How late payments affect your credit ?

We’re all guilty of forgetting to pay a bill on time, or stuck in a situation where the funds just aren’t available. What are the true effects of paying a bill late, and how does it really affect our credit history?

Whether you’re 1 day late or 30 days past due, having a late payment in your credit history will have a negative impact for years to come. Here’s what you need to know about making late payments and how to recover from it. 

                                

How does one late payment affect you?

There are five different factors that determine your entire credit score. Payment history is the single most important factor, making up 35% of the entire pie. So this is a vital part of building a good financial history that you want to make a priority.

Since paying your bills on time makes up the largest effect on your credit history, it gives evidence to the fact that you’re unreliable at repaying loans on time. This ups your risk factor to any bank or financial institution who’s considering offering you a loan.

A long history of timely payments shows that you’re a reliable borrower capable of repaying debts on time. But a poor history of timely payments suggests you’re a high-risk borrower.

This can affect your bottom line in several ways:

• Causes you to be denied for certain loans or consolidation methods
• Forces you to pay high interest rates and even higher fees
• May decrease your overall credit score

How long does it take to recover from a late payment?

So, what happens if you do have a late payment (or several) on your record? Well, the first step is to bring all your accounts up to paid status, so if you have any outstanding bills due pay them as quickly as possible. Showing a delinquent account on your credit report is much more costly than having a past due status.

Although the negative impact from making a late payment does decrease over time, it will remain on your credit report for seven years before dropping off. If you have more than one account where a late payment was posted, this will have an even greater affect on your credit than simply one past due account.

What can you do if your payment is late?

If you find yourself in this situation, don’t lose hope. There are still a few things you can do to turn this around for the better.

• Request the late fee be refunded. Leverage your loyal customer status and call the financial institution to request they refund the late fee you were charged. The will likely honor your inquiry and forgive the fee — especially if this is your first offense.
• Reset your interest rate. If your interest rate spiked due to the late payment, remind the company or card issuer that they are required to reset your interest rate as long as you make on-time payments over the next six months. If you hold up your end of the bargain, so will they.
• Make payments on time. Going forward do whatever you can to make all of your payments on time. This will help to slowly improve your credit history over time and establish you’re once again a trustworthy borrower again.

Having a late payment isn’t the end of the world, but it can negatively affect your credit score. Use these tips to get back on track and start building a solid financial history again.

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How to use a credit card?

Keep control of your cards instead of letting them control you. Cleaning up your credit card debt takes time and self-control, but the steps outlined here aren’t difficult. There’s no reason that credit cards can’t be a helpful, convenient tool – assuming you can learn to use them sensibly and responsibly. Use these simple tips to stop adding to your existing credit card debt and start regaining control of your finances.

To start with credit

While getting started with your credit card, don’t make maximum use of credit card immediately.  Instead, make small charges on your credit card and pay the balance in full each month. The motto of a credit card isn’t to buy things you don’t have the cash for, but to begin building a good credit history and instill good spending habits.

Plan your payments

Manage to pay more than the minimum balance every time. It’s tempting to send in the minimum monthly payment when you’re under financial duress, but don’t do it. Not only will you never pay off your bill, but the interest rates that credit card companies charge will actually keep your bill growing every month. Instead, send as large of a payment as you can afford to. Where possible, reduce your spending in other areas to focus on paying off your credit card debt. Building a good credit score takes time so, doesn’t try to rush it. Use credit responsibly and a great credit score will follow.

Review your activity

Monitor your credit card statement thoroughly every month. Don’t take for granted that everything on your credit card statement is accurate. Go through each transaction on your card to be sure that: your last payment was applied correctly, you were charged the right amount for all your purchases, and there are no unauthorized transactions on your credit card.

Self- control

You’ll have to maintain self-discipline and stop yourself from using credit card to make a purchase, but can’t pay your bill in full at the end of the month. Make sure that you put money aside to pay your credit card bill on time and don’t spend it on something else. Initially, manage to use just one credit card, so you can keep a track of your payments easily. Several balances and due dates can cause confusing and lead you to debt and a damaged credit score.

Wise decision-making

Are you ready for bigger purchases? Make wise decisions about purchasing items you need versus those you simply want. Using your credit card responsibly means recognizing which things you need and which you just want. Once you’ve created a habit of paying your complete bill, you are better prepared to use your credit card for slightly larger purchases.

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Use Credit Cards Smartly!

A judicious credit card spending help in substantial saving over a period of time. In this post we will discuss, how we can increase our savings by juggling between 2 credit cards.

Please note that if you have more than 2-3 credit cards then it shows credit Hungary Behavior which can impact your CIBIL credit score adversely so it is advisable to carry only 2 or max 3 credit cards.

Billing date of a person's 1st Credit Card is 15th of Month (Payment date is 5th of next month) and billing date of 2nd Card  was 25th (Payment date was 15th of next month). After few billing cycles he requested second bank to change my billing date to 30th (Payment date changed to 20th of next month) and they obliged happily.  In past, he requested 1st bank to change his billing date multiple times but despite being super premium customer they refused. They told him that billing date once fixed cannot be changed. Small players are very flexible in their approach, which he realized late.

For his own benefit, he decided to divided my business between 2 credit cards to get maximum benefit & to save maximum during recession. All his purchases between 16th and 30th of the month are through 1st bank i.e. he use 1st credit card for 15 days from the billing date of 1st bank (15th of Month) & all the purchases from 1st of month to 15th of month are through 2nd credit card i.e. 15 days from the billing date of 2nd Credit Card (30th of Previous Month). In short, use the credit card only for 1st 15 days from the billing date and ensure that billing date of 2 credit cards are approx 15 days apart. 

Now you must be wondering, how he is going to gain out of it and answer is very simple that by doing this he is getting an extra 15 days credit for all my purchases every month. In these tough times of recession and high interest rate 15 days extra credit means lot of savings.

Lets take 2 examples to understand better

Example 1:

Scenario A:  Assume he made a purchase on 5th of the month and he have only 1st credit card. For this purchase his billing date is 15th of same month and he need to pay for this transaction by 5th of next month. In short he will get credit for 30 days on this transaction.

Scenario B: Now if pay for this transaction by 2nd credit card then his Billing date is 30th of same month and he need to pay for this transaction by 20th of next month. In this scenario he will get credit for 45 days.

Therefore, in Scenario A credit period is 30 days and in Scenario B credit period is 45 days i.e. extra credit period of 15 days, simply by juggling between 2 cards

Example 2:

Scenario A:  Assume he made a purchase on 25th of month and he have only 2nd credit card. For this purchase his billing date is 30th of same month and he need to pay for this transaction by 20th of next month. In short, he got credit for 25 days on this transaction.

Scenario B: Now if pay for this transaction by 1st credit card then his Billing date is 15th of next month and he need to pay for this transaction by 5th of next to next month. In this scenario he got credit for 40 days.

Therefore in Scenario A credit period is 25 days and in Scenario B credit period is 40 days i.e. extra credit period of 15 days, again simply by juggling between 2 cards.

From Example 1 and Example 2, it is clear that if we have 2 credit cards with billing dates 15 days apart then we can simply time the swiping of each credit card to get maximum credit period for each transaction. If we assume revolving credit of 50k every month for 15 days & extra credit of 15 days on this amount then annually you can save Rs 2250 assuming 9% interest on bank FD.

Credit cards, if used judiciously can help to save a lot but only word of caution is that credit card should be used only for necessary purchases not for impulse buying else it can land us in deep mess of debts.

Disclaimer: All the examples used in above post are for illustration purpose and to simplify the subject.
Visit- www.cibilconsultants.com
Source: Secondary

Low Spread Of Credit Cards leads to increasing Loans In Kerala

The credit demand in the country is on the rise as the number of applicants for new loans has increased by 150 per cent in the last three years. Out of the total loans disbursed in Kerala, 82 per cent is used to purchase two wheelers, reveals the latest data trends report of Credit Information Bureau (India) Limited (CIBIL) released here on Wednesday.

As compared to other states, Kerala has the highest number of credit applicants who are above 45 years and 21 per cent borrowers in Kerala had a credit score of 800 and above and 40 per cent has a credit score of 750 above, the data stated.

CIBIL score assigned to a borrower ranges from 300 to 900. The higher an applicant’s credit score the more the likelihood of the loan application getting approved.
                 

Releasing the data, CIBIL Managing Director Arun Thukral said that Kerala has 46 per cent credit seekers who are less than 35 years.

“The state has very low penetration of credit cards and personal loans. Banks and financial institutions today consider the CIBIL score as a crucial parameter before sanctioning any new loan. Now telecom, insurance and stock broking companies have started accessing the score,” he said.

He hinted that in the future the details of utility bill payments will be linked with the credit score of an individual.

Speaking on the occasion, Harshala Chandorkar, Senior Vice President-Consumer Relations, CIBIL said that there has been a 200% growth in consumers reaching out to us for their CIBIL report across metros as well as Tier II and Tier III cities since 2009 indicating the rising financial awareness in the country.

CIBIL is India’s largest credit information company that maintains information on over 317 million consumer trades and 15 million commercial trades.
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Pay off with credit card to increase your CIBIL score.

Credit reports are used by loan companies to help them determine whether you are a good risk or not and if you are likely to repay any loan taken out. There are some very simple steps you can take to raise your credit rating. Many of these actions are things not to do also.

"If you consistently pay off your bill as soon as you receive it, your balance will remain lower. If, on the other hand, you continue to charge up the card between receiving your bill and paying it off on the due date a couple of weeks later, your reported balance will be higher. This increases the chances that when the credit bureau takes the snapshot, your credit utilization ratio will be higher."

Avoid jumping from credit card to credit card.: If you "transfer your balance" - a scheme that doesn't hurt you, and gets you 0% interest on your balance for a period of time, sometimes as long as a year – unnecessary don't open the new account. Your credit history looks better to the credit bureaus if you have long-standing, established accounts.

Rely on your seniority in age: You can't do anything about, being older, but at least there's something good about ageing! Age is one of the personal factors which bureaus take into account while giving the credit ratings.

Regularly pay your bills on time: This is actually first in the order of things you must do to better your credit score. Each late payment is affecting your credit score and presents a picture of unreliability. You must determine that, if you want to improve your CIBIL score, you should pay your bills on time. The biggest hunk of your credit score is based on your payments history.

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They don't hurt your score

Nowadays, people have been extremely careful about their credit health so as to secure better loans with low interest rates. But mostly such people focus on what affects their credit score and ignore certain myths about things that supposedly affect their credit scores when they don’t. It’s necessary to know about what things don’t affect your CIBIL score so that you don’t waste time fretting over them.

Income: 
It will sound good to you that, income doesn't directly affect your credit score. Creditors know about your income from your application, not from your credit report. Income doesn't negatively affect your credit score but lenders would take your income into account to determine whether you would be able to make payments in future.

Personal Information:
Name, Address and birth date is included in your credit report but other than that your education level, marital status, race, age and gender won’t effect your credit rating whatsoever nor would they be taken into account to calculate your score.

Checking your credit report:
remove the myth and get clear that, checking your credit report is good financial habit and checking it at regular intervals won’t affect your credit score in a negative way but rather help you know more your credit health.

Application for credit rejected: 
When banks turn down your credit card or loan application, people believe that your credit report is affected. But this is purely myth, your credit report doesn't show if an application is declined or approved. Yes, there would be inquiries against your report when you apply for these loans, but being approved or rejected seriously won’t affect your credit score. So, feel happy about it. 

Paying bills of other people and small merchants:
Bill payments to small businesses don’t help build your credit score because most probably they won’t even show up on your credit report. Credit bureaus have strict requirements about who reports information to them and usually small businesses don’t fit into those requirements.

Also paying off somebody else’s bill won’t have any affect on your credit score. When a bills gets paid, it doesn't matter who paid it, the payment would get reported on the file of the person who borrowed the money.

For more queries visit : www.cibilconsultants.com

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Length of your Credit history do impact your Credit score

When you think of your credit score, chances are that you focus on items like payment history and credit utilization. While these are the two most important aspects of your credit score, there are other factors that influence your financial reputation. One of those factors is your credit history.

Why your credit history matters

The length of your credit history accounts for about 15 percent of your credit score. The length of your history is often expressed in two different ways:

Age of oldest account: How old is your oldest account? The longer you’ve had credit, the better your score will be.

Average age of your accounts: With this measure, the ages of your accounts are added up and then divided by the number of accounts you have. Once again, the higher the average age of your credit, the better your score will be.

Even though this isn’t the largest chunk of your credit score, it’s still fairly significant. If you have a very low length of credit history, it could tip the scales against you. If your score range is at the lower end of “good,” having a short credit history could nudge lower, into “fair” territory — and result in increased costs on your next loan.

Be careful when you cancel credit cards

Credit history length is one reason to be careful when you cancel a credit card. Say you have five loans of different ages:

– Five years
– Two years
– Eight years
– Six years
– One year

The average age of these loans is almost four and a half years. If you decide to cancel the credit card you’ve had for eight years, though, the story changes. Now the average age is about three and a half years. The difference is more pronounced as you move forward, however. If you know you will apply for a major loan, such as for a home or a car, in the next couple of months, think twice about canceling a long-standing credit card account.

There’s a reason I still have my first credit card from college. That credit card account is 14 years old. No, it doesn’t have any rewards attached to it. But that credit card account, along with a not-very-great cashback credit card my husband and I got 12 years ago shortly after marrying, brings up my “average” credit account age.

Of course, if you have serious issues with paying your bill on time, or if you have several maxed out credit cards, a long credit history isn’t going to solve your credit score problems. However, if you have a decent credit score, and you hope to give it a bit of a boost, paying attention to the length of your credit history can be a big help.

For expert advice, visit www.cibilconsultants.com

Source: Secondary

Punching card PIN at shops may prove to be risky

As per the guidelines of the Reserve Bank of India (RBI), effective from December 1. The debit card holders will have to punch in their personal identification number (PIN) every time at Point-of-Sales (PoS) at merchant outlets to minimize frauds.

But many bankers as well as merchants in the city pointed out that this is far from fool-proof and the system has an alleged drawback of lack of privacy.

First, the debit card holders will have to enter the PIN of their ATM cards in the swipe machine and then sign on the transaction slip, for any purchase at any shop.

This may prove to be risky, as thieves may misuse the system by keeping an eye during the swipe, memorize the PIN, clone the card to easily withdraw large sums of cash from any nearby ATM .

But it has been found that none of the merchant outlets in the city have made arrangement for privacy of the customers while punching the ATM PIN while purchasing goods.

Glenn Serrao, the son of a hotel owner in sector 17, Vashi, said, "Debit and credit cards are accepted only on the first floor of our restaurant premises. Around 80% of our regular customers do not mind revealing their PIN to the waiters, who in turn, swipe the cards to pay the bill and issue the payment slip for the customer's signature. If any customer demands privacy to punch their PIN, then we will surely provide that service."

Pradeep Kumar, the manager of IDBI bank, Vashi branch said, "Logically, due to lack of privacy at shops, there is a possibility of misuse of the system. Now, to resolve this alleged lacunae in the customer service, our bank will suggest to our product team that the shops need to provide a secluded place for the ATM card swipe machine which should offer adequate privacy for the customer while punching his/her PIN." The product team will then forward the suggestion to the RBI authorities for corrective measures in the guidelines.

"Anyone who thinks that this system can be misused by miscreants, should come forward with their suggestions on the RBI's website, as well," added Kumar.

Susaant Patnaaik (41), an LIC consultant said, "The need for privacy to use one's debit or even credit card is a must. The swipe machine should be kept separately near the establishment manager's counter and be hidden by a partition to prevent onlookers from reading the secret digits being punched by the customer. "

Patnaaik also said that the banks have warned their ATM debit card holders not to read out or enter their PIN when someone is standing behind them.

"One must never swipe in front of any onlookers to ensure the safety of their card," he added.

Learn more about identity theft at www.cibilconsultants.com

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When to check your credit report and improve your credit score?

Whether you are planning to buy a home, a car or even a new credit card, your credit score has immense affect on your loan processing. A credit score is a 3 digit number that shows numeric summary of your credit health. Such score is derived by credit bureaus by analyzing your credit history. The score usually ranges from 300 to 900 points and the higher score suggests more chance of getting approval of your loans. If you are in dilemma to find how to improve credit score, following tips may help you:

ñ      The first and foremost easy action to improve your credit score is to pay off all your bills on time and pay regular installments on your loan default. Even, if your credit score is trembling, you just follow the technique of paying all the bills on time. You need to maintain no late payment status for at-least seven years.

ñ      It is important to put a limit on your credit card use and utilize it only for certain ways. Your credit score would be on the higher side if you will make less use of credit cards as well as will avoid using too many credit cards. The ideal would to be use between 10% and 20% or less of the total credit available.

If you don’t have any idea how to get credit report and improve your credit score, it is better to take help of professional credit agencies. These agencies become your friend and guide in showing you the right way to improve your credit score.
Visit www.cibilconsultants.com and book an appointment now !

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Follow these guidelines and build your credit

Following a responsible credit life is good financial practice for every individual. You get better chances of getting approved for loan and along with better interest rates. In spite of all this, advantages will appear during renting or buying a house and during employment opportunities, qualifying for a corporate credit card, etc.

Want to build credit? Have patience:
Credit score cannot be changed overnight as they reflect your credit behavior over a period of time. You can’t just improve them in a day- act patiently. The good thing about it is that credit scores concentrate more on present activity so if you have negative information in the past they won’t matter much as they keep on ageing.

Bad credit cannot be erased:
Negative information ruins your credit score because it stains your report for a long time. They may remain on your report from a period of 7-10 years. So try to avoid adding any kind of negative term to your report.

Regular bill payments:
Paying bills regularly doesn't give you any additional points but it certainly does help you build a responsible credit history. In fact if you are not regular and default on your payments, it would hurt your credit score that much.

Use Credit:
The main key to building your credit is using credit in form of credit cards and loans. But this credit should be used in moderation and not be over used. Maintaining a low balance on credit cards and paying off the installments on time is the right way to build your credit. These show how responsible you are with the credit you use and helps boost your score. Having credit lines is also important.

Establish a long history of good responsible credit behaviour and you would build your credit in no time. Credit scores are calculated by the credit bureaus like CIBIL, Equifax etc on the basis of the information provided by various banks and lenders.

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Learn how your business credit cards affect your CIBIL score?

Yes,Every business credit card affects your credit report. But how they affect your credit report depends on you- more specifically, how you choose to handle your company's decision to grant you a business credit card.

Only having business credit card will not improve your credit score. If you're paying your bills on time with your business credit cards, you can expect your credit score to be improved in your credit reports. But if you're not paying on-time, it will harm your credit score.

Personal and Business credit: New businesses don’t have a lot of their own credit history. You may not have built up specific credit accounts related to your business name - that's why you're looking for a business credit card in the first place.

Lenders will routinely look at personal credit for new business owners who haven't yet established their own enterprise. That shows having a good score will benefit you a lot, and help you dedicate yourself to repay borrowed amount.

Personal Credit History: You will be surprised to know that, having no credit in the past, also might count against you on some card applications. Lenders routinely run a simple credit report for a potential borrower. There are a lot of issues that can come up on this credit report, that may stand in the way of your loan or business credit card.

If you have someone is consignor on a loan with you, that can be a potential solution, but those individuals have to know what they are getting involved in, and it's up to you to reassure them that the situation won't end up as loan default and complications. You can also shop around and try to find lenders who will take the time to scratch the surface of your credit history.

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Bank analyzes your credit worthiness this way

Credit risk analysis is an integral part of how banks lend money. It is a highly standardized process that tries to assess the desirability of an account by estimating the profitability and reliability of that account. Credit investigations are conducted by the banks to minimize the possibilities of experiencing loss from delinquent and late payments.

Understanding these metrics and processes that these banks use can help you in developing an approach wherein you can maximize your credit worthiness and access financing and business credit rating more effectively. So, how is this credit risk measured? Let us see below:

Credit Risk Analysis Metrics

• Reliability —
The measures of reliability used by the banks are references from past and current suppliers, owners or management’s qualitative character and credit payment history.

• Ability to Pay —
The applicant needs to demonstrate through business plans and financial models that he can generate consistent cash flows and enough revenue and that he is capable to make payments within the terms. This will also give the evidence that the business has been running for a certain time and will continue to operate successfully and keep paying its bills on time.

• Economic Conditions —
Industry and economic trends contribute to the bank’s assessments of risks and helps as an overall predictor of a business’s ability to maintain itself and recover its potentialities. If the industry is expanding rapidly, a successful credit arrangement goes on; conversely, the bank may be on more on the side of caution while considering a credit application, when the industry is shrinking.

• Collateral —
The most critical consideration in credit risk analysis is whether there is willingness by the borrower to back the desired loan or credit terms with an asset(s). If the bank is assured recourse to recover the losses via liquidation of the property of the applicant, then it is likely to feel secure in such an arrangement. In difficult financial situation, secured loans and loans are much more common.

How Does Credit Risk Analysis Inform Lending Practices
Each metric’s importance can vary greatly from one applicant to another. Not only do these metrics help the lender whether to issue credit report or not, but they also influence the credit limit, payment terms and other additional assurances.

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Don’t let history repeat itself

I have often come across friends boasting, “My credit score is higher than yours,” and those on the “lower” end of the comparison want to have higher scores. Then there are past defaulters who wish to be considered for a loan and complain that banks turn down their application even after they have settled all outstanding in full and even improved their scores. In many cases they are indignant that they have now settled all the over dues, hence should get access to loans.

Past defaulters

Let us take up the case of the past defaulter first. Let us suppose you are in the money lending business and a potential borrower has approached you for a loan. Would you lend to this individual knowing fully well that he has delayed payment in the past to another money lender and only settled a part of the amount of overdue interest to the lender? Even if he had settled his outstanding in full along with overdue interest, would you still lend to him?

Like any sensible businessman you will wait for a while till he shows better record with someone else before you lend him money. This is exactly how one who is placed in this category of borrower should do: First, settle all outstanding payments. Even you settle, do not expect an overnight increase in your ability to borrow more. You will need to slowly rebuild your history. The best way is to get loans that are available despite your adverse credit history.

You can take a secured credit card from some public sector banks where you place a fixed deposit with the concerned bank and they give you a credit card with some percentage limit of the fixed deposit amount. This ensures that the bank is completely protected from the risk of any default as they can set off the credit card outstanding against the fixed deposit amount in case of the eventuality.

The reason it helps the consumer is that when he spends and pays back on the credit card, he is building a good repayment history. The other option could be to take a loan against gold from leading banks or NBFCs. Again the lender is fully protected and hence is able to give a loan despite the adverse credit history.

Prompt repayment on such loans again creates better credit history. Over time the credit institution starts giving less weightage to your old default and more weightage to your current prompt payment and hence the overall credit score starts improving.

Keeping up with the Joneses

The second category of people compare their score with their friends discover that their credit score is lower than their friends/relatives and want to understand the reasons. Do not get obsessed about your credit score as long as it is above 750. Unlike the US where a movement of 5-10 points in your credit score could cost/save you thousands of dollars in interest and fees, in India lenders just use your credit score to eliminate people whom they will not consider for lending. So if you have a credit score of 825 and your friend has 775, you will still get the same rate and experience from the lender since both of you will make the grade to be considered for the loan. Here are a few things that you could do to make sure that your score becomes higher while waiting for the benefits to accrue:

Get a copy of your own credit report at least once a year and make sure you follow up to get any errors corrected to ensure it does not hurt your credit score.

Pay your bills on time

Keep unsecured loans to a minimum. Don’t close your old credit cards as repayment history on older credits has a higher weightage than on a newer facility. If you have used the credit limit on your card almost fully then apply to get your credit limits enhanced to show lower utilization of your credit limits.

Book an appointment to get credit report and rectify the errors at www.cibilconsultants.com

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