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.

Source-Secondary

Reasons 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

Information from the Federal Trade Commission indicates that one in five consumers have an error on at least one of the reports issued by the major credit bureaus. 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 a 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. Some of these steps might include contacting local law enforcement or reporting the issue to the FTC. 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. Consumer sites like Cibilconsultants offer you access to credit reporting tools that allow you an overview of where you stand financially, based on the information in your credit report. 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.
                                                                                                                                                                                                                     
Source: Secondary

Whether to purchase a home with cash versus obtaining finance through mortgage.

To be a homeowner of your dream house is not merely a financial decision. It is an emotional decision too. That’s why in a number of cases, despite fixing a budget, most people tend to stretch themselves to own a house that is beyond their budget.  It’s probable to think that buying a home with cash – or sinking as much cash as possible into your home to avoid the enormous debt linked with a mortgage, is the wise choice for your good financial mileage.

But it involves a lot of consideration whether to purchase a home with cash versus obtaining finance through mortgage.

Purchasing a house with cash is a very legitimate productive investment as it eliminates the need to pay interest on the loan and closing costs. In a current market scenario, paying all can also make your purchase offer more attractive to sellers as they don’t have to concern about a buyer falling out due to financing being denied. A cash home purchase also has the flexibility of closing faster than one requiring financing, which could be attractive to a seller. Those benefits to the seller shouldn’t come without a price.  Also, a cash buyer’s home is not leveraged, which allows a homeowner to sell the house as per his convenience.

Shouldering responsibilities with mortgage

At some point you would like to own a house. Then why not do it now? Yes, buying a house on a home loan, if you can afford the EMIs, makes more sense than paying massive cash. How? There are obvious benefits. Firstly, by buying a house in which you live, you are creating an asset with the easy to pay EMIs that you pay; on the other hand, paying complete cash is painstakingly as it involves your entire life money and liquidating huge investments. Moreover, you can enjoy tax benefits on repayments of a home loan. But remember that no matter how tempting it may be, don’t liquidate all your investments to purchase that dream home. Once you moved in, you will still need to go on living; in fact, if you move into a better home, you may seek a better standard of living and therefore, need more regular spending money. Further, you still need to service your insurance policies and subscribe to tax saving investments. You may be needing money for unforeseen emergencies that are not covered by insurance.

The Conclusion

The best advice when considering which option makes the most sense is to opt for the choice that gives you the satisfaction for your entire life. Also, ask yourself which will provide the greater return on your investment.

If you decide to purchase a house with a loan, make sure you can easily afford the principal, interest, property taxes, homeowners insurance, homeowner association and other fees each month. And no matter how you pay for a house, make sure to have an emergency savings account of expenses in case your personal economy declines and you need a financial safeguard.
Visit- www.cibilconsultants.com
Source:  Secondary

When not to use Credit Card

Life has become simpler with the convenience of credit cards and the uncountable benefits it caters. But it often comes at a price of making considerable section of borrowers falling into debt trap which is turning their life difficult. So how can you identify the best times to plunk down the plastic? Here are a few guidelines.

When to say ‘Yes’ to credit cards

Gaining reward points

So many popular credit cards offer reward programs, it’s hard to think of a good reason to carry a credit card that doesn’t. Some offer cash back on every purchase, others pay points. Consumers who qualify can earn hundreds, even thousands of rupees back each year on everyday household spending.

Owning warranty and purchase protection

A credit card can be a great way to protect a major purchase. Most card issuers offer purchase protection and an extended warranty for items bought with the card.

Security purpose while travelling

People who travel can be more vulnerable to fraud simply by virtue of the unfamiliarity of the local language or surroundings. Lost or stolen cash is gone forever, but a credit card can be shut down and replaced during one phone call.

Reaping benefits exclusive to card

Co-branded credit cards typically offer exclusive benefits specific to the brand. For example, some airline credit cards offer free checked bags to people travelling on tickets purchased with the card.

   Beyond your budget

It doesn’t matter if it’s a restaurant meal, a new outfit, the latest smartphone, or a vacation you really think you deserve. Big or small, if you can’t afford it, don’t buy it. Don’t let a credit card trick you into thinking you should have something when it is, in reality, something you can’t afford.

Acquiring mortgage

Mortgage underwriters don’t want to see any changes in your creditworthiness between the time you apply for a loan and the time it closes. If your credit card utilization suddenly goes up, your credit score could take a hit, leaving you unable to qualify for the loan.

Fees is chargeable 

If you’re thinking of paying your mortgage, health insurance premium or other recurring bill with a credit card in order to rack up reward points, think again. Even if the servicer allows credit card payments (many don’t), they’ll charge a fee that deflates or even outweighs the value of any reward.

Having a balance carried

If you have credit card debt, you can’t afford to use your cards. Instead, pay down the balance before you add any new charges to the mix, or you risk getting stuck in a cycle of debt.
Visit- www.cibilconsultants.com
Source: Secondary

Low Value Loan and CIBIL Score

Loan in any form is not good for financial health of an individual specially low value loan. Don’t believe in Good Loan or Bad Loan, it should be avoided (If possible). Rather believe in credit discipline and good credit practices to improve CIBIL score. For an asset like property, an individual cannot be save such a huge amount to buy property without home loan. Barring few exceptions i.e. high value assets, we can manage our finances to avoid low value loan/ borrowing. A Loan should be availed if following 2 conditions are fulfilled:

(a) Purchase / Buy should be an Asset: An Asset is basically a belonging which should be appreciating in nature and adds value to the wealth of an individual. By this definition, Property is an asset whereas loans like vehicle loan, personal loan for foreign holidays, consumer loan for white goods etc are not assets. Any kind of consumer or personal loan for non assets is not advisable. Lets take example of a car, If one bought a car of 5 lakh through Car Loan then it doesn’t make sense. Considering Interest rate of 14%, cost of car along with interest will be approx 6 lakh plus. As car is a depreciating asset and there is a famous saying in North India that value of car is half as soon as it comes out of showroom. Therefore it doesn’t make sense to avail vehicle loan for depreciating asset like Car, Bike etc.

(b) Value of Purchase: Any low value loan shows credit hungry behavior of a buyer which is true for vehicle / consumer / personal loan.  Though mortgage of car / bike is secured loan but point is to make is low value loan. Low value loan impacts CIBIL score negatively. You should avail loan only for high value purchase like Property. Though people avail personal loan for foreign holidays which is also High value purchase but its not an asset there, same is not suggested.

Low value loan has no correlation with the income level of an individual. As example, man who earns Rs 2 lakh per month but his savings are actually NIL whereas someone with a salary of 1 lakh can save Rs 30,000 per month easily.  Its a wrong notion that with high income, if you avail low value loan then it will not impact your CIBIL Score. Infact its other way round, if one's income reported in CIBIL database is Rs 1,50,000 per month and he avail low value loan of Rs 50,000. At micro level, Its show how pathetic he is in managing his finances and poor state of my savings level.

On the other hand, an individual with salary of Rs 30,000 per month availing low value loan of Rs 50,000 can be justified but it has its own problem. The repayment capacity of person with low income is low therefore probability of default is very high. Low income group lives under hand to mouth situation. Any unexpected expenditure disturbs the monthly budget and Axe falls on EMI of low value loan. In short, its a double edged sword. Any wrong move may permanently close the doors of availing future credit from financial institutions.

As we observed that in both the cases i.e. high income and low income, low value loan impacts CIBIL score negatively. In few cases, it is observed that people opt for low value loan just to avail some scheme at the time of purchase. In one of the case,  Ms. X bought washing machine through consumer loan. She is well off but retailer was offering free mixer grinder if purchase was through consumer loan. We should avoid such temptations and strictly follow financial & credit discipline. Any such adventure can impact our CIBIL score.

How to Avoid Low Value Loan?

This post is not conveying that we should not buy vehicle, white goods like washing machine or should not plan foreign holiday etc. We should plan all such purchases but there is a small change in the plan. Mode of payment should shift from Postpaid to Prepaid.  In short, instead of availing low value loan for such purchases, we should save for these low value purchases in advance so that it will not impact our CIBIL negatively. Recurring Deposit is one such blessing in disguise which can help us in short term savings to plan low value purchase. Only catch is that we have to plan in advance. Suppose, one person is planning to buy a new refrigerator or Bike during this year at the time of Diwali. Instead of availing low value loan at that time,he can plan now as he have some time to save. He checked and found that on-road price of a bike is Rs 38000 therefore he set a target of Rs 42,000 in 9 months to adjust any price change. He will open recurring deposit of Rs 4,500 per month for next 9 months at 8.25% interest rate. On maturity, He will receive Rs 41, 908 thus will avoid low value loan at the time of purchase. This approach will have triple advantage:

(i) It will not impact his CIBIL Score

(ii) He will not bear the interest cost which is another savings for him i.e. icing on the cake.

(iii) Last but not the least, he avoided low value loan through intelligent savings

You can check return from Recurring Deposit through Recurring Deposit Calculator.

To summarize, borrowers should avoid low value loan as it may impact CIBIL score negatively. It shows credit hungry behaviour and financial un-stability. Loan should be availed only for big ticket purchase which classify as an asset and add long term value to the financial portfolio of the borrower.
Visit- www.cibilconsultants.com

Source-secondary