Why to check your credit regularly?

You’ve probably heard that you should check your credit regularly. But why is that advice given? Before you decide that you don’t really need to check your credit report, here are 4 reasons to take a look on a regular basis:

Prepare for a major purchase or life change

One of the biggest reasons that you should check your credit is in preparation for a major purchase. When you buy a home using a mortgage, the lender wants to verify that you are likely to make your payments. Another major purchase that requires a credit check is a car.
You might even need to prepare your credit ahead of moving into a rental. Many landlords want to see if there are potential red flags that could result in missed payments. Checking your credit ahead of time can be one way to prepare for what’s next.
It also makes sense to prepare for major life changes by checking your credit since there has been a movement toward including non-credit information, like utilities and rent payments, on credit reports. While such measure might be slow in coming, they could still impact you down the road. Pay attention to what is happening with credit reporting in the news so that you know what actions are likely to cause problems.

Identify and fix mistakes

Five percent of consumers have errors that could cost them more in terms of higher interest rates and even higher insurance rates (in some states).
You don’t want to be one of those whose credit reporting mistakes costs more money in the long run. Checking your credit report can help you catch mistakes and have them fixed. Credit reporting agencies are required by law to fix mistakes in a “timely” manner. While credit bureaus don’t have to remove negative and accurate information from your profile, they are supposed to update inaccurate information to provide a better picture of your behavior.
Check your credit report regularly and dispute inaccurate information. This should be done before you apply for credit so that you can avoid a nasty surprise while you’re sitting with the loan officer.

Look for signs of identity fraud

The FBI identifies identity theft as a major threat to many consumers. While you might not be able to prevent identity fraud in all cases, you can watch for signs to attempt to catch it early. Monitor your credit report for fraudulent accounts, which could be a clue that someone is using your name to open new lines of credit. You should also backup your efforts by checking your monthly account statements and checking your online banking for indications that your credit card numbers are being used to make fraudulent purchases.
By checking your credit report regularly, you can catch identity theft early and take steps to head off further problems. The longer identity fraud goes on, the harder it can be to reverse the impacts and avoid future issues.

Better understand your financial situation

Your credit report can also provide you with clues about your current financial situation. This can help you make better decisions about your finances moving forward so that you have the ability to improve your credit situation.
Checking your credit report can also help you understand how those in the financial industry view you. Try looking at your credit report as if you were a lender trying to decide whether or not you are a good risk. Understanding your credit report from that standpoint can provide you with ideas for an action plan to look better for financial industry decision makers.

When to check your credit ?

The good news is that you can check your credit anytime, and it won’t impact your credit score or the information on your credit report. You are entitled to a free credit report every year from each of the three major credit bureaus. Additionally, there are consumer credit sites, like Cibil Consultants, which allow you to look at information related to your credit report anytime. These resources can provide you with the ability to get a general idea of what to expect when you apply for credit, as well as stay on top of your situation. In some cases, consumer credit sites can also alert you to actions you can take to improve your situation and even save money.
While checking your credit report regularly won’t guarantee that you won’t have problems, the reality is that it is a good way to monitor your situation. At the very least, you can prepare for the most important purchases you plan to make ahead of time.

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How a foreclosure can impact your credit?

You know that a foreclosure on your home can be a big deal when it comes to your credit. But how big of a deal can it be? You might be surprised at how much a foreclosure can impact your credit, and how long it can take to recover, depending on the situation.

Why foreclosure can be so devastating

Foreclosure can be so devastating because it is related to your payment history. Your payment history is the largest factor affecting your credit score. Before your home goes into foreclosure, there is a good chance that you have missed at least three payments. By the time the foreclosure process is complete, you might have missed even more payments. All of these missed payments are recorded in your credit history and affect your credit score.
The more payments you miss, and the more “important” those accounts are, the bigger the impact on your score. If your score is 680 and you go through a foreclosure, you could see a drop of 85 to 105 points in your score. A higher score, of 780, could result in a drop of between 140 and 160 points.
Combining foreclosure with another problem, such as a short sale or a bankruptcy on your record, can be even more devastating and result in more difficulty as you attempt to recover your score.
                                  

Short sales and your credit

Ms. X, the financial writer behind A Matter of Life or Debt, and her husband  found out the hard way that a near-foreclosure resulting in a short sale can be just as debilitating to a credit situation. They bought a home in 2007, just before the bottom fell out from the market. Even though the couple filed for bankruptcy in 2008, Ms. X says the short sale process hurt them more.
They kept the house through the bankruptcy and started working to recover their financial situation. However, the market crash of 2008 meant that home values plummeted. Suddenly (and especially after putting in thousands for renovations), Ms. X and her husband were stuck in a home that wasn’t worth what they were paying for it.
“After finding out we were expecting our third child, we realized that we’d never bounce back if we stayed in an underwater home,” Ms. X says. “We started the short sale or foreclosure process.”

Source: Secondary

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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Source: Secondary

Factors on which lenders decide to give you loan.

After you apply for a loan, lenders estimate your credit risk based on a number of factors, like your income, financial situation and credit/payment history. These factors also known as ‘5Cs’ are explained below:

Credit history:
Qualifying for any type of credit largely depends on your credit history- which is the line of credit you've made by making timely payments and managing your credit efficiently. Your credit report consists of your credit history based on the information provided by creditors who have extended credit to you at a point of time. While one credit reporting agency’s information may vary from the other, all of them usually have the same information i.e the types of credit, payment history, lender’s names who have extended credit to you and more.

The lenders may also use the credit score given in the credit report. It serves as an indicator for the creditors about the credit risk involved. Usually higher the credit score, lower is the risk.

Capital:
Household income is expected to be the primary source of repayment in the cases of loans but in the cases where the person loses the job or experiences setbacks, capital helps repay these loans. Capital is the investments, savings and other assets which can help in repaying the loan. Thus capital plays a factor in the lending decisions too.

Capacity:
Creditors need to ascertain whether you can manage your payments comfortably or not. Your employment history and past incomes are a good way to determine your ability to pay off outstanding debts. Type of income, stability and amount of income can be considered. Debt-to-income ratio (DTI) which is the ratio of your current and new debt, as compared to your before-tax income, can be evaluated.

Conditions: 
Your plannnig of how to use the money also forms a part of the lender’s decisions. The loan’s purpose on whether it is for purchasing property or a vehicle is considered. Other than purpose, economic and environmental conditions are also considered sometimes.

Collateral (secured loans):
Credit cards, lines of credit or loans can be secured or unsecured. In secured, like a home or an auto loan, something you own has to be pledged as collateral. Value of the collateral will be evaluated, and past debts already secured by that collateral has to be subtracted from its value. The remaining value will play a part in the lending decision.

 The 5C's is a common term used in banking. Knowing these 5C's would help you better in answering questions the next time you apply for loan.

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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

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Bad credit score can harm your chances of car loan approval !

It is wrong to think that with a bad credit you won’t ever be able to buy a car, but this also doesn’t mean that you think you’ll get a car loan as per your own terms and within your monthly budget. Getting a car loan with bad credit is not impossible; it is possible but not always on your terms. You’ll have to compromise on some of the terms of the loan. It also depends on how bad your credit is, like if it borderline some lenders might still see you as a prospect and would be willing to take the risk.

Checking your credit report: 

It is not uncommon to have errors in your credit reports. So it is better to check your reports beforehand to see if there are any errors which may have reduced your score. If there are any errors, correct them before you apply for a loan. This can save you time as well as money.

Improve your credit score:

Some people are on the borderline of good credit and bad credit. In such situations it is better to wait and improve your score before applying for a loan.

Have realistic expectations:

You have to realize that though you’ll be able to get a loan, you are likely to pay more due to higher interest rates than a person with a higher credit rating. Accept your situation and aim for cars which are not out of your financial situation. Also, accept that since you have a bad credit, you are obviously going to miss on some attractive loan offers so it is advisable to go for less expensive cars which are in your budget and wouldn't lessen your chances of getting a loan.

Payments paid off:

Having unpaid payments is always a bad idea before applying for a loan. Even though the lender is willing to give you a loan despite your bad credit, the unpaid payments won’t go well with him. So, pay off almost all in the months preceding your loan application. Your payments records should be clean at least for 6 months before you apply for a loan.

Check your options:

Since, you are not so well with your credit, you are obviously going to get loans with higher rates but accepting and settling with the dealer financing your loan without looking at options may prove to be harmful. Yes, the dealer does want to sell his car but he may also be looking for profit in the financing you are likely to get a higher rate with the dealer. Check out with financial institutions, credit unions, your bank and the loans they offer. Compare their interest rates and other terms and choose which would suit you the best. It is better to secure your finance in advance, before you go to the showroom for car.

Get a CAR (Cibil Analysis Report) from www.cibilconsultants.com and then own a car !

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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

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