Tips for new home buyers

Are you hunting for a home? A home loan helps you achieve peace of mind by providing you with one of the basic necessities of life – a roof over your head. But if you don’t exercise prudence wisely and take extra care while going through the process, a home loan can rob you of that very peace of mind. Here are a few quick tips that you should know before climbing onto the property ladder. These key tips could assist you choose the right home loan and save some money at the same time.

Market Research – Searching for the perfect home loan may seem hard work but if you do your homework and take your time, the whole thing will be a lot easier. Those hoping to climb onto the property ladder may be in for a bit of a shock – loan options are vast and can at first seem a little overwhelming. The key to getting the best deal on your loan – and that means the most sensible option, as well as the cheapest – is being armed with as much information as possible… so be prepared! Clear your doubts regarding the loan scheme before finalizing on anything.

Calculate the EMI – Estimate the amount of EMI that you can afford beforehand. Keep in mind your income and financial commitments to determine the amount of EMI you can pay before applying for a loan. Don’t make abrupt decisions on this one because if you get delayed on making repayments on time then it could be burdensome for you to pay penalties if you don’t have a stable income source. So, keep in mind the other aspects also that are worth to consider before you agree to take up the new loan and you’re your decision wisely.

Eligibility criterion – Having documents ready before you apply for a loan can speed up loan approval. A lender will consider your credit history; you must make sure you have paid all your credit cards and other loans timely to score good on eligibility. And if you have a clean record in your credit history for making payments on time, then you can use it as an asset when applying for a loan. Also, scrutinize the duration of your loan. If you prefer a long tenure loan then interest rate would be comparatively high and you will be bound to pay more overall.

Borrowing costs – When you apply for a loan, it’s mandatory to know about other additional charges that the lenders would add to the current home loan schemes. The lender may impose a range of administrative and service charges or processing fees. These additional charges will be considered under the sanctioned amount in your name and not considered under the amount that you take home. Before you agree any deal, you should examine the other charges that the lenders put into the scheme.

Study the fine print – Make sure you thoroughly read the home loan agreement documents with your bank or financial institutions. The lenders may acknowledge certain points to you but whatever is written on the paper will only be considered at the end. So, it would be appreciated to contribute some time on reading the documents to avoid any hassles later on. Get your queries cleared, if any, related to terms and conditions mentioned in the loan before signing your documents.

Learn more about credit history and its impact on your credit score at www.cibilconsultants.com

Source- Secondary

Home loan: Fixed vs floating rates

Investing in a financial product, whether it is a home loan, involves your hard earned money. So it is important that you take time off to look at various aspects before rushing in to something. While applying for a home loan, the prior thing that will bother you is whether to choose fixed interest rate or floating interest rate. Let us see which option is worth for you?

Fixed versus floating dilemma

Home loan consumers often find themselves in a dilemma when it comes to choosing between fixed and floating interest rates. With fixed interest rate loans, the interest rate and hence the EMI remains fixed, whereas in floating rate loans, the interest rate or the tenure may move up and down. Nobody can predict which way interest rates will move and hence it all boils down to personal choice, cash flows and appetite for risk when it comes to choosing between the two.

In most cases you will also be given the option to switch from fixed to floating rates and vice versa. However, you will be charged for every switch that you make during the tenure of your loan. If you believe in taking risks with the hope that you will benefit when interest rates fall, you can opt for floating interest rates or else you can happily settle for a fixed repayment schedule.

Pros and Cons of Fixed Interest Rates:      

Since home loans demands a long term commitment in comparison to other loans, a fixed interest rate convey a sense of certainty in terms of loan repayment. People who are good at budgeting can get a clear vision of their EMI liabilities if they select for a fixed-rate home loan.

The major drawback with fixed interest rates is that they are usually 1 – 2.5 percentage points higher than the floating rate home loan. Secondly, if for any reason the interest rate decreases, the fixed rate home loan doesn’t get the benefit of reduced rates and the borrower has to repay the same amount every time. Another area of concern is whether the fixed rate home loan is fixed for the entire tenure or only for a few years. This has to be cross-checked with the bank while taking the home loan.

Pros and Cons of Floating Interest Rates:

Floating interest rate varies with market conditions and interest rates are bounded to a base rate and a floating element thereof. So, if the base rate varies the floating interest rate also varies. Although floating interest rates are cheaper than fixed interest rates, but the nature of monthly installments is uneven. This makes it difficult to budget with floating interest rate home loans.

Market Behaviour:  

Recently, fixed rate loans have gained popularity in India. Many financial institutions and banks are now engaging applicants utilizing fixed interest rate schemes. ICICI Bank has initiated a scheme proposing home loans up to 10 years at a fixed rate of up to 10.25%, while Citibank offers a fixed rate of 10.1% till September 2015.

Experts agree on the fact floating interest rates are a better option if the economic scenario promises a fall in interest rates in the near future. For a short term loans opting for a fixed interest rate would be beneficial whereas floating interest rate is recommended for people taking a home loan for a long tenure at this given time.

Visit www.cibilconsultants.com
Source- Secondary

Enhance your home loan eligibility

If you are looking for the right home loan to buy your dream house, keep in mind, loan eligibility concludes whether your loan application will be approved or not and if approved, the amount of loan that is likely to be sanctioned. It is constituted on your credit worthiness, which rely on income and debt repayment capacity. Although a good credit history and a stable income level are the primary sources of your home loan eligibility. You can boost your loan eligibility by following these simple steps:

Combining Incomes: 

As income is a primary norm, you could consider making a joint application while combining the incomes of other family members which will have a positive impact on your repayment capacity. Any other earning family member including spouse, sibling or parent can become a co-applicant for the loan. In such cases, as the clubbed income level would be higher, the loan eligibility would also be higher.

Repaying other outstanding loans:

If you have other outstanding loan liabilities, affects the loan eligibility drastically as the EMIs being paid towards those loans are deducted from the monthly repayment capacity. Lenders can easily find out your existing debt level. As per to enhance your eligibility, it is advisable to reduce your other outstanding loan before applying for a home loan.

Go for step up loan:

Step-up loan take into account the increase in incomes of individual over the period of loan repayment. This type of a home loan has lower EMI in the beginning which is increased in a step wise manner with the borrower’s income over time. In this case, the loan eligibility is calculated on the basis of the possibility of higher income that the current earnings which can increase the amount substantially.

Mutual relationship:

If you enjoy a long-standing relationship with the lender and have a good credit history, you could easily negotiate for a lower interest rate and higher loan eligibility. 

Long tenure:

The eligibility is determined based upon repayment capacity of the applicant on a monthly basis. If you increase the tenure the EMI of loan reduces and hence the applicant can now borrow much amount with the same monthly repayment capacity. However, it will increase the rate of interest levied on a longer duration.

When you attempt to improve the total amount that you are eligible for taking a home loan, it has to be based on actual repayment capacity. While you avail loans, ensure to repay your dues on time as to ignore the debt trap.

Visit www.cibilconsultants.com
Source-secondary

Secured loan or unsecured?

Every borrower has different financial objectives and priorities in life, and attitudes towards risks. Many consumers often find themselves in a dilemma when it comes to choosing between secured and unsecured loan. However, a lender evaluates a consumer’s credit history before making a loan under either circumstance. Understanding the differences between the two and other characteristics unique to each are mandatory for borrowing money. Want to know – which type of debt is more important for you? Let’s find out…

Secured Debt

Secured debts are tied to an asset that’s considered collateral for the debt. Lenders take on less risk by lending on terms that require an asset held as collateral. As this type of loan carries less risk for the lender, interest rates are usually lower for a secured loan. A prime example of a secured debt is a mortgage, where the lender places a lien, or financial interest, on the property until the loan is repaid in full. If the borrower defaults on the loan, the bank can seize the property and sell it to recoup the funds owed. Lenders often require the asset be maintained or insured under certain specifications to maintain the asset’s value.

Unsecured Debt

With unsecured debts, lenders don’t have rights to any collateral for the debt. Lenders issue funds in an unsecured loan based solely on the borrower’s creditworthiness and promise to repay.  If a borrower fails to repay the loan, the lender can sue the borrower to collect the amount owed, but this can take a great deal of time, and legal fees can add up quickly. Therefore, banks typically charge a higher interest rate on these so-called signature loans. Also, credit score and debt-to-income requirements are usually stricter for these types of loans, and they are only made available to the most credible borrowers. Credit card debt is the most widely-held unsecured debt. Other unsecured debts include student loans and medical bills.

Prioritizing your debts

If you’re strapped for cash and faced with the difficult decision of paying only some bills, the secured debts are typically the best choice. These payments are often harder to catch up with and you stand to lose essential assets – like shelter – if you fall behind on payments.

You might give more priority to unsecured debts if you’re making extra payments to pay off some debt. Unsecured debts sometimes have higher interest rate that makes it expensive to spend a long time paying these off. Even when you’re in debt repayment mode, it’s important to keep up the minimum and installment payments on all your accounts.
Visit: www.cibilconsultants.com
Source: Secondary

Is creditworthiness affected by cosigning of loan?

Being a co-signer to a loan is not at all similar to giving a personal reference….it could have much deeper implications for your financial health. Before you say yes to your close friend or relative, know about the obligations involved.

Before you co-sign

Cosigning for a loan simply means that you are vouching for the fact that the borrower will repay the loan if he or she defaults, you are going to make that repayment yourself! So think about it. No matter how close a friend or relative the borrower is, and no matter how credit worthy you think they are, there is always a chance that they may lose their job or their ability to work or run up against some life-threatening situation that takes them far away, So, only if you have the ability and the inclination to make a repayment on behalf of the borrower, go ahead and sign on the dotted line as a co-signer.

Effect on your credit score

Cosigning for a loan does not affect a credit score unless the other person defaults on the loan and the co-signer does not pay it back. When someone needs a co-signer, it is usually because the person does not have the credit score necessary to get the loan. This means either that the person has been irresponsible with credit in the recent past or that has little to no credit history. Either way, a co-signer is promising responsibility for the debt if the person defaults. If the item is a very high-value item, such as a new car or a house, the co-signer can fall into debt very quickly.

If the original borrower defaults, the lender looks to the co-signer to take over the debt. If the co-signer cannot afford it or does not continue paying the debt for any reason, then the lender will send it to collections just as if the debt was incurred by the co-signer. At that time, the collection agency begins collection activities that can include obtaining a judgement and putting the debt on the co-signer’s credit report, which drastically reduces the co-signer’s credit score and ability to obtain new credit.

If there is a charge-off, collection and judgement, then a co-signer might be looking at up to three new negative accounts on his or her credit report from one defaulted account. For these reasons, it is important to be careful about co-signing on a loan for someone else unless the co-signer knows that the borrower has the ability and willingness to pay the money back.
Visit: www.cibilconsultants.com
Source: Secondary

CIBIL: Banks are lending wider and smarter

NAGPUR: After being tight-fisted following the slowdown of 2008, banks have once again begun actively lending on retail front, doling out personal loans and new credit cards, says a survey by Credit Information Bureau(India) Ltd (CIBIL). Since 2010, retail lending has jumped 150%. As many as 63% of the new borrowers are people below 35 years of age, says CIBIL data.

CIBIL has also made a state-wise comparison of age profile of borrowers. This shows Maharashtra has 21% of borrowers below the age of 26 years and 42% between 26 and 35 years, which is the highest number of young borrowers. The national average is 11% and 38% in these age categories respectively. Borrowers above 60 years make just 5% nationally.

CIBIL maintains the borrowers' repayment details which is referred to by the banks while processing loan cases. If a borrower had delayed payment or defaulted on any of the loans, a different bank processing his case can know this by referring to the CIBIL data.

Another comparison of 2008 with 2013 data shows the banks have preferred giving retail loans to only consumers with better credit record. CIBIL awards points to indicate the credit worthiness which has been taken as the parameter in the comparison. However, CIBIL has compared data related to 2008 and 2013 only and not for intervening years.

"Those having 700 points and above out of a total 900 are in the best category. Below 700 leads towards the doubtful to worse categories," said Harashala Chandorkar, senior vice-president of CIBIL. She was in the city to hold a meeting as a part of CIBIL's awareness drive.

            

In 2008, the loans granted to borrowers with a score over 800 were 26% of total retail lending. But in 2013, it went up to 62%. Those with a score between 750 to 799, made 57% of total borrowers in 2008 and it came down to 24.8% in 2013. At the same time, the worst category of less than 550 points formed 6.1% of the retail loans in 2008, which further came down to 2.5% in 2013.

A borrower can have access to his CIBIL score. Though repayment of loan in time is the only measure of awarding the points, the exact method of evaluation is not shared by CIBIL.
Visit- www.cibilconsultants.com
Source: Secondary

Get loan with almost NO or bad Credit score?

An individual with low or no credit score has a hard time getting a loan as they are looked upon as a lending risk that may default and leave the lender in losses. People with no credit find themselves into a muddle state since, banks refuse to give them credit as they have no credit history and they need credit to build themselves a credit history. So what do you do in such situations? How do you get credit to build your credit history:

Be ready to pay a deposit: 
Understand that you do have a bad credit score and you’ll be needing to pay a deposit to get a card or loan. Many people shy away from secured cards as they have to pay a deposit against it. But remember that, a secured card is the best way to improve your credit score, as in almost all cases you’ll be denied a card or loan with bad credit. So, this is the easiest of all to build your credit score quickly and then apply and get accepted for better loans.

Also, make sure you apply for a secured card which reports your on-time payments to the credit bureaus. Some cards do not do so, and all your efforts of being credit responsible will go to waste as your good habits aren't reported to your credit report and there will be no difference to your credit score.

Credit builder Loan: 
This is something similar to a secured card but in the form of a loan. Here, the bank will lend you a small loan for an object you needed to buy. The object is being held by the bank while you make monthly payments to the bank and the possession is given back to you when you pay off the whole loan. This not only gets you the object which you wanted to buy but also helps you build a good credit record.

Avoid Multiple credit applications:
In all these though, you need to avoid applying for multiple credit lines. Applying for multiple credit lines  at the same time does more damage than help. Multiple credit applications leads to several hard inquiries against your credit report which lowers your credit score. So be slow, research well and be selective about the credit you apply for. It is very dangerous for people with no credit as they look as an individual having no credit to bursting into the credit scene which can be bad for their credit health. Don’t waste your time on credit cards or loans which require excellent credit- it is a waste of time as well as a dent in your score due to the multiple inquiries.

Discuss with lenders:
Talk to your lenders before you apply for a loan. Some lenders have services wherein they can pull out your data, which may be not be included in your credit score but may show your repayment patterns and credit worth. Though, it is not included in your credit score, but the lenders may be willing to take a risk and give you a loan despite your bad credit.

Source: Secondary

Paying Debts Early : Good or Bad

If you have extra money, it’s always a question for people whether to use this money in paying off your debts or rather investing somewhere. Would paying off the debt early affect our credit score? Would it help us go ahead with our finances? Check these points before deciding on where to use your extra money.

Dangerous debts: 
Some debts are very dangerous for your financial health as they can result in jail time or monetary penalties. Such debts should be prioritized and paid off first. Examples of such debts are delinquent taxes, debts given to collection agencies etc.

Check the terms of the debt:
Check and see if there are penalties for paying off a loan early. Some creditors put a fee for the early repayment of the debt. Go back to your paperwork and check your fine print for prepayment fees.

Enough Cash:
After you strike through the dangerous debts checkpoint, next is the cash on hand. You want to have enough savings to cope during a financial crisis. Having cash militia helps you to go through a rough financial patch without having to rely on more debt.

Invest:
Do the maths! If you are earning more from the after cutting taxes rate of the investment than what is piling up due to the debt interest rate, then it is better to go for the investment. Paying off a debt early may not give you a benefit- that is why you are better off using your extra money for investing. In fact, use the money earned on the investment to pay off your debt in future. 

Act smart! Visit: www.cibilconsultants.com

Source: Secondary

Guaranteeing A Friend's Loan? Think Twice!

Nowadays credit score has become a critical factor while availing loans and credit cards from banks and financial institutions.

Individuals having low credit score face can face problems at the time of getting bank's approval after applying for any kind of loan.

Having poor credit health can prompt the lender to reject your loan application or to charge you with higher interest rate.

Banks and financial institutions do not solely depend on the financial status of the primary borrower and this is when a guarantor comes into picture.

A guarantor is a person who guarantees to pay for the debt, if the primary borrower defaults on the loan obligation.

A guarantor acts as a co-signer of sorts, in that he can pledge his own assets or services if incase the principal borrower cannot perform his/her obligation.

Take, for example, the case of Harish, a 27 year old youth from Delhi earning decent salary.

He wanted to buy a house for his parents. And he was confident that his home loan application will be approved by the bank. But he was shocked to learn that the bank had denied his application.

The reason for this rejection was that he had signed as a guarantor for one of his friends who had defaulted on loan repayment, and this in turn lowered his credit score.

Individuals should be careful while signing as a guarantor for a loan taken by other person, as it can have negative effect on his/her credit health.

If the primary borrower repays the loan provided by the banks and financial institutions properly, the guarantor will be benefited from it as it will reflect in his credit report.

On the other hand, if the primary borrower defaults on the loan, then it will affect the credit score of the individual. Not only this, the guarantor will be liable to pay on behalf of the primary borrower.

An Individual should become guarantor for a loan of his relative or friend, only if he is confident of the former’s financial situation.

Individuals should know that becoming a guarantor can affect his credit score negatively too. He can also face problems while applying for loans and credit cards. This exactly what happened with Harish.

Hence, one should be extremely careful while guaranteeing a friend's loan.

There are some cases where a guarantor has been penalised when the primary borrower failed to perform his duties.

Even if the guarantor has a good repayment track, the defaults made by the primary borrower can affect the creditworthiness of the guarantor.

Before helping your friend or relative in getting a loan you should be doubly sure about the pros and cons associated with the financial backing of the primary borrower.

Visit us for any of your financial worries. CIBIL Consultants- Doctors for all your financial worries.
Source: Secondary

To Pay Less Next Time, Repay Loan Installments On Time.

You may soon be able to negotiate lower interest rates on loans offered to you by banks and non-banking finance companies.

Have you always been paying your personal loan installments on time? Never defaulted on your credit card bills?

Good. You may soon be able to negotiate lower interest rates on loans offered to you by banks and non-banking finance companies (NBFCs).

But those who default, beware: you may have to shell out far more for everything, from personal loans to home loans and insurance premia.

The Credit Information Bureau of India Ltd (Cibil) has launched a rating system based on the gigantic amount of data on personal loans that is in its possession.

Cibil maintains a database on the credit history of over 135 million individuals and companies. It will now provide personal loan scores ranging between 300 and 900, where 900 indicates a good borrower.

This score is referred to as the Cibil Trans Union Personal Loan Score and a bank or NBFC can access this score through Cibil.

“Earlier, there was no objective mechanism to distinguish a good personal loan borrower. But with the personal loan score, individuals may be able to get lower interest rates for a good score,” said Satish Pillai, general manager, analytics and decisioning services at TransUnion, a stakeholder in Cibil.

The personal loan score is based on the amount of loans you have pending with other members of Cibil, your repayment track record, the number of inquiries that banks have made on your credit history, the amount of loans you have given up repaying (defaulted on), your credit card repayments, and in case there are any suits filed or loan write-offs.   But if you are wondering how you will get to know your rating then you will have to wait. 

“By the end of this year we will be ready with the infrastructure to provide individuals their own credit score,” says Arun Thukral, Cibil managing director.

Once you know your credit record, you can negotiate with a bank to give you better rates. Of course, the bank would have many other parameters to take a decision, but repayment capability would be a major criterion. 

This score will be available to all 165 member banks of Cibil and other financers to help them weigh the chances of a borrower defaulting on a loan.

Thus, if a bank gets an application from a person and finds that his personal loan score is 890, then it would be willing to welcome such a quality customer. Personal loan interest rates offered by banks differ from individual to individual, ranging from 15 to 30%, with some NBFCs charging up to 48%, as per industry estimates.

Source: Secondary

Guaranteeing a loan can affect your credit score and history

Nowadays, access to your house or car or that dream holiday has been made easier by lending companies offering credit and loans at increasingly competitive rates. However, one must note that taking a loan doesn’t solely depend on the borrower’s financial standing. If lenders feel that the financial health of the end borrower cannot be determined standalone, or in case the borrower has no source of income, another option to get a loan processed includes involving a guarantor. Apart from facilitating an individual to fund his education or business, such an arrangement propels financial inclusion, thereby enabling the economy to grow holistically. 

Naturally, for a financial institution, it is of paramount importance to make sure that the borrower has the capacity to repay the loan with due interest. In case the primary borrower defaults, a guarantor’s role is extremely crucial, as they become the fall-back option for the lender. Lenders insist on guarantors for loans in which there is no appropriate collateral, such as education and unsecured installment loans. For other loans too, lenders can insist on one, especially if the lender has a reservation on the repayment ability of the primary borrower. Data shows that loans backed by guarantors have lower default rates than the average of the portfolio in products like commercial vehicles. Hence, the creditworthiness of the guarantor is of substantial importance.

  

In India, several loan accounts, specifically education loans, are backed by guarantors. In the case of education loans, over 80 percent of the loans are booked with guarantors since the primary borrower would not be earning for the duration of his/her education. In most cases, a loan gets approved at the behest of a guarantor, who indirectly assumes the responsibility of furnishing the loan though he is not the end borrower. Guarantors are legally responsible to assume the liability if the primary borrower defaults. A guarantor’s role doesn’t end with the disbursal of the loan; this is where the responsibility actuality just begins. There are several issues that guarantors need to know, who choose to be good Samaritans for their friends’ or family members’ cause. 

Most importantly, a loan sanctioned will directly impact the guarantor’s credit report and score. Though a guarantor might be financially prudent and disciplined in paying his or her own equated monthly installments (EMIs), credit card bills, the friend or relative who they are backing might not emulate that same responsibility. Should the friend or family member miss a payment or make a late payment, the guarantor’s credit history and score would be negatively impacted. Therefore, one should keep in mind that the moment they sign as a guarantor for a loan, it shows up in their credit report with a clear indication that they are the guarantor. The guaranteed loan will reflect on the guarantor’s credit report and will be used by the lending institution when eligibility for a loan is calculated. 

Additionally, it is advised that the following facts are taken into consideration before signing up as a loan guarantor. One must also remember that a guarantor cannot take a stance on deciding the limit of liability towards the loan. The very purpose of getting a guarantor for a loan is to make sure that the bank has an alternate source of recovery if the principal debtor defaults. So, one must not always go by the credit repaying capability of the end borrower alone. Instead, a guarantor must calculate his own financial capability before signing up. 

At the same time a guarantor needs to bear in mind his own financial goals. If the prospects of purchasing a new home or starting up a business are on the horizon, the guarantor should stick to backing small loans that will not weigh heavy on a credit report. A financial institution might refuse credit or might reduce the amount of credit to the guarantor if he or she is already backing another loan of a fairly large amount. If at all one has to become a guarantor, getting another guarantor to go in on the loan, as the liability could then be split between the two guarantors. The strength of the relationship with the primary borrower based on which one becomes a guarantor needs to be borne in mind as especially in long term loans. 

There have been cases where a guarantor has been penalized for the principal applicant’s delinquency. Hence, it is not wrong to assume that a guarantor’s liability could be more than the principal borrower’s. Even if the guarantor has a good track record of repayments or good credit history, a delinquency could act as a deciding factor for creditworthiness when banks access credit reports. So before signing on the dotted line, a guarantor should weigh all of the pros and cons associated with the financial backing of friends and family.

Source: Secondary

Credit score can fall even after repayment of loan.

Traditional wisdom says repaying loan(s) helps one get a good credit score. However, this might not always be true.

Consider the case of a professional Rahul . Recently, his application for a housing loan was rejected, as his credit score was lower than required by the lender.

His score, 680 two years ago, dropped to 620 this year, despite the fact that he completed the repayment of a car loan of Rs 10 lakh within the term of five years (which ended in December last year).

Most lenders require a score of 700-750. Lenders and credit counselors say there are a number of reasons for such rejections. Typically, those in a situation such as Rahul should check their repayment history, as irregular loan payments hit one’s credit score.

In Rahul’s case, one factor might be the fact that he doesn’t have any loan to service now. If there’s no loan to be repaid, there is no case for a credit score. Experts say this could easily pull down one’s credit score by 5-10 points. Therefore, it might be a good idea to own a credit card and make small spends through it, though owning a credit card but not using it lowers one’s score.

Such customers are termed ‘credit-hungry’. Each enquiry could pull down the credit score by 5-10 points. As such, shopping for best loan rates online is a better idea.

One should ensure she/he does not take too many unsecured loans —personal loans, credit cards, etc. One who is servicing more than one personal loan will always have a lower score than someone servicing one or more housing loans, even if the personal loans are repaid on time.

Similarly, those with more than three credit cards have a lower credit score, even if their repayment history is good. Try not to repay credit card bills in equated monthly installments, as this hits your credit score. over-utilizing active lines of credit could also have a negative impact on credit scores.

Those who have negotiated with a lender to settle loans also have lower scores. Usually, an unpaid credit card bill is considered a non-performing asset (NPA) after 90 days. Once termed an NPA, the lender can’t charge interest. Subsequently, the borrower pays only the outstanding, or principal, and closes the account. However, while it might be easier to repay such a loan, this isn’t good for your credit profile.

Protect your credit score by opting for packages at www.cibilconsultants.com

Source: Secondary

How to manage your Credit Report, when you loose your co-applicant or guarantor?

You must be wondering how the credit history of a family member or friend can affect your or anyone's credit score post his demise. Well, it won't if the person was a sole borrower. However, if someone in the family was a co-applicant or a guarantor, which is quite common.

The obligation to repay the credit falls on him and thus affecting the score. Such a situation has to be handled carefully to ensure it doesn't leave a life-long blotch in the credit history. 

Getting your name off the defaulters list.

A guarantor or co-applicant is legally responsible towards the timely repayment of the loan in case of untimely demise of the principal borrower. It is important to understand that by agreeing to be a guarantor on the loan, you are also.

Each bank will have their own policies to deal with the situation of the death of the primary borrower. "Only the lender has the right to relieve you of such a commitment and they are likely to do so when convinced of the repayment of the underlying loan even without such a guarantor," says Mohan Jayaraman, MD, Experian Credit Information Company of India and Country Manager, Experian India. 

Even after the outstanding loan is settled, get a copy of your credit report and ensure your name is clear. This is because there are chances that a wrong an entry is still negatively affecting your score. The information on the loan that has been guaranteed appears in the 'accounts' section on the guarantor's report. If the ownership status of this loan account will be reflected as 'guarantor', contact the bank immediately and update them about the discrepancy. 

"Although, every credit bureau has a dispute resolution arrangement that can be followed in cases of incorrect entries, any change to credit report can be done only post feedback and concurrence from the bank," says Jayaraman. For instance, CIBIL has an online dispute resolution mechanism for resolving the discrepancies raised by the consumer. "On accessing your CIBIL report if you find any un-updated or incorrect information, you may raise a 'dispute request'. CIBIL will analyze and forward you. 

What's more? An identity theft...

Then there is a perpetual threat of identity theft. "Identity fraudsters sometimes impersonate deceased people, using their personal information from death notices and other sources to exploit delays between death and the closure of person's accounts," says Jayaraman of Experian India. 

The individual who has stolen your identity will in all probability not pay back the misappropriated funds. Hence, the lender will update your credit report to as a defaulter. Unfortunately, in the event that your identity is stolen, you will be unaware that this has occurred. "Most only discover this when they request a report update or when they apply for a loan and the application gets rejected," says Chandorkar of CIBIL.

Preventive steps: So, you should always ask for a consolidation report to monitor any irregularity. Family members should immediately report about any loan application inquiries or credit card requests made recently against the deceased name. Even if you are unsure, there is no harm in double checking. 

Another basic step to prevent an identity theft is to keep the banker, insurer, stock broker and credit card company about the death of the family member. "Do not forget to update the major registries such as PAN registry, UIDAI, etc. Also ensure that you do not include too much identity-specific information in the obituary. The fraudsters may misuse this information--set up new accounts, etc., that might hamper your financial life," says Jayaraman. 

Corrective measures: In case such a theft happens and your finances get affected, remember that this isn't just a cyber but a financial crime as well. "You will have to inform the relevant law enforcing authorities like police, government departments etc. Inform the associated financial institutions of this situation with all the facts and supporting documentation and seek grievance," adds Jayaraman.

For more learning visit www.cibilconsultants.com

Source: Secondary

IT department look into Credit history and loan repayment pattern of taxpayers

Prioritize cases for recovery of past dues based on a defaulter’s ability to pay.

To recover maximum tax arrears with the optimum use of manpower, the income-tax department has decided to look into the credit history and loan repayment pattern of taxpayers and prioritize cases for recovery of past dues based on a defaulter’s ability to pay.

For this, the department would consult the Credit Information Bureau of India (CIBIL) that assigns credit scores and maintains details of loans taken by individuals, partnerships and corporations, along with their PAN.

Sources said tax officials would be able to get an idea of the assets and the financial health of an assesses against which a tax arrears recovery demand has to be pursued vigorously.

The IT department which claims a massive Rs 6.74 lakh crore in arrears to be recovered is able to pursue cases accounting for only a small part of it every year due to appeals pending in various courts, inadequate assets to recover from defaulters and due to non-traceability of assesses. For FY15, it has set a target of recovering about Rs 42,000 crore of arrears, about 6% of the R7.4 lakh crore the government wants to collect this year by way of corporation tax, personal income tax and wealth tax, 15% more than what it raised last fiscal.

However, IT will vigorously pursue recovery of arrears from defaulting partnerships and large corporations even via attaching the assets of partners and directors. In the case of individual taxpayers who have expired, it intends to reach out to their legal heirs, said a field officer, who asked not to be named.

The tax authority wants to cut down the quantum of arrears to be recovered and would consider writing off smaller demands.

Source: Secondary

Apprehend your Credit History

Credit history is an individual’s or company’s records of his past borrowings, repayments, other payments and bankruptcy. It is basically all the past records of your credit life. Credit History plays a very important role in building up your credit score and that is why it is important to understand your credit history.

All the factors affecting the CIBIL score are somehow or the other related to your credit history. Having a good mix of credit in your credit history forms 10% of your credit score.  You should’ve taken a good mix of unsecured and secured loans including home loans, auto loans, personal loans etc. to score higher in your credit report. Not only taking loans but servicing them in time also affects your credit score. You should have timely made payments as part of your credit history so as to get a good score.

The other factor which gets affected by your credit history is the length of your credit accounts.  The longer your credit history, the better your credit score. That is why it is recommended by most people not to close old credit card accounts which have been going on for a long time, as it brings down the average length of your credit history. 

But also be aware that defaulting on your payments and bankruptcy stays on your credit history for a long time too and negatively affects your credit score. Therefore, making timely repayments and servicing your debts responsibly for a long time is the way to a good credit history which in turn is the way to maintain a credit healthy life and a good credit score!

Learn about credit score and apprehend your credit history by just booking an appointment at www.cibilconsultants.com

Source: Secondary