How to read CIBIL Score and Risk Index?

How to read CIBIL Score and Risk Index is one of the most common query. In layman terms CIBIL Score is nothing but risk assessment / credit worthiness of a potential borrower based on past credit history. Though CIBIL Score and Risk Index is the 1st level shortlisting criterion by the Mortgage Lender. Executives of financial institutions who have access to this data are not competent enough to explain the CIBIL Score / risk index to borrowers. It create panic situation among borrowers. 

How to read CIBIL Score and Risk Index?

CIBIL basically divide all Individuals / potential borrowers into following 3 categories. We will understand CIBIL Score / Risk Index in each category separately.

(a)  Individuals with either No Credit History or Credit History not reported to CIBIL.

(b) Individuals with less than 6 months Credit History

(c) Individuals with more than 6 months Credit History in last 2 years

CIBIL Score / Risk Index returned for each of the above mentioned category of potential borrowers is different. Lets check out how to read

(a)  Individuals with either No Credit History or Credit History not reported to CIBIL:

In this category, the index returned is either NA (Not Available)or NH (No History). What it implies is that individual has No credit history and / or Credit History is not reported to CIBIL by the financial institution. NA or NH cannot be classified as low score or poor credit history. It simply means there is no credit activity registered or reported. Now one whose CIBIL index was NA, asks NA or NH is not viewed negatively by the financial institution then why her Home Loan was rejected. Answer is very simple, some financial institutions have policy not to lend with NA or NH index. In short, in the absence of risk index / CIBIL Score financial institution has no criterion to check risk assessment.

(b) Individuals with less than 6 months Credit History

In this category, CIBIL return Risk Index between 1 to 5 therefore as i explained in above mentioned example that 2 is not a CIBIL Score but risk index of the potential borrower. Lets check how to read Risk index between 1 to 5

High Risk: Index of 1 and 2

Medium Risk: Index of 3

Low Risk: Index of 4 and 5

In some cases, the loan was rejected because of high risk index of 2. To maintain good CIBIL score, it is advisable to follow good credit practices from the beginning. It is observed that most of the Low CIBIL Score cases handled by me were outcome of ignorance of a borrower initially. It is always advocated that banks should appoint qualified Credit Counselors instead of executives with not even bare operational knowledge.

                                           

(c) Individuals with more than 6 months Credit History in last 2 years

In this category CIBIL Score is returned i.e. value between 300 to 900. Higher the CIBIL score, lower the risk and vice versa.  High credit score does not guarantee sure shot loan / mortgage. CIBIL Score depend on 70 parameters to arrive at your CIBIL Score. It is critical to find out parameters which are impacting CIBIL Score negatively. CIBIL Score can be linked to credit worthiness of an individual. Lets check credit worthiness

Score between 300 to 600: Very Poor

Score between 600 to 700: OK

Score between 700 to 775: Good

Score of more than 775: Marvelous

Normally people have tendency to compare CIBIL Score / Risk Index. 

One of the most common casualty is Secured Credit Card. In most of the cases, secured credit card details are not reported to CIBIL by the banks. It defeats the whole purpose behind secured credit card. Most of the people opt for this credit card to improve their CIBIL Score or Risk Index. If it is not reported then you should immediately bring it to the notice of a bank.

Lastly, as it is always request that before applying for any loan or mortgage one should check your CIBIL Score / Risk Index to avoid any future shocks. You can take all corrective steps to improve your CIBIL Score / Risk Index in advance. Its a misconception that your CIBIL score is impacted if you check your CIBIL Score. Fact of the matter is that you can check your CIBIL Score as many times as you can. It will not impact your CIBIL score negatively. You can pull out your CIBIL Report online. Click Here to get your online CIBIL Report.

To summarize, It is always advisable to understand the CIBIL Report before arriving at any conclusion. If your loan is rejected you have right to know the reason for rejection. Blanket answer from financial institutions that “Your CIBIL Score is LOW” should be supported by logical reasoning. High Risk Index is not the end of the road. You can always improve your CIBIL Score with good credit practices.

Visit - www.cibilconsultants.com

Source: Secondary

Manage Your Debt

It has become really hard dealing with credit in the present economic conditions. Your loan application is examined more thoroughly now by lenders and banks. Your credit report is what is used to evaluate your loan application and debt forms a big factor of your report. But managing debt is different for every individual as your debt could be because of different circumstances like job loss, medical conditions, etc. You can just follow these basic tips to manage your debt:

Prioritize:
Prioritize your payments; Think of paying off which debt would be beneficial to you. Decide if you want to pay off a smaller debt first or debt with higher interest first.

Negotiate:

Negotiate with your bank or creditor to lower your interest.Talking to your banks helps you as they cooperate with you for your debt payments.

Debt Consolidation: 
If negotiating doesn't work, you could look at consolidating your debt. Debt consolidation is taking one big debt with a lower interest rate or zero interest to pay off all your debts. It helps you as you don’t have to paying off multiple debts but only single installment a month.

Credit Counsellors:
If sometimes you can’t help yourself, credit counsellors can. They help you draw your budget, reduce your spending, negotiate with your banks for lower interest rates. To get best services at best prices,research well before consulting to any agency.

Settlement/ Bankruptcy:
If you have no other resort left, settlement can be the last option. In cash settlement with your credit or bank, the bank gives you a big discount for paying off your debt by a certain date in cash. If you don’t have cash for a cash settlement, then you may have to declare bankruptcy.

Settlement and Bankruptcy both negatively affect your CIBIL score  and stay on your credit report for a long time, so try to follow the above steps and try to never reach the last resort.  

contact us for a more tips : www.cibilconsultants.com
source: secondary

Loan application rejected? now what ?

Have you ever applied for an auto loan, a home loan or a personal loan? What if the loan application got rejected? What to do next? Rejection of any kind is one of the greatest fears that lie within us. But there is also a way to address this. Put on your thinking cap to understand what you should do next when your loan application gets rejected.

Know and understand: Check with the credit institution to know the reason for the rejection. Try and understand the reason. According to the Reserve Bank of India, "A bank cannot reject your loan application without furnishing valid reason(s) for the same."

Has the rejection happened due to a low credit score? Does it point to poor payment history? Are those reasons reflecting in your credit history? It's time to check your credit report to know the specific reason or if there is any other reason behind it.

Recheck your credit score: A low credit score could be one of the reasons why the credit institution rejected the loan application. There are several credit scoring models that different credit institutions follow - it could be its in-house scoring model or a credit score obtained from a credit bureau. It is advisable to check your credit score with one of the credit bureaus in the country to know how credit healthy you are.

Do an error check: A credit report contains your demographic details, credit account details and payment history. Do a check whether there are errors on your credit report related to your personal details or account details. If you find some information that is not related to you, it needs to be rectified and updated by the respective credit institution and then at the credit bureau.

Seek help: Do you need help to understand your credit report? Do you find it difficult to read your credit report? Credit counsellors can guide you in understanding and reviewing your credit report. They can also suggest ways to improve your credit score. Seek the guidance of these experts.

Rejections are always a learning experience. So stop worrying and be a little more alert, a little more prudent, a little more assertive and a little more proactive. Just be disciplined and a window will open again.

Check your credit score and repair it with service packages available at www.cibilconsultants.com

Courtesy: Business Insider

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

What is credit counselling ?

When you are in debt, lots of advices are thrown your way to improve your credit score. So, how do you know what advice to follow and which advice would work.  People are always in a dilemma to follow what advice and what to do in such situations. This is where credit counselling comes in- to guide on the right path to become credit healthy.

 Credit counsellors are basically professionals i.e. certified credit counsellors showing you the right paths to clear your debts and get a good credit score. Credit counsellors analyse your total financial situation including your credit obligations, to carve out a plan to successfully pay off your debts.

Credit counselling can be a positive experience, only if you are completely committed to the process and determined to pay off all your debts and work towards a good credit score. The counsellor will only be able to help you if you are willing to get help. The first and most important of all is to do is find a trustworthy credit counsellor with whom you can share your financial situation comfortably. You need to be forthcoming about your financial situation, clearing stating what you owe and the paying off period for the debt you are given. You also need to be up front about your present incomes and expenses so that the counsellor knows how much money you can have available for the payments.

Credit counselling is not an action, only an advice. Credit counsellors won’t pay off your debts for you. They’ll only analyse your credit reports to chalk out a plan for you and advise you on how to pay off the debts. In the end, it will all come down to how well you follow that advice and plan and how determined you are to improve your credit score.

For credit counselling and related services visit www.cibilconsultants.com

Source: Secondary