Credit score check! Must for loan!

Earlier, lenders had to rely on their own internal assessment of a customer before sanctioning loans or even credit cards. However, gradually the situation has changed with the availability of individual credit information through CIBIL (Credit Information Bureau India Ltd), which has enabled lenders to determine creditworthiness by dipping into this database to assess the applicant.

So the question of whether you will be sanctioned that home loan and at what interest rate would be determined by your credit score. That’s why, it is important that you monitor your credit scores and purchase your credit report from CIBIL.

Elsewhere in the world if you have been rejected a loan on account of a low credit score then you have the option of approaching select lenders who specialise in lending to borrowers who have recently come out of a bad credit situation. But in India, this is not widely prevalent though there are a crop of banks that do provide loans for such individuals at very high interest rates and a lenient credit profile appraisal.

So it becomes all the more critical for you to monitor your score to ensure that your loan does not get rejected on the grounds of a poor credit score. Otherwise, you will struggle to obtain a loan when you badly need one and might end up signing for an exorbitantly expensive loan, which might be difficult to repay!

Credit Score: The basics

What does a credit score look like, and what counts as a good score?

A credit score is generally a three digit number within the range of 300 and 900. Higher the number, better is the score. This score will reflect information from several lenders and across various loans.

What information does a credit report contain?

The report contains basic information about the consumer (name, date of birth, passport number etc.), location, details of loan accounts (auto loans, home loans, personal loans and credit card), overdue accounts, highest amount of credit sanctioned in case of credit card, number of times credit report requested by the creditor along with enquiry purpose.

What should I do if the score is incorrect?

Sandeep applied for a home loan from ABC bank. The bank rejected his loan application on the grounds that his credit report mentioned that he has a long overdue outstanding amount on a credit card.

This took Sandeep by surprise and the issue was amicably settled with the bank, after which he stopped using the credit card. He got the bank to acknowledge the fact that he had cleared his outstandings and he subsequently informed CIBIL, presenting the acknowledgement from the bank as proof for his claim. CIBIL then verified and incorporated the updated, correct info in his credit report and he was granted a loan.

So we see from this example that errors are bound to happen due to incorrect reporting by lenders or due to human errors.

If you find an error, you would need to report it to CIBIL with valid proof and if you are not satisfied with the action you can lodge a complaint with the Banking Ombudsman's grievance cell, who will take up the issue and evaluate it from a neutral stand.
            

How often does my credit score get updated?

Updating the credit report will be an ongoing process — lenders send updated data regarding an account to the agencies. It depends on how may credit accounts the individual has and if there is a change in the credit data. The moment there is a change in the credit data, it will reflect in the credit score.

What makes this system fool proof for lenders?

Rajat has taken a home loan from ABC bank and has been paying his EMIs in a timely manner.

Simultaneously, he has taken an auto loan from XYZ bank and has defaulted on the last few payments.

Rajat now applies for a personal loan from ABC bank assuming that since he has paid his home loan EMIs with the bank in a timely manner, he will be granted a personal loan without any trouble. However, what he was not aware is that ABC bank obtains a credit score from CIBIL where he shows up as a defaulter with another bank.

This could either result in a rejection of his personal loan request or the bank might charge him a high rate of interest. The emergence of CIBIL as a repository of information on individual lenders makes it impossible to hide anything from your creditor.

Is there any benefit of a good score to me as a consumer?

The most significant advantage of a good credit score is that you can use it to negotiate with the bank for a more favourable interest rate, citing your impeccable repayment track record.
 Source: Secondary

Direct benefits of credit scoring

Credit scoring plays a crucial role in creating these credit opportunities, driving credit penetration and eventually percolation of benefits for the consumers.

Credit plays an important role in shaping the economic and social dynamics of the society. Remember the shrewd moneylender from old Hindi films, who charged enormous and never ending interest on capital, leading to deteriorating financial status for the borrower. Today, thanks to institutionalised credit, we have structured and regulated credit opportunities available for building assets, educating our children and aspiring for economic as well as social growth.

Credit scoring plays a crucial role in creating these credit opportunities, driving credit penetration and eventually percolation of benefits for the consumers.

The basic principle of institutional lending is trust. A lending institution provides credit to a borrower on a mutual understanding that the borrower will repay the sum, along with reasonable interest, through periodic instalments, over a decided period of time. The lender may not know the borrower personally, but will decide to grant credit on the basis of the borrower’s existing income and past repayment record provided by the credit bureau. The interest collected on these repayments serves as the capital for fresh lending to yet another deserving borrower who needs this money for his own growth aspirations. On the other hand, if the borrower defaults on the repayment of the loan, the credit grantor will face losses and will not be able to sustain capital for fresh lending for many more aspiring and deserving consumers.

This is where credit scoring steps in. Credit scores provide the credit grantor the ability to predict the “likelihood of repayment” by the borrower. Simply put, credit scores help the credit grantors to minimise risk of losses due to defaults and ensure profitability for fresh lending. Credit scores enable the lender to infer the risk profile of the borrower so that some “bad borrowers” (high credit risk) are not mistaken as “good borrowers” (low credit risk) and provided credit. This will result in a loss for the lending institution and in turn loss of the much needed credit opportunity for another creditworthy consumer. In simple terms, credit scoring enables lending institutions to create sustainable credit opportunities for deserving borrowers to allow them to build assets for financial growth.
           

But does credit scoring directly benefit consumers? It does.

Here’s how:

Speedier access to credit: When a consumer applies for credit, lenders use the credit score to make faster, more consistent decisions, thereby eliminating much of the risk of human error and subjectivity. Most leading lending institutions in India are already using the CIBIL TransUnion Score for making credit related decisions. Even significant lending decisions can now be made in a matter of hours or minutes rather than days or weeks with credit scoring. This enables faster processing of loan applications and thereby speedier access to credit for consumers.

Availability of affordable credit at better terms: In addition to both speed and convenience, credit scoring may also make credit cheaper, which means lower costs to consumers. Without objective credit scores, lenders may set prices in a subjective manner, resulting in credit products that are expensive for low-risk consumers and inexpensive for high-risk consumers. By reducing the costs of extending credit, credit scoring may enable lenders to give credit to more customers and at overall lower costs.

Credit scoring expands access to credit and drives sustainable credit penetration. It improves loan performance by reducing delinquency rates and containing NPAs. Credit penetration is achieved by significantly identifying ‘good borrowers’ (low credit risk) that otherwise would have been misidentified as ‘bad borrowers’ (high credit risks) and, therefore, would have been denied credit. At the same time, bad risks now have credit denied to them or are no longer subsidised by lower-risk individuals. In the aggregate, lending is increased, leading to greater economic growth, rising productivity and in turn greater financial inclusion.

Visit: www.cibilconsultants.com
Source: Secondary

Keep an eye on errors in credit report !

Once you track erroneous information on your credit report, contact your credit bureau for more information. CIBIL score uses the information on credit report to analyse the credit score. Having inaccuracy/missing information on your credit report can affect your credit score.

As consumers, once you pay for the credit report you are entitled to receive a copy of your cibil report.  Your CIBIL report contains all the information in your file (lending transactions) at the time of your request.

If you want to know more about your credit score you can contact the credit agency who made your report and also the lenders (banks/NBFC) that provided you all the details. In your credit report also have all information about how to describe inaccurate or incomplete information.

A credit report’s copy shall include information about disputing Inaccuracy/Incomplete information in your report.
For assistance regarding rectification of errors, book an appointment now at www.cibilconsultants.com

Source: Secondary

Real-time Credit Scoring Fuels Personal Loan

Unsecured personal loans which had all but disappeared after record defaults in 2007-08 are making a strong comeback thanks to the Credit Information Bureau of India's real-time credit scoring. Also expanding the market are new intermediaries who are generating leads that help lenders go beyond tapping walk-in customers at retail chains.

Consumer loans on equated monthly installments started picking up a couple of years back initially through credit cards. The EMI sales was also driven by subvention from the dealer or manufacturer who agreed to bear the interest cost but not the credit risk. Card companies were the first to tap this opportunity. But considering that there are only 1.9 crore credit cards in circulation the market is quite limited. Lenders such as Bajaj Finance, Future Capital, and Fullerton have expanded the market by putting up their loan desks within retail chains.

"In 2007 all finance companies did not have a clue of who the borrower. The loans were on the basis of documents filed by the borrower. We found that even Form 16 documents were fake" said the chief of finance company. He added that loans were pushed by agents who had an incentive to get disbursements which created a moral hazard resulting in bad loans rising. What has changed now is that lender is now able to identify how leveraged the applicant is, they can also identify in five minutes if the borrower had missed out on any loan installment in the past.

Besides finance companies banks too are scaling up their consumer loan business. According to the latest RBI data, outstanding consumer loans on April 28, 2014 stood at Rs 13700 crore up 60% from Rs 8600 crore a year ago. These consumer loans are typically those availed for making small-ticket purchases such as washing machines, flat screen televisions or laptops. Among finance companies, Future Capital's consumer loan book has almost doubled from Rs 1821 crore in March 13 to Rs 3593 crore in March 14. Bajaj Finserv has seen its Consumer loans disbursements rise 36% to Rs 13,360 crore in FY14.

Lenders are able to take a decision within minutes because they are able to pull down an individual's credit history within five to seven minutes and find out the extent of loans and the level of delinquency. "We now have credit history information in respect of 330 million accounts in our repository which includes information from 350 cooperative banks and over 300 regional rural banks," said Harshala Chandorkar, senior VP, Cibil. "Besides drawing the credit scores from Cibil, the lenders have systems where their credit policy is built into the software. This allows them to disburse loans instantly," she added.

Expanding the market to tier II centres are a new set of intermediaries. Onemi India which initially started as a catalogue mail order firm which retailed consumer goods at EMIs by tying up with card companies. With a customer base of 2.5 lakh Onemi has now raised $5mn in private equity funding from Venture East. It is now targeting loans of Rs 385 crore during FY15.

"For the lenders the last mile is always the problem. What we do is conduct the due diligence on behalf of the lenders at the applicants location. Besides earning from generating leads for lenders we are also looking at whether we can underwrite some of the credit risk," said Abhijit Bhandari, director and founder of Onemi. The company is now looking at raising more capital which will be invest in warehouses and logistics.

"We are also looking at selling to customers of micro finance companies. Since MFIs can lend only in income generating segments we are looking at retailing goods such as inverters and bicycles. Our research has shown that there is also a great demand for laptops even in rural areas," said Bhandari. While banks continue to find it a challenge to lend to the new-to-credit segment, finance companies and intermediaries like Onemi see this as a big opportunity.

Besides getting information on borrowers, Cibil is now trying to enrich its database by including repayment profile of those who have never availed of a loan. The credit scoring agency has sought permission from Reserve Bank of India to obtain payment track record in respect of utilities such as telephone bills and also in payment of insurance premium. "The telecom companies have expressed their willingness to share subscriber credit records. They are already using Cibil credit records for fixing credit limits for post-paid subscribers," she said.

Improve and maintain your credit score at www.cibilconsultants.com

Source: Secondary

It is necessary to keep track on your CIBIL report !

Do you know that more than 50% of consumers have errors or mistakes in their credit report?  It will directly affect your credit score because the bureaus use information from your credit files to calculate your credit score. But if you keep checking your credit report then you can easily correct it on time. Here are few steps on how you can keep track on your CIBIL report?

 Get Your Credit Report:
 Get a copy of your credit report and review it regularly, identify changes and any incorrect  accounts information.

Check Your Credit Report for Errors:
Check your credit report very cautiously for any errors —like accounts that are not yours, missed out accounts, loan amounts are incorrect, account balances which are incorrect, showing late payments, etc.

 Report your Errors to the Credit Agency:
If you detect any error in your report, immediately report it to your credit counsellor. Be specific and explain exactly why an item is inaccurate in your report. Remember that  credit agencies receive information from your creditors and then prepare your credit score.

Contact the Creditor:
Call the creditor which is responsible for an error in your report and then let them know that why you are disputing an item which is mention in your CIBIL report.

Wait for a Resolution:
A credit agency can take maximum 45 days to resolve and investigate your dispute against the error in your report with your creditors.

Get Your Dispute Results:
you will get notification from the agency about the investigation results. The error will get removed from your credit report if it is confirmed by the agency.

 Add a Statement of Dispute:
 If an error was not removed and you disagree with the decision, you can add a statement of dispute of up to 100 words to your credit report. That allows you tell your side of the story and future creditors and merchants may take your statement into consideration when evaluating you.

Get your credit report ,renew, revamp and retain your score along with dispute resolution by opting for service packages available at www.cibilconsultants.com

Source: Secondary

How to qualify for refinance ?

First learn what's refinancing means? Refinancing is basically replacing one debt with another debt obligation under better terms.With interest rates going low, many individuals think of going for buying a home, vehicle, investments or refinancing a mortgage. But it is always the worry of the consumer on whether his loan or refinance will get accepted, with the lending standards now increasing day by day. So what factors are needed to qualify for a refinance?

Before applying for a refinance, make sure that your corporate credit health is in good financial situation. If you don’t have enough financial strength to refinance, then going through the application process is a waste of time. Different credit institutions have different criteria to qualify for a refinance, but following are the general factors needed to qualify:

Value of the equity:
Lenders mostly require consumers to have equity in their homes, other properties etc. The home-owners value of the property should be more than what he needs for the refinancing of his loan.

Credit score:
The mortgage lenders would take in account your credit score, making note if your mortgage payments have been on time. Your credit score shows the credit worthiness of an individual helping the lender make a decision about whether to accept your application.

Debt-to-income ratio(DTI):
DTI is the total debts to be paid as a percentage of the gross income. The lenders take into account your DTI ratio and a low DTI ratio is needed to qualify for a refinance. If you debts form a large part of your income, the lender sees you as a risk as you may not be able to pay back the refinance loan.
The other factors which are seen while evaluating your application is your income, savings and there also may be some additional factors for some other banks.

Get in with us for detailed guidance @ www.cibilconsultants.com

Source: Secondary

Safety tips for credit card frauds !

 Identity theft forms the path way to Credit card fraud. Stay safe and keep your card secure with following tips :

Cut old credit cards and shred papers where you have written your credit card information:

You may be aware of credit card fraud by dumpster divers where thieves dive into trash cans and take out information from thrown away receipts and statements. Therefore it is advisable to shred such statements and receipts into pieces rather than tossing them in the dustbins to save your credit card number from getting in the hands of the dumpster divers. Also, cut your expired/cancelled cards and put them in different bags to thwart thieves from putting it together again.

Avoid sharing your credit card information on-line or phone: 

Many thieves posing as credit card issuers and banks may call you or email you asking for your credit card number. Though they may look or sound genuine, beware of such people they are scammers. Even while paying something on-line, be careful and check if it is secured website before giving out your credit card details. Check for a lock beside the URL to see if the website is safe.

Don’t sign empty receipts:

Always verify the amount before signing the receipt. Also check for any blank spaces on the receipt, if there are- then draw through them as the cashier could write an amount there and get the money from your credit card issuer.

Keep your credit card in safe places:

Always keep your credit card in safe places, tucked away in your purses and wallets properly. Specially take care of them in crowded places and always check your credit card is with you before you leave from a shop where you have used your credit card to pay.

Report stolen/ lost cards immediately:

Report your stolen card to your bank as soon as you can, to save yourself from fraudulent charges made from your account. The faster you will report to the bank, the faster will they freeze your accounts, thus saving you from any further losses.

Review your monthly statements monthly:

Reviewing your reports regularly will make you aware if any unauthorized charge have been made from your account. Even though the charge may be small but it’ll make you aware and you can report it to the bank and avoid credit card fraud.

Credit cards even play a vital role in generation of credit score thus keep your card safe and secure .

Source: Secondary