No regular income? Then how to build a credit?

Credit is one of those things that we feel that we need to develop if we expect to succeed financially over any period of time. However, building credit can be difficult when your income is irregular. Whether you have a part-time job without a set schedule, or whether you are self-employed and you never know exactly when your next payday will be, getting credit can be difficult when your income varies.

“One of the biggest challenges of building credit on an irregular income is that your income fluctuates, making payments difficult".

Not only that, but your irregular income might make it difficult to qualify for certain loans, especially if documentation is wanted from lenders regarding your situation.

You don’t have to resign yourself to a thin credit file, however. It is possible to build credit even when you have an irregular income. Here are some of the things you can do: 

Get a credit card

Even for those with irregular incomes, one of the best ways to build credit is to start with a credit card.Keep things small. Get a small card and keep your balance and utilization low.

You might be able to qualify for a credit card with a low limit. As long as you use that card responsibly, you should be able to begin building credit. Make small purchases with the card, and pay them off. All of your purchases should be part of your regular budget so that you know you have the money to pay off the balance. As you regularly make payments on time and in full, your credit situation will improve. 

If you can’t get an unsecured card — even one with a low credit rating — you can consider a secured credit card. You will have to provide a security deposit as collateral for your secured credit card, but it will give you something you can start with. As with the unsecured card, it’s important to make small purchases and pay them off on time if you want to begin building your credit.

Another option, is to have someone add you as an “authorized user” to a card. If you have a spouse or a parent with a steady job, you can begin building some credit as an authorized user. However, being added as an authorized user isn’t the same thing as having the card. Some points are always good points, but it’s not the same amount of points as when you have your own card.you have to watch out if the credit card account owner maxes out the card, since it can impact your situation.

Small personal loan

As you show that you can handle small revolving credit card accounts, and begin building your credit file, you can see if you can get a small personal loan. These installment loans can help you establish that you can handle different types of credit. If you have been using a specific bank for a long period of time, and have a good relationship with the bank, you might be able to get a small personal loan. These loans can be useful because they are usually paid in installments, with set terms. Get a small loan that you can pay off over a few months to add another layer to your credit file.

Alternative credit scoring

Another consideration is that alternative credit scoring can help you prove your ability. The  alternative programs can help you get your foot in the door. Other payments made by you like rent, utilities, insurance, and even gym membership are considered as well. This information is verified, and you are assigned a credit rating.

There are mortgage companies, auto loan providers, and others willing to work with companies like this to provide loans to those with thin credit files. If you have an irregular income, but can show that you are reliable in your ability to pay, these programs can help you get your first loan. Then, after you have begun with this first “traditional” credit account, it’s easier to build your credit file going forward.

Don’t get in over your head

The biggest pitfall of handling your credit when you have an irregular income is getting in over your head. It’s easy to think that you will be able to pay something back during a month when your income is higher. But what happens next month, when your income is lower?

When building credit on an irregular income, it’s especially important that you choose your loans carefully, and ensure that you really can repay them. You need to make sure that making your payments is a priority. Build up an emergency fund during the higher-income months so that you have a cash cushion to draw on during the lean months. Ensuring that you can meet your obligations is the best way to keep up a good credit score once you have established your credit.

Source:  Secondary

Fewer checks, faster loans, with good credit score

If you have a good credit score from a credit bureau, it is not necessary that you may get a loan at a lower rate. But you could get your loan faster and with fewer checks by the lender. Process differentiation is the first advantage that customers can look forward to as a result of their good credit scores. The second advantage would be the rate differential, which may take some more time, said Mohan Jayaraman, MD, Experian Credit Information Company of India.

 

A credit score is a number that indicates the borrowers potential to repay and chances of default. It indicates the creditworthiness of the person. Banks and lenders now increasingly rely on credit scores, which are given by credit bureaus, to decide if the loan should be approved. Usually, the higher your score, the more are the chances of your loan application getting approved.

 

Explaining why banks are not yet offering lower rates for customers with a good credit score, Jayaraman says that for Indian banks consumer lending segment is a fairly low margin business. So, their aim would be to keep margins steady. But many banks have now started making the process simpler for customers with better scores.

 

For example, for a customer with a good score, the bank may do away multiple field investigations. If normally the bank conducts two field investigations before approving the loan, in this case the bank may do with just one.

 

Similarly, the turn around for approving the loan could be faster in case of a customer with a high credit score. For instance, the bank may approve the loan of a customer with a good credit good within one or two days, while for other customer it may take up to a week. 

Unsecured loans, such as personal loans is where the differential, especially the rate differential is likely to be seen before other segments, since the margins are higher in that segment.

 

In personal loans, some banks offer better deals for customers of a particular profile, such as those working in a particular company and who may have their salary accounts with the bank. Or customers who already have a banking relationship with the bank. 

"'Eventually the credit score bank will be a new segment for banks to approve the loan. For instance, banks will say that borrowers in certain band will get better scores,'' Jayaraman said.

 

Shyamal Saxena, general manager, retail banking products, Standard Chartered Bank said that the market will eventually evolve to the pricing differential based on credit scores. As of now for a customer with a good score, banks may do fewer verification. "The retail credit penetration in India is still very low and there are a large number of customers for whom banks will do the extra verification,'' he said. 

Customers can know their individual scores by accessing the individual credit report from credit bureaus.

Source: Secondary

Your loan future is decided by your credit history.

What is your credit history? A question often posed to most borrowers may as well be the driving focus over the next couple of years in determining the future course of the borrowing market. The current scenario in which borrowers seek loans on the same rate regardless of their payment record and financial history is unfair for those who are diligent with their payments. In fact, it will be increasingly more and more difficult for consumers to borrow unless they have a sound credit history across a range of products.

 

Capturing of relevant and timely information by credit bureaus and its effective sharing with financial institutions will have important ramifications in driving the efficacy of the whole lending industry. Last year, the RBI made concrete moves in widening the field for credit bureaus by issuing licenses to three new credit bureaus.

 

From then on, these credit bureaus have been steadily building their presence in India amid the burgeoning number of Indians who use financial products. The presence of multiple bureaus augurs well in improving lending decision making. It makes for the availability of a wide range of data, and value-added products that help interpret the value of that data, thereby improving decision making quality.

 

Most credit rating bureaus operate as joint ventures between banks. In many ways, this is a mutually beneficial relationship—facilitating data sharing between banks and bureaus, and the subsequent access to reports. We are also seeing many banks following the test-compare-adopt model with credit bureaus. Thus in a competitive market the multi-bureau system is well appreciated.

 

Active portfolio management of accounts will be the next important step that lenders will undertake. Typically, banks do not actively track customer activities after the sanctioning of loans, unless the customer defaults or delays a payment. Customer profiles are fast changing with a new penchant for multiple credit cards and loans.

 

A once-diligent customer is likely to go overboard and over-leverage after taking the first loan, and may even turn delinquent. Active portfolio management will help track customers constant efforts at leveraging themselves. Credit bureaus will play a key role in the implementation of active portfolio management. Thanks to modeling and monitoring tools like these, lenders can actively manage their loan portfolios to ensure an efficient risk/reward ratio and sufficient diversification of loans—much as they would in an investment portfolio.

 

The scope of offerings by credit bureaus in the Indian market is likely to get more sophisticated.

 

Personal credit reports will play a key role in empowering borrowers to begin negotiating interest rates based on their credit history. This assumes special significance in an environment marked by both high interest rates and spiraling cost of living. The time is not far off when consumers with good credit history will be in the driver's seat while going to their banks of choice and negotiating better rates for themselves. A multi bureau set up implies this will be done sooner than later, making it a win-win for both consumers and lenders.

Source: Secondary

Protect your personal information from getting misused

Identity theft occurs when someone uses your personal information to apply for a loan or credit card. If this application is successful, the individual has access to finance that you are liable for.

 

The individual who has stolen your identity will probably not pay back the misappropriated funds. Hence, the lender will update your credit information report (CIR) to say that you have defaulted on a loan.

 

What does it mean when I see “inquiries” on my CIR, when I haven’t applied for a loan?

 

Inquiries are usually made on your credit history when you apply to a lender for a loan. The lender accesses your CIR to assess your repayment capability. 

 

When you see inquiries that you have not made, it means one of 2 things:

1. The lender is making an inquiry to review your overall financial health.

2. Someone with access to your personal information may have approached a lender in order to apply for a loan. This is worrisome because the lender could believe that the applicant is genuine and may proceed to sanction the loan.

In the event that a loan is sanctioned by a lender, the account will appear on your CIR within 45 days.

 

What should I do when I see “inquiries” that I haven’t made?

 

The first thing you should do when you see inquiries that you have not made is to check your CIR for loan accounts that do not belong to you. If you do find discrepancies, immediately raise a ‘dispute request’ by visiting the ‘dispute resolution’ page on the credit bureau’s website. If you are informed by the bureau that the lender has rejected your dispute request, you should report the erroneous account to the relevant lender immediately so that the lender is alerted to the identity theft case.

 

How can I protect myself from identity theft?

 

The easiest way to prevent identity theft is to regularly monitor your credit history. Purchase your CIR 3-4 times a year and ensure that your credit history accurately reflects your credit usage and activity. If you see inquiries (loan applications) that you have not made, immediately alert the credit bureau via dispute resolution and the relevant lender that you have not applied for a loan. 

In addition, it is imperative that you keep your personal information, identity proofs and address proofs are stored in a secure environment.

 

If you are discarding documents ensure that the documents are shredded to prevent misuse.

Source: Secondary

Reasons behind your credit card refusal.

BANGALORE: Sir/Madam your card got declined after swiping! Have you ever faced such situation in your life? It’s actually embarrassing even when you think about such situations. Reaching or exceeding your limit is one of the most common explanations as to why your credit card would be declined but it’s by no means the only reason. Listed below are some other, lesser-known reasons why your credit card could be declined.

 

1. Exceeding your card limit: One reason that your card got declined is you have exceeded your credit card limit. In simple words if you continue to make charges once you have hit the maximum amount your credit card company will allow you to borrow. To avoid such situations the best way is, when you reach the limit, pay down your balance or request you issuer an increase to your credit limit. There are few credit cards those have per-day spending limits. Thus before making any purchases always check how close you are to your limit by checking your account online or calling the number on the back of your card.

 

2. If you have suspicious charges: If the credit card company suspects any fraud then they can quickly freeze your credit card. This move from a credit card company will actually work in your favor if you are a victim of identity theft. But it can also happen if your own credit activity has created a security risk for instance shopping in an unusual place, doing too much of transactions in one day, making a very large purchase or trying to withdraw a lot of money from an ATM. To avoid all the confusion the best way is to call your card company and find out why there is a security problem. By doing this if there is fraud then you can stop it quickly or if you have made the charges, you might be able to resolve the issue by simply answering a few questions from the card company.

 

3. Holds on your account: There are chances that before you return a rented car or check out of a hotel room the traveling, hotels and rental car companies might place a temporary hold on your account. The hold can be for a costlier amount than your eventual charge, possibly eating up your available credit if your card is highly utilized. In simple words the hold ensures that the company gets the amount of money it needs from your use of its services and prevents you from spending beyond your credit limit. Thus while making reservations in such huge hotels do a thorough check with your credit card issuers.

 

4. Your card got expired: If you are not regularly using your credit card or not purchasing much online where you need to put your card’s expiry date then it is difficult for you to realize its expiry date. Often the credit card companies send their customers with new credit card when the old one expires. Thus it is better to check out all the mails even if it looks like junk. If your card is outdated then the merchants in both the store and online will not accept your card. Not being able to buy something is a pain, but simply placing a call to your credit card company could bring you a new one in about a week’s time.

 

5. Your personal information is outdated: Most of the merchants may require you to enter your zip code while using your credit card. By entering the wrong information can cause a rejection when you attempt to pay. To prevent such rejections, login to your account and make any necessary changes. Then proceed to swipe with confidence, knowing all your details are up-to-date. By putting in the wrong information your card will be declined. Always make sure that the card company has your current billing address and telephone number. If you move to a new place, then try to update your new address and contact number on the bank's website as soon as possible.

Know from experts, about Credit History and Credit score, visit www.cibilconsultants.com

Source: Secondary

Length of your Credit history do impact your Credit score

When you think of your credit score, chances are that you focus on items like payment history and credit utilization. While these are the two most important aspects of your credit score, there are other factors that influence your financial reputation. One of those factors is your credit history.

Why your credit history matters

The length of your credit history accounts for about 15 percent of your credit score. The length of your history is often expressed in two different ways:

Age of oldest account: How old is your oldest account? The longer you’ve had credit, the better your score will be.

Average age of your accounts: With this measure, the ages of your accounts are added up and then divided by the number of accounts you have. Once again, the higher the average age of your credit, the better your score will be.

Even though this isn’t the largest chunk of your credit score, it’s still fairly significant. If you have a very low length of credit history, it could tip the scales against you. If your score range is at the lower end of “good,” having a short credit history could nudge lower, into “fair” territory — and result in increased costs on your next loan.

Be careful when you cancel credit cards

Credit history length is one reason to be careful when you cancel a credit card. Say you have five loans of different ages:

– Five years
– Two years
– Eight years
– Six years
– One year

The average age of these loans is almost four and a half years. If you decide to cancel the credit card you’ve had for eight years, though, the story changes. Now the average age is about three and a half years. The difference is more pronounced as you move forward, however. If you know you will apply for a major loan, such as for a home or a car, in the next couple of months, think twice about canceling a long-standing credit card account.

There’s a reason I still have my first credit card from college. That credit card account is 14 years old. No, it doesn’t have any rewards attached to it. But that credit card account, along with a not-very-great cashback credit card my husband and I got 12 years ago shortly after marrying, brings up my “average” credit account age.

Of course, if you have serious issues with paying your bill on time, or if you have several maxed out credit cards, a long credit history isn’t going to solve your credit score problems. However, if you have a decent credit score, and you hope to give it a bit of a boost, paying attention to the length of your credit history can be a big help.

For expert advice, visit www.cibilconsultants.com

Source: Secondary

For youngsters: A guide to build Credit score

While learning the basics of money management should begin in high school (or earlier,possible), the four to six years AFTER they graduate from high school is the most important time financially.  This is the time young adults become savers or spenders.High schoolers have many opportunities to begin learning how to manage money.  They likely will have part-time jobs, and, therefore, the money to begin to spend and save.  Many teens also have vehicles and need to pay for gas and insurance.If they begin saving now, they’ll have the advantage over their peers in a few years when they have the cash to put a down payment on a house.  If they invest in a retirement fund, thanks to compound interest, they’ll likely be in a much better position than their peers 40 or 50 years down the road.

Besides learning to save, learning to manage credit is equally important.  If a young person isn’t responsible with credit, he’ll set up the cycle of being in debt and having less income to use for other goals and expenses.
Often, getting credit is difficult in the beginning, but it doesn’t have to be.  Here are some ways a recent high school student can begin to build credit:

1.  Piggyback on someone else’s credit.  If you’re financially responsible, your parents may consider adding you as a user on their credit card.  There are several caveats here.

Consider your parents’ credit record.  Make sure that your parents have good (or great) credit as their credit score can be passed on to you within a matter of months of being an authorized user.  This is great news if their credit score is 780, but horrible news if their credit score is 580.
No credit is better than assuming low credit.

Consider how old the credit card is.  You’ll also want to strategically choose which credit card to be added to.  The best choice is a credit card that has been opened for several years and has a low balance.  You’ll want to make sure that your parents have always paid it on time.
Make sure the credit card company reports to credit bureaus.  Lastly, make sure that the credit card you’ve chosen reports authorized users to the credit bureaus.  If it doesn’t, being an authorized user won’t help you at all because the three credit bureaus won’t know you’re authorized on the card and you still won’t have a credit score.

Be responsible.  If you’re added as an authorized user, you should respect your parents’ trust in you.  Be responsible with the privilege they’ve given you.  If you overcharge, they’ll have to pay.

2.  Open a secured credit card.  Another option is to open a secured credit card.  (Make sure to ask the company if they regularly report customers to the credit bureaus.)   With this type of credit card, you pay a small deposit, so the credit card company has collateral if you don’t make timely payments.  Your credit limit is usually about the amount of your deposit.

Once the card is opened, be sure to make a few purchases a month and to ALWAYS pay on time.  Try to keep the balance low.

After six to twelve months of paying regularly, the credit card company may turn your account into a regular credit account.  If they don’t, check your credit score.  You may have a good enough credit score at this time to open a credit card account with a different company.
Once you become an authorized user or open a secured credit card, you simply need to pay the bill on time and control your spending.  Within six months to a year, you should be able to open a regular credit card account and begin your credit history.

Source: Secondary