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

Lifestyle factors to consider: Own house or rent?

One of the biggest debates in the world of personal finance is whether or not you should buy or rent when it comes to housing.
“There are pros and cons to each side of the debate,”. “What it comes down to, though, is your personal lifestyle and what works for you and your long-term financial goals.”
Proponents of buying a home point to the fact that you have the opportunity to build equity that can serve you well in the long run. When you own a home, you own a large asset that can be useful down the road. Not only that, but there is the potential for appreciation, especially if you live in a desirable real estate market that sees home values increase at a strong annual rate.
On the other hand, supporters of a renting lifestyle point out that most homes aren’t located in areas where you’re going to see an appreciation of 5% to 10% annually. For most real estate markets, the annual appreciation is going to be closer 2% to 3%. On top of that, you have costs including interest paid, maintenance, repairs and property taxes. Many home buyers will be lucky to break even.

The reality is that whether you buy or rent a home should depend on your personal situation and your goals. What’s right for one person might not be right for another. In fact, your preferences might change at different points in your life. As you consider the choice to rent or buy, here are some lifestyle factors to consider:

                             

How long you plan to stay?

“Buying a home essentially ties you down to a location, “If you know that you are going to move around a lot in the next few years, it might make more sense to rent.”
Unless you plan to become a landlord and rent out the property after you leave, buying for a short period is likely to result in losses to your budget. Renting offers more flexibility in living arrangements since you can leave with greater ease, and you don’t have to worry about trying to sell the home before you take off for your next living arrangement.

Convenience

There are a lot of inconveniences that come with owning a home. You handle maintenance and repairs. If you have a yard, you need to take care of it. When you rent, though, many of these items are taken care of by the landlord. You don’t have to worry about maintenance, and if something breaks, it’s someone else’s responsibility.
“Many rental communities, especially if you live in a luxury apartment or condo community, come with conveniences and amenities you might not get if you buy.” Amenities like a workout room, pool, clubhouse and even walking trails might be present in some rental communities. If you like these amenities close to your home so that you don’t have to drive to the gym or if you like the idea of having nearby facilities for gatherings, renting can match your idea of lifestyle convenience.
While some suburban communities have HOAs that provide some amenities, they often cost extra, while access to rental amenities are often included in your monthly payment.

Location and market

You should also consider the location and the real estate market. If your lifestyle preferences are for a big lot and lots of privacy, buying a home outside of a city center might make sense — and be less expensive. However, if you like living near urban amenities, it might be too expensive to buy, and renting might make more sense.
In some markets, the cost of buying comes with a lower monthly price tag than renting. In these markets, even if you prefer to rent, you might be better off buying. If renting is much cheaper on a monthly basis, though, that could be the right choice for now. You can invest or save the difference in cost and later when circumstances are different, you might be able to change your approach.
“No matter your preferences, it might be worth it to rent for six months or a year before deciding, especially if you are in a new area,”  “This allows you to get a feel for the location and get to know what you like or don’t like about it. You don’t want to be in a position where you buy in a new area, and then end up leaving less than a year later — and are stuck with this house to unload.”

Risks

Finally, don’t forget to weigh the risks associated with buying and renting. “With buying, you run the risk of ending up needing to sell even if the market drops,”  “Even homes lose value, and you could be out tens of thousands of dollars.”
However, there are risks associated with renting as well. Landlords can increase rents to the point where you are priced out of your housing, and you are forced to move. You also don’t build equity. Unless you are investing (and that comes with its own risks) to increase your net worth without the help of a home, you could wind up in financial trouble down the road.
Carefully think about your financial situation, and make a decision to buy or rent based on what is likely to work best for you and match your lifestyle.

For any credit related information or advises, visit: www.cibilconsultants.com
Source: Secondary

Cost of living and your credit

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

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. We discovered that it would cost you three to four times as much to buy a home comparable to what we you before. On the other hand, the rent on an apartment with slightly less square footage (250 square feet) than your old home is “only” about twice your mortgage . Your decision to avoid mortgage debt while you live in a higher cost area will also likely eventually impact your credit, since part of a credit score is based on the types of credit you have — and a mortgage counts for a lot, especially if you pay it on time each month.

You might also decide to avoid buying a car in an area with a high cost of living. I know 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

How banks can goof-up with your credit report?

The prudent see danger and take refuge, but the simple keep going and pay the penalty, goes an axiom. This applies to everything in your life, but more so in your money life because here you should learn from others’ mistakes.

For example, take the goof-ups banks make on your credit cards, bank lockers, ESC and the like. If you are wise, you would learn from others’ experiences and ensure that you don’t face a similar situation. Tracking your finances, especially loans regularly is imperative, especially since nowadays credit reports and credit score matter more than ever before. So, what can go wrong between a loan and a credit report? To know more read on.

Picture this: Suppose you have a loan with bank A. You repay regularly until it is completely paid off. A few years later, you approach bank B for another loan. But to your shock, you are denied one on the basis of your credit report that shows your earlier loan is still outstanding. If you thought this is just an imagination, it is not.

According to an RBI document, the customer in question investigated further and found out that even though he had repaid his loan to Bank A, the bank had not cleared his credit report for several years. Hence, he was unable to get a better deal with the new bank. He then requested bank A to update his CIBIL credit report. However, the bank said it had already done the needful. After several requests, he still saw that his credit report did not show the latest update. Finally, he approached the banking ombudsman’s office of the RBI.

The banking ombudsman found that the bank had failed to get the CIBIL database updated for the customer even after four years after the complainant had repaid the loan. “When the bank finally got his CIBIL credit report rectified it did so without compensating the customer. The banking ombudsman observed that by not updating CIBIL database in time, the bank had violated RBI/Banking Codes and Standards Board of India guidelines and therefore passed an award directing the bank to pay an amount of  Rs 5,000 as token compensation towards cost of pursuing the complaint,” said the RBI document.
What we can learn: There are a few things we can learn from this example. For one, do not think that your bank will automatically update your CIBIL credit score, though technical they have too, above example shows, they might just miss doing so. Ensure that you review your credit report a few months after you close the loan to check if the bank has updated the latest information about your loan account to the credit bureau or not.

Another important thing to keep in mind is that the loan is not closed with just paying your last EMI. You need to tie a few loose ends to close the loan properly, for example get a no-dues-pending letter once the loan is paid off. Tracking your credit report once a year, is a good idea.

Track your credit score and obtain credit report from www.cibilconsultants.com

Source: Secondary

First-time borrowers? Don't worry !

We all have dreams that we want to fulfill, don't we? But some dreams do come at a cost. At such times, your daily income or savings may not be enough to help achieve your financial dreams. So, you make an effort to take help from other sources, such as taking a loan.

Some of us have already borrowed from lending institutions while others have never done it. Which category do you fall in? Are you the one who has never borrowed? If that is so, it is, indeed, great that you have been managing your funds and balancing your needs so well.

But in future, you may want to buy a new car or own a home for which you may require a loan. Are you hesitating to avail the credit facility as you don't have a credit history and hence, no credit score? You need not worry about it now.

As per the recommendations of a committee set up by the Reserve Bank of India(RBI), first-time borrowers should not be denied credit due to lack of credit history. Hence, lending institutions would assess your credit worthiness in the following ways:

· Monitor your demographic information details.

· Study the sample performances of similar groups of people and analyse their behavior.

· Study your bank history. It will play an important role in deciding your behavior in managing your money, e.g., savings accounts.

· Examine your employment history in terms of stability at work, consistency in performance and dependability.

The lending institutions need to consider these factors in addition to their internal credit policies. For instance, a conservative lending institution could be averse to approving a credit facility for a person with no credit history while an aggressive lending institution may approve that credit facility. So go ahead and take that chance - try and avail a credit facility in order to fulfill your financial dreams.

No credit history ? No credit score ?
Don't worry..get your score at www.cibilconsultants.com
Book an appointment now !

Source: Secondary

How The Credit Information System Can Be Made More Efficient?

An efficient credit information system in any country is not about identifying the defaulter– though that is definitely a value add– the main purpose is to recognize good behavior by a borrower and ultimately reward through a reduced risk versus reward play.

It has a positive influence on productive investment spending, induces positive credit discipline, creates awareness about the benefits of having a healthy credit life and the importance of proper management of liabilities.

It has been almost 10 years since the concept of credit information, credit bureaus and scores was introduced in the Indian financial sector. Credit Information Bureau (India) Ltd, or Cibil, started its operations in 2004.

The Reserve Bank of India (RBI) constituted a committee in March 2013 under the chairmanship of Aditya Puri, managing director of HDFC Bank, to examine reporting formats used by CICs and related issues.

The committee, comprising representatives from various stakeholders including the CICs, public and private sector banks, foreign banks, has presented its report to the RBI.

Its recommendations, if accepted, would have huge impact on stakeholders involved -- CICs, credit institutions and the consumer.

Some of the recommendations will require changes in the law (The Credit Information Companies [Regulation] Act, 2005) that governs this domain (points 1, 3 and 4 of the table) and some will require technology changes by the CIC/lender (points 5 and 6 of the table).

This will take time, effort and costs and the RBI should ensure that all recommendations it accepts are implemented immediately.

Some of the recommendations, which will make the Indian credit information industry more robust and complete, are:

Inclusion of information related to commercial paper & derivatives in the CICs data format

Linking consumer & commercial reports

Providing alerts to credit institutions to avoid multiple/fraudulent financing

Adding new fields in the reporting format

However, the RBI and the committee missed out on a few key areas, which include.

Reduction in the costs for a report and score, accessed by an individual, currently in the Rs 400+ range.

Treatment to be given if a credit institution sells its portfolio to a non-credit institution and an individual thereafter repays any outstanding, that transaction is not reported to any credit bureau, resulting in punishing an individual for no fault of hers.

Recognition by the credit bureaus of credit counsellors as credit advisors to individuals and their role as facilitators to improve credit life cycles of consumers (widespread in developed countries).

Recommendation to increase the range of data being taken in by the credit bureaus to include telecom, insurance and non regulated bodies, thus making credit bureau data more complete.
For getting credit scores and credit report, book an appointment now only at www.cibilconsultants.com

Source: Secondary

How does Balance transfer affect your Credit score?

Balance Transfer is when the credit card company gives you a service for a limited period of time, where you can transfer your debt to a new credit company which has low or zero interest. Balance Transfer is basically the bank giving you time to pay off your loan and not be held down by high interest rates too.

But the main question is- whether balance transfer affects your credit score? The answer depends on how you go about the process and how you use it. Depending on many factors, it can either hurt or help your credit score.If balance transfers are used responsibly, they can help you reduce your debts and even give a boost to your rating. And though it does help you in saving money, we should consider the overall impact of it on our credit score.

Inquiries:
When you apply for multiple balance transfer cards with low interest rates, you can negatively affect your credit score. Applying for several cards means several “hard inquiries” against your report. Hard inquiries stay for 2 years on your report and can take your score by several points. They also reduce your chances of approval and indicate that you may be a lending risk. Do proper research and then apply for one card than multiple cards. Also compare the balance transfer cost and the long term cost of keeping that high interest debt,

Average credit account age: 
The longer the lengths of your accounts, the higher your score. When you open a new balance transfer account, since it doesn't have a long credit history, the average age of your credit accounts comes down. Also most people tend to close their old accounts after balance transfer, which further decreases their average age and in turn decrease the credit score. So even if you opt for balance transfers, keep your old accounts open- they’ll help you in the long run.

Credit utilization rate:
The lower your credit utilization rate, the higher your credit score. When you open a new balance transfer account, since you will be using all of the account to pay off your debts, your credit limit is fully utilized which will lower your credit utilization ratio and then your credit score. So it is better to get an account which has a credit limit more than what you need for your debts. Don’t close your old account, it’ll keep the available credit more and won’t let your credit utilization ratio go up and thus, won’t decrease your credit score.

For any assistance regarding credit score contact us by booking an appointment at www.cibilconsultants.com

Source: Secondary