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

Credit and Cost of Living.

You know that where you live matters when it comes to your disposable income. Cost of living makes a big difference in your budget. But can it also impact your credit? You might be surprised at how your cost of living might also matter when it comes to your credit. When you have a high cost of living, your income might not keep up with your expenses, and for many people that means debt. If your debt becomes unmanageable, that can, in turn, affect your credit.
                      

Borrowing to make ends meet

Do you live an area that requires you to borrow to make ends meet? If you are borrowing to make ends meet, that can eventually affect your credit. It’s going to depend on the cost structure of things, in terms of where you live, and your wants and desires.

If you live in a high rent district, it’s going to be far more difficult to buy a home or keep up with the expenses, if you’re on a fixed income. It’s easy to spend a large portion of your income just on day-to-day living expenses like housing costs, utilities, and transportation. 

In some cases, regular living expenses can be high enough that borrowing is part of how consumers make ends meet. You might think that you are just borrowing a little bit for now, but the reality is that if you can’t make ends meet this month, it’s going to be even harder next month when you have a debt payment as well as your regular expenses. Pretty soon, you find that you are just paying the minimum payments on your credit cards since it’s more affordable than paying off the balance — or even half the balance.

Over time, your balances rise. This impacts the credit utilization portion of your credit score, bringing your score lower. At some point, though, your balances and your minimum payments will reach a point at which you can no longer make the payments with ease, and you might start paying late, or even missing payments altogether. Since payment history is the biggest factor in determining your credit score, once you get to the point where you can no longer afford your debt payments on top of your living expenses, the damage to your score can be surprisingly swift.

Living in an area with a high cost of living means that you might have to compromise, looking for ways to reduce your expenses so that you don’t exceed your income. If you live where things are cheap, you may not have to compromise. Where you live changes the way you approach your finances. Your situation changes, either how you compromise on your wants and desires or your credit score. You choose how it’s going to go.

Applying for credit

The process of applying for credit is the same, no matter where you live. However, the cost of living in your area can impact the type of loans you qualify for, and the rates you receive. If your income doesn’t quite provide you with enough leeway when it comes to your cost of living, some lenders might disqualify you based on your income. You might be forced to apply for credit at lenders willing to take on more risk, but you will need to pay a higher interest rate. 

Additionally, if you have been borrowing to make ends meet, and you’ve already racked up debts that are impacting your credit score, it can make it harder to get approved. Where you live cannot so much change the way you apply for credit, but your need for it may vary if costs are higher.

In areas with a high cost of living, you might also have to limit what types of loans you choose to take on. High-cost areas tend to have very expensive homes. Buying might not make sense in these areas due to prohibitive costs. If you can’t truly afford to make home payments, risking your future credit to a foreclosure might not make sense. 

You might also decide to avoid buying a car in an area with a high cost of living. Several consumers living in major metropolitan areas that don’t bother with cars. Car loans are expensive, and cars come with maintenance and repair costs, as well as insurance costs. Taking public transportation costs less than owning a car in many major cities with high living costs. 

Choices you make about what types of credit you apply for can help you avoid getting in over your head with debt and ruining your credit in the long-term.

Manage your cost of living for the benefit of your credit 

Even if you live in an expensive place, you can find less expensive options or alternatives within that place. Some of the suggestions for reducing your cost of living in an expensive area include:

• Buy a certified used car rather than a new car
• Buy items off-season
• Use coupons
• Shop sales
• Buy used and at thrift shops
• Share living quarters when applicable

Managing your cost of living can help you avoid the need for debt to finance your lifestyle. If you can’t or won’t move to an area with a lower cost of living, you’ll have to make adjustments to your spending to avoid getting into a situation where your cost of living destroys your good credit. Generally speaking, do not finance things for daily living. You must plan ahead and be a smart consumer.

Source: Secondary

Check- Check! Credit Check!

When you think of a credit check, chances are your thoughts jump to loan transactions. After all, the point of a credit history is to provide context for your past credit transactions as a way to predict the default risk you pose to a current lender. The reality, though, is that your credit profile is used for other financial transactions.
Just because you aren’t borrowing money, it doesn’t mean that your credit information isn’t being used to make judgments about your level of financial responsibility. Here are five non-loan financial transactions that may require a credit check:

                           

1. Cell phone service

A person recently signed up for new cell phone service. Before the company would open an account for him, they ran a credit check. This isn’t unusual, many carriers want to make sure you’re going to pay your bill as agreed. Others worry about letting you walk out of the store with a phone that will be paid for in the service contract.
Poor credit means that you may be limited in account choices. “You may only have access to an account with strict data usage and calling limits if you have a poor score,” . Additionally, if you want to upgrade your phone later, your carrier might make you pay for the upgraded phone up front, rather than letting you make installment payments.
Some Internet service providers and cable/satellite TV companies also run credit checks before opening accounts for new customers. If you expect to access entertainment in this way, you need to be aware of the possibility that your credit history will be accessed and used to judge you.

2. Insurance premiums

“Many auto insurers review credit scores when setting rates,”  “Poor scores are highly correlated with future claims insurance. You may pay more for car insurance if you have a poor score.”
Some states ban insurers from using credit scores to make these decisions, but there is still the chance that you could pay hundreds of extra dollars a year on your auto policy as a result of your credit situation. 

3. Renting an apartment or a home

Even though you aren’t borrowing when you rent an apartment or a home, the reality is that you are still expected to make regular payments. For some landlords, a poor credit rating could be a red flag that you will be difficult to collect from. You might be turned down for some housing situations if you have a poor score. 
You might also need to get a cosigner for your lease if your situation isn’t up to scratch. In some cases, you will be approved to move into the rental, but you might need to make a larger security deposit. This can be difficult if you are short on ready cash.

4. Applying for a job

Even your ability to earn an income can be impacted by your credit history. Employers aren’t supposed to check your credit score, but that doesn’t mean that some won’t look at your credit report to identify possible risks. “This occurs most frequently for jobs where people handle money or other valuable items,”  Someone with a bad credit report might be considered a risk of embezzlement or bribes. “You may lose a good job opportunity if you have poor credit.”

5. Finding true love

Finding the right life partner is supposed to be about love and compatibility. It’s supposed to be romantic. However, there are also money components involved with identifying a life partner. “Many single people now exchange credit reports and scores before becoming serious in a relationship,” citing recent surveys that indicate that singles are interested in the financial viability of potential partners.
Even if your partner is willing to overlook your past financial indiscretions, he or she might be unwilling to combine finances with you until you get your credit score in shape. Even though marriage doesn’t have to mean that you share a credit profile, many partners are wary that your situation could affect them.
In the end, you need to be aware of the fact that a credit check isn’t just for loan-related financial transactions. Attempts to include other information in credit reports and scores are under way, since utility payments and rental payments can also be indicators of your level of financial responsibility. However, for now your credit profile is still one of the main ways that others — even non-lenders — decide whether or not you are an acceptable risk.

Source: Secondary

Credit score change again? Know why?

We believe if we don’t change any of our financial habits, our credit shouldn’t change. But our credit score depends on our credit history which keeps changing, little every time. When you generate a credit score from a credit bureau, it generates a new credit score for each credit score request and gives you the updated credit score. 

These three credit reporting bureaus- CIBIL, Experian and Equifax  create your credit reports and your credit score is based on that. When the credit bureaus receive new balances, inquiries, recent payments and any other information from your lenders; your credit report is updated and a new credit score is calculated based on this updated information. Any minute variation in your credit line could have an impact on your credit score, the main factors being changes in your payment and borrowing behaviour.

·   When you make payments, your total debt amount reduces, which is one of the factors to calculate your credit score.

·   Old items i.e. negative credit history like bankruptcy disappears from your credit report after 10 years and that may account for some changes in your credit report.

In the same way, when you close old credit card accounts they fall off your report after a period of time too.

·   When you use too much of your available credit, your credit utilization ratio rises thereby dropping your credit score. Keeping it low is the key to maintain a good credit score.

All these may account for small changes in the credit report, but they are changes nonetheless.

visit: www.cibilconsultants.com

Source: Secondary

Apprehend your Credit History

Credit history is an individual’s or company’s records of his past borrowings, repayments, other payments and bankruptcy. It is basically all the past records of your credit life. Credit History plays a very important role in building up your credit score and that is why it is important to understand your credit history.

All the factors affecting the CIBIL score are somehow or the other related to your credit history. Having a good mix of credit in your credit history forms 10% of your credit score.  You should’ve taken a good mix of unsecured and secured loans including home loans, auto loans, personal loans etc. to score higher in your credit report. Not only taking loans but servicing them in time also affects your credit score. You should have timely made payments as part of your credit history so as to get a good score.

The other factor which gets affected by your credit history is the length of your credit accounts.  The longer your credit history, the better your credit score. That is why it is recommended by most people not to close old credit card accounts which have been going on for a long time, as it brings down the average length of your credit history. 

But also be aware that defaulting on your payments and bankruptcy stays on your credit history for a long time too and negatively affects your credit score. Therefore, making timely repayments and servicing your debts responsibly for a long time is the way to a good credit history which in turn is the way to maintain a credit healthy life and a good credit score!

Learn about credit score and apprehend your credit history by just booking an appointment at www.cibilconsultants.com

Source: Secondary

How much debts are beneficial for you ?

Debt is an important tool which helps you finance large purchases, open a business or even help build your credit score. It is a topic on which different people have different opinions; some find it acceptable till the time you have enough resources to pay it back while some think it is not necessary and that it would become a big liability on your finances.

But we have to remember that debts do help you finance big purchases when you don’t have enough cash flow and it also forms a big part in shaping up your CIBIL score, we just need to know where to draw the line. But when debt become too much? Till How much debt is beneficial for your credit health?

There are guidelines by the lenders on how much debt you should have. Your debt shouldn't exceed a certain percentage of your income. You should have enough income to cover off your debts as well your interests.

When you start missing out on payments, work overtime to pay off your debts, use up your savings- that’s the time when you have crossed the ‘beneficial debt’ line. The debt is no longer beneficial to you and it would start harming your credit score now. Till the time you use it responsibly, debt is a great credit tool but if not it becomes a big dent in your finances.

Before taking additional debt, keep these points in mind.

• The most important one- you should have enough income and savings to cover your payments for the debts( including interest)

• Always go into debt when you are confident you receive a ROI (return on investment).  If you don’t get  good returns, there's no point in going for the debt. Research well on the debt’s ROI value before you go for borrowing.

• Check if you are qualifying for a good interest rate. Calculate the overall charges in the long run. For e.g. - if getting a house at a low interest rate would be better than renting. If you are not getting a good competitive rate, then take a little time look at your options or if you have a bad credit score, rebuild it and then go apply again.

If you'll follow above mentioned measures, then the debt you are going for is not too much, but if you can’t then that debt is obviously gonna too much.

Repair and enhance your credit score by just selecting suitable package available at www.cibilconsultants.com

Source: Secondary

How to maintain good BUSINESS credit score ?

You don’t only have a personal credit score-If you own a business, there is something known as a business credit score too. It is on the basis of your business credit report that lenders determine whether to give credit to your businesses.

Managing credit for your businesses is very challenging for small business owners. Lack of knowledge makes them commit various mistakes like using personal credit cards for business transactions, missing out on small business credit opportunities etc. thereby affecting the credit worthiness of their business.

Don’t close your old accounts: 
Unlike, how it is said in personal credit to close unused accounts, in business credit it is recommended to not close unused accounts. In business credit score, the more accounts (even if they are unused) the better. The more accounts you have, the more credit you can borrow in future. Closing unused accounts reduces the amount of credit you have available therefore reducing credit utilization ratio and also your credit borrowing limits later in future.

Keep your financial accounts updated:
Though this factor doesn't directly affect your business credit score but if you have applied for any credit, lenders may seek your balance sheets and check whether there are any differences in the actual revenue and the revenue you claimed in your application. This can have an effect on your credit limits and in some cases even the loan amounts.

Evaluating your company’s structure: 
Though sole proprietors firms and partnership firms are the easiest firms to create but they have the most financial constraints. You have to keep evaluating the structure of the company as it may affect your credit score.  

Don’t apply for multiple credit obligations:
Your business credit score can be negatively affected if you apply for multiple credit cards or loans in greed of discounts and increasing your credit history. Too many applications will give you the ‘credit hungry’ tag by the lenders and more credit checks i.e. ‘hard inquiries’ will be done against you, thus hurting your credit score.

Balance transfers:
As said, the more accounts you have the better. But managing multiple accounts become a little hard and sometimes balances remain on some cards. Try to pay off all your balances and if you can’t there are some banks which offer transfer balances at 0% for a certain period of time to pay off the balances.

Source: Secondary