers and putting more people on the job through specialized branches. Some are trying to speed up the sale of seized assets by advertising them on large screens at shopping malls.

"These days people are getting on to the job the moment you have an early warning signal that something may happen in a company and you have thousands of crores at stake," said a senior banker at a big state-run bank.

India uses crore to denote a unit of 10 million.

SBI has set up branches focused solely on recovering loans, and, to speed up cumbersome paperwork, encourages managers to snap pictures of themselves on seized assets - proof of the change of ownership. It plans to set up a web portal to showcase all the seized assets available for auction.

"Companies can sometimes fall in love with their assets, but bankers can't afford to do that," said SBI's Malhotra.

Union Bank of India Chairman Arun Tiwari said his state-run lender has changed its system to put three separate general managers in charge of recovering different classes of loans - large, middle and small.

"You have to go out in the field," he said.

Visit- www.cibilconsultants.com

Source: Secondary

CIBIL Score and Credit Card Limit

Credit Card Limit is basically “Spending Limit” allowed on your credit card. Credit Card is riskiest business for any bank. The default rate is very high on credit cards as it is totally unsecured credit extended to customer. Now a days banks are extra cautious while issuing a credit card. A credit card is issued only after due diligence. Every credit card has different credit limit depending on risk profile of the customer. Credit card limit is decided based on income, current loan portfolio, expense pattern and overall risk assessment of customer by the bank. Banks pull out CIBIL report of a customer to check most of these point. If CIBIL sore is less than 750 or there is a default on payment in past then Credit Card application is not be approved. Basically CIBIL score is a credit report card of a customer i.e. how he manages his personal finance and credit discipline followed by the customer.

Credit Card Limit and CIBIL Score

When the credit card is issued, banks play safe and keep Credit Card Limit on lower side. Based on the usage of customer and payment history, banks keep revising Credit Card Limit at regular intervals normally 12-18 months. At macro level, higher credit limit shows that bank has high confidence on customer that he/she will not default on credit card payment. Credit Card Limit is good pointer how your CIBIL score is moving. If bank offer to increase your credit limit then you should grab the opportunity. It also implies that you are following good credit practices.

As a thumb rule, you should never use your credit card limit more than 30% of approved credit card limit. If current limit is not sufficient then you can always request bank to increase your credit card limit. It is not necessary that bank will oblige. As a back up plan, you may opt for 2nd credit card which will give slight cushion. Credit limit will not increase drastically until unless you are eligible for enhanced eligibility based on usage patter and credit history. An increase of 20%-30% is decent. It is always advisable not to keep more than 2 credit cards.

In normal scenario, financial advisers suggest not to increase credit card limit even if the bank offer to increase the same. Their main concern is that with increase in credit card limit, a customer will tend to spend more. The point is that Bank offer to increase Credit Card Limit only when they observe that customer is following good credit practices. It also imply that customer is using credit card responsibly and making all payments on time. As it is mentioned that as and when bank offer to increase the credit then you should opt for it. At the time, increase in credit limit does not mean that you should stop following good credit practices. Obviously with increase in income level, credit card usage will increase. In order to maintain discipline you should never utilize more than 30% of available credit card limit.

As it is highlighted that higher credit limit means high confidence of bank in your re-payment capability therefore high Credit Card Limit has positive impact on CIBIL Score. Normally Credit Card Limit is around 2.5 to 3 times of monthly gross salary. Assuming a person's monthly gross salary is 1 Lakh. His credit card limit should be between 2.5 lakh to 3 lakh. This cumulative limit is across credit cards in case he is carrying multiple credit cards. If he have 2 credit cards then my cumulative credit limit should be in this range. Credit Limit of more than 3 times monthly gross salary will have positive impact on your CIBIL Score. 

High Credit Card Limit will reduce my future Loan Eligibility

This is the biggest misconception that increased credit limit will eat into your Loan eligibility. Credit Card limit is somewhat similar to overdraft facility extended to the customer i.e. facility is extended, customer is availing or not is different. Credit Limit should not be misunderstood as Loan or Mortgage. Reason being, till you utilize this limit it will not be considered as Loan or credit. Therefore it is advisable to utilize only 30% credit card limit at any given point of time. A parallel can be drawn between Credit Card Limit and Home Loan Eligibility. In case of Home Loan, assume based on his eligibility bank fix his Home Loan eligibility as 1 Cr. If a person only opt for a Home Loan of 40 lakh. In this case his loan/credit liability is restricted to Home Loan availed i.e. 40 lakhs not 1 Cr (Home Loan Eligibility). Similarly in case of a Credit card, if a person's credit limit is 3 lakh and he only utilize 75k then his credit/loan liability is 75k which will eat into his total loan eligibility.

Holding Period of a Credit Card

Some people have habit of churning credit card as and when they receive new credit card offer. It is not advisable to churn credit card because holding period of a credit card i.e. from how long the customer is using particular credit card also impact Credit Limit thus CIBIL Score. It require atleast couple of years time to understand the credit behavior of a customer. Normal credit cycle is of 1 year because credit usage vary from month to month. A person's credit card usage is high during the month of April as he pay all his annual insurance premiums during April. Similarly, usage can be drastically low during September and February. In order to discount all these seasonal variations, credit cycle of atleast 2-3 years is considered to understand credit behavior. Besides credit cycle, longer holding period of credit card shows stable credit behavior of a customer. Holding Period directly impact CIBIL Score therefore if you are using same credit card from last 5 years then there is high probability of better CIBIL Score.

To summarize, Credit Card if used judiciously and intelligently can help to improve CIBIL Score in long run. Some people have misconception that since they don’t use Credit Card therefore they should have high CIBIL Score. Answer is CIBIL score is a derivative of Credit history. If you don’t have any credit history then how financial institutions will check your Credit history. Only a good credit history can help to build good CIBIL Score of more than 750 in long run. Credit Card is one of the easiest and convenient way to improve CIBIL Score & you should not miss this opportunity.

Hope you liked the post and remember that good CIBIL score is result of good credit practices. It cannot be improved overnight. Beware of agencies or companies which promise overnight improvement in CIBIL Score through fraudulent ways.

Source-secondary

Danger: Credit card fraud! Protect yourself.

Credit Card Fraud is a harsh reality of digital age. Though in India, Reserve Bank of India (RBI) has done a commendable job to avoid credit card fraud. Some of the path breaking steps taken by RBI are:

1. Two level authentication for online transactions. 1st level when you enter Credit Card details & CVV. 2nd level authentication is implementation of 3D Secure Code (Verified by VISA and Mastercard SecureCode)

2. Issuance of EMV Chip & PIN enabled Credit Cards

3. Option to select / set limit for International usage

4. Data Security standards for POS Terminals

5. SMS Alert to customer’s registered mobile no for every Credit Card transaction

6. OTP for IVR based transactions

Awesome, Isn’t it. In India, the probability of Credit Card fraud is negligible except due to negligence of user. An example of negligence is that user lost the wallet with Credit Card and in the wallet PIN of Credit Card was written on piece of paper.

Unfortunately, International scenario is not as secured as in India. Most of the credit card frauds are executed offshore i.e. Credit Card information is stolen in India and then the Credit Card is used outside India. Best part is for international transactions, you only need Credit Card No. and 3 digit CVV No. Unlike India, there is no multi layer security authentication/verification. Its quite easy to carry out credit card fraud outside India. RBI or any law enforcement agency does not have any jurisdiction outside India. Last year, person's credit card was used to make international transactions on dubious e-commerce website of African country. Now he has lost all the hopes to recover the amount. The double whammy for him was that he had to pay the amount else his CIBIL Score would have been impacted adversely. Moreover with stricter norms in India, no one can escape under the shield of Credit Card Fraud. The only point of consolation is that if the user prove his innocence by proving that credit card fraud happened due to bank or its employees ignorance/fault/collusion. In this case, Bank will compensate for the loss due to credit card fraud.

 11 most important tips which can help you to avoid Credit Card fraud

Mask CVV No

Immediately after receiving the Credit Card, Remember CVV No and Mask/Scratch the same. You can mask with Permanent marker and than apply whitener coating over it.

Never Store Credit Card information online

Storing Credit Card Information online is most dangerous practice. Its an open invitation to credit card fraud. Recently while booking movie ticket on BookMyShow, the merchant offered me to save the Credit Card Details for next transaction. These e-commerce sites claim highest data security standards but recently Ebay’s 145 mn accounts were compromised so its safe to conclude that “WEB is not a safe place”.

A word of caution: On some e-commerce sites, the option to save Credit Card information for future transactions is by default selected. If you overlooked than without your knowledge, the information will be captured by merchant. The user has to very careful while making online transactions.

Avoid International Transactions, Avoid Credit Card Fraud

It is advisable not to use your Credit Card abroad and even avoid using Credit Card on International E-Commerce websites. If you are 100% sure about the merchant’s credibility & reputation than you may consider. Offline transactions are also risky as Credit Card Skimming is very common at POS terminals in countries like Thailand, Indonesia, African Countries etc

Credit Card Transactions at Petrol Pump

According to recent study, Credit Card Transaction at Petrol Pump is most unsafe. It is one of the favorite location for credit card skimming thus credit card fraud. We tend to handover Credit Card to pump attendant and Credit Card is unattended for 10-15 mins. The probability of Credit Card Skimming is high at Petrol Pumps specially the petrol pumps on highways & remote locations. Crux is that Credit Card should not be unattended and all Credit Card transactions should be in front of you. Secondly, don’t use Credit Card at Petrol Pumps on Highways and Remote locations to avoid credit card fraud.

URL in Browser

Before making any online payment, Please check the URL in Web Browser. Normally the URL starts with “http” whereas secured URL’s  have extra “s” i.e. secured URL will start with “https”. In-fact Google Chrome will show “https” in Green color if the URL is secured and site name will also appear in green.

Reputed SSL Seals & Trust Seals

As a thumb rule, you should make all online transactions only on websites with reputed SSL/Trust seals

SSL Seals: Norton Security Seal, Thawte, Trustwave, COMODO & GeoTrust

Trust Seals:  McAfee Secure, TRUSTe & BBB Accredited.

SSL Seals are more reliable & secure as they suggest Technical Security of Payment whereas Trust Seals are only reputation certification. To avoid credit card fraud rely on SSL Seals.

Use of Credit Card on Public Computer

 Public computers are most vulnerable for Credit Card Fraud. Never ever use Credit Card in cyber cafe, friends place or even in office. Always trust your own Desktop / Laptop for online transactions. Use reputed Anti-Virus, Anti-Malware & Firewall to avoid any data theft.

Credit Card Photocopy as Id Proof / Authorization letter

A Credit Card with Photograph is also accepted as valid Id proof e.g. for bank account opening etc. In case, you booked air ticket for your friend or family member, an authorization letter with xerox of credit card is required. We tend to give xerox of both front and back side of credit card. Some unaware users don’t even hide CVV on back side thus vulnerable to credit card fraud.  Please note that it is not necessary to give xerox of back side of credit card. Only front side is sufficient.

Fraudulent Calls

To avoid credit card fraud never ever trust incoming calls. If you receive any such call than call back bank’s helpline to check the truth.

Credit Card payment through Mobile / Mobile Apps

These days you might have observed that lot many merchants are promoting online mobile apps like RedBus, Flipkart, BookMyShow etc. These apps allow you to make payment over mobile app through Credit Card. Personally, it is not suggested to make any credit card payment through Mobile applications to avoid credit card fraud. In a recent article published in Business Standard, a survey done by Japanese security firm Trend Micro revealed that  39 Payment Gateways, 15 Bank related mobile Apps and other Mobile apps, Shopping apps, Social Networking Apps and Health Care apps used by Indian users are vulnerable to credit card fraud.

Prevention is better than Cure

If the situation demands and you carried out any risky/vulnerable transaction than immediately cancel your Credit Card and apply for replacement of credit card. In short, if you foresee or anticipate any Credit Card fraud than apply for replacement of credit card.
Visit- www.cibilconsultants.com
Source: Secondary

CIBIL score improvement tips

There is no scientific formulae to improve credit score. Only Brahamastra to improve CIBIL score is to follow financial discipline & maintain healthy Credit Portfolio. Lets understand from following case study of Mr. Gupta, How we can improve CIBIL Score.

In June, 2007, Mr. Gupta opted for credit card from one of leading MNC bank. The bank executive assured that card is free for lifetime but next year his credit card statement had a transaction of Rs 2000 towards credit card annual fees. He approached bank multiple times to reverse the fees but bank refused to reverse the fees. He paid balance outstanding excluding annual fees of Rs 2000. Now in May’12, he approached one of leading PSU bank for Home Loan of 30 lacs but his loan application got rejected as his CIBIL Score is 675. He approached an adviser regarding same. On studying his CIBIL report, the adviser observed that Rs 26754 is being “Settled” by MNC bank against his credit card account. This entry impacted his CIBIL Score adversely. Adviser sent him 6 points to improve his CIBIL Score based on his CIBIL Credit report  Recently his home loan got sanctioned. Let's understand 5 important points which can help to improve CIBIL Score

1. Make All Payments on Time:

The most important point for Healthy CIBIL Score. It is better to opt for ECS facility for payment of Home Loan EMI’s, Credit Card Bills etc. on time. All the payments should be made atleast 5 working days before due date. If you are making payment through cheque then it is better to drop the cheque 10 days before due date as cheque clearance take time. While making payment through cheque we tend to ignore holidays falling between due date and date we dropped the cheque. In 89% cases customer dispute that they dropped cheque before due date & still bank levied charges for late payment. Please note that banks consider the date of payment not the date of cheque drop. 

Assume, your salary is due on 5th of every month and your employer handover cheque on 5th evening i.e. Friday. Saturday and Monday is a bank holiday. Your cheque will be cleared only on 11th of that month. From employer perspective he gave salary on 5th but from your perspective, you received it only on 11th. It is critical to make all payments on time to improve CIBIL Score.

2. Don’t show credit Hungry Behavior:

Now lets take e.g. of  Ms. Shwetha from Cochin, she passed out from college in 2010 and got a job in call centre. After opening salary account, she received call from 6-7 banks for credit card and she availed 5 credit cards. It shows credit hungry behavior. She got married in May’13 and she applied for home loan along with her husband. Home Loan got rejected due to low CIBIL score. Reason 5 credit cards shows credit hungry behavior and secondly she missed payment due date on many occasions as she used to forgot due date of few credit cards. It is advisable to keep only 2-3 credit cards. Also don’t keep changing credit card every now & then. Please remember older credit card with regular payment record helps you improve CIBIL score rather new credit card.

Another e.g. of credit hungry behavior is by availing multiple loans simultaneously like personal loan, Car loan, Education Loan etc. Ant any point you should not have more than 2 loans.

Lastly too many credit enquiry in your CIBIL database by financial institutions shows credit hungry behavior. It will not impact your CIBIL Score if report is pulled by you.

Credit hungry behavior is a big hindrance to improve CIBIL Score.

3. Use Credit Cards Responsibly:

95% of people's CIBIL score is adversely impacted due to Credit Cards but if used irresponsibly then credit card is a biggest curse. It is advisable to exhaust only 30%-40% of available credit limit every month. Any excess usage might impact CIBIL score. If you need more limit then opt for 2nd card and plan your usage accordingly that it should not go beyond 40% on either of cards. If you are planning to make big purchase then you can request bank to increase your credit limit. If your track record is good then bank will happily increase your limit.

Another blunder committed by many people is that they opted for Settlement in case of  payment dispute. Kindly note that bank report such cases as “Settled” in CIBIL and it adversely impact CIBIL score. Never ever opt for settlement rather close the account by clearing 100% payment outstanding. In case of dispute, you may approach bank ombudsman but by not paying & reaching settlement with bank will not help you.

Lastly whenever you close any credit card then it is recommended to take NOC from credit card provider. In many cases, customer place request for closure and then don’t follow up. Credit Card is closed only after receiving NOC from bank and your CIBIL database should be updated by bank within 45 days else it may impact your CIBIL Score negatively.

4. Secured & Un-Secured Loans:

Secured Loans like Home Loans improve CIBIL Score as Home Loan builds long term appreciating asset whereas unsecured loans like car loan (depreciating asset), personal loan, credit card debt etc negatively impact CIBIL Score. It is advisable to opt for right mix of secured loan & un-secured loan. You credit portfolio should be 80% secured and 20% unsecured loans.

5. Credit Worthiness:

Consistency builds credibility & credibility improve CIBIL Score. Good history of timely payments and responsible credit behavior are key to credit worthiness. CIBIL Score of 750 score or more shows credit worthiness and above 800 CIBIL score means you are in elite club.

These days almost 100% loans are approved for customers with CIBIL Score of more than 700. There is no quick fix solution to improve CIBIL score. You have to work on your credit portfolio to improve CIBIL Score. Hope the above mentioned points will help to improve CIBIL Score.
Visit- www.cibilconsultants.com
Source: Secondary