How to maintain a good credit score?

You might be known that loan applications often get rejected due to less credit score. Have you ever thought what leads to constituting your credit score? Keep in mind, only repaying your loans in time doesn’t edge a good credit score as there are other factors also which impact our credit history. A good credit history can be maintained by following these simple rules:

Pay your dues on time:

Paying your EMIs regularly helps in upgrading your credit score whereas a delay in payment negatively affects your credit score as well as your credit history. Making late payments are viewed negatively by the lenders and affect drastically the chances of getting your loan approved.

Use your credit limit wisely:

Don’t fully utilize your credit limit on your credit card. You must be careful not only about making payments in time, but also about using your credit limit. If you over utilize your limit, the negative it is for your credit score. It is always prudent to use up to half the limit of the sanctioned amount on your credit card. Avoid relying on borrowings and secure yourself financially while using lesser credit limit.

Uphold a healthy mix of credit:

Usually, a borrower credit history should sustain a mix of secured loans and unsecured loans. Secured loans comprises of Home loan, Car loan etc. whereas unsecured loans comprises of Personal loan, Credit card etc. If the borrower is defined to high mix of unsecured loans, then the risk of default increases. The indefinite credit history should contain a mix of a home loan, car loan and a couple of credit cards.

Regularly inspect all your accounts:

You should examine your co-signed, joint and guaranteed accounts monthly and ensure that all your loan repayments made in time. As a guarantor or co-applicant, you are held equally liable for missed payments. Remember, your joint holder’s negligence could affect your ability to access credit when you need it.

Avoid applying frequently for loans or credit cards:

Many inquiries for loans or credit cards may affect your credit score. The lender will take it negatively as the borrower behaviour shows ‘credit hungry’ and indicates that the debt burden is likely to or has increased and you may be less capable of keeping any additional debt. If you have made many applications for loans or credit card, it could reflect in your credit report which will lead a loan provider to view your application with caution.

Monitor your credit report timely:

Paying your dues in time does not initiate a good credit score. As some errors like inaccurate late payment may pull your score down. So, reviewing your credit information report frequently may ensure that your credit history reflects your current financial status accurately without any errors.

Source- Secondary

Can balance transfers hurt your credit score?

Many credit card companies offer free credit card balance transfers in order to entice consumers to choose their service over a competitor. In addition, credit card companies may offer a grace period in which no interest is charged on the outstanding balance. With proper diligence, a savvy consumer can take advantage of these incentives and avoid high interest rates while paying down the principal. But be sure to read the fine print, as many credit transfers involve hidden charges, such as one-time fees on the balance transfer. Undergo various aspects of balance transfers that can either help your credit or hurt it:

• Every time you apply for credit, a hard inquiry is made on your credit report. Each hard inquiry has the potential to lower your score. If you apply for five different cards, you could lower your credit score by several points. To keep the negative effect on your credit at minimum through the application process, do your research and only apply for one card. After transferring a balance to a new card, keep the old account open.
• Depending on the right circumstances, a balance transfer can be a good way to pay down credit card debt. By initially applying for several different cards with low introductory rates, you can negatively affect your credit. A few percent of your credit score is based on the length of time your credit accounts have been open. The longer you have your accounts, the better your score. By opening several new accounts, you bring down the average age of all your credit accounts, thereby hurting your credit.
• Closing a credit account can negatively affect your credit but by keeping existing accounts open, your average account age remains high. If possible, find a card with a credit limit much higher than the amount you need to transfer. Exhausting your credit limit brings your credit utilization ratio down. Finally for maintaining a good credit score, you will have to make payments without missing any deadlines.
• Source: Secondary

Are you using many credit cards?

A credit card is a loan with a difference. Here, you get credit while you go spending or paying bills. However, the interest rates on credit cards are much higher than that on other loans. The more credit cards you have, the more you may be tempted to spend and the more difficult it will become to keep a tab of how much you have spent and when the repayments are due. Do remember that credit cards are the most expensive types of loans available in the market, and whether you miss your payment deadlines due to an oversight or because you have inadequate funds, you will have to pay heavily.

Credit card cautions

If you plan wisely to use each card to its advantage, but also keep a check on the rising charges so that the debt remained under control. Maintain your credit score over a period of time so that you could remain in the good books of the credit card companies. This is exactly what multiple credit cards holders should do to disentangle yourself from debt. However, if you cannot religiously keep a track on your spending or monitor each card prudently, then multiple credit cards can become a hindrance rather than an aid to money management, so step with caution depending on the kind of spending habits you possess!

Impact on credit report

While credit cards are extremely handy pieces of plastic, ideally, banks in India haven’t set any obligations on the number of cards you can carry. In India, you can easily find customers using four credit cards and the ones that don’t even have a single card. Due to the fact, your CIBIL credit score could be strained due to irrational credit card usage. In actuality, you must keep the number of credit cards which you can afford. Avoid using more than one card if you don’t have a good monthly income source.

Monitor your credit limit religiously

Your lenders will see you as a high risk candidate if you have high amount of outstanding balance to be paid. In fact, credit cards are the easiest way to fall into a debt trap that is a situation in which you borrow just to maintain your existing borrowings. So, to be on the safer side, you need to keep your outstanding balance about 10% to 30% of the overall credit limit. By doing this, you’ll get some relief and will also able to borrow more funds, if the need arises.

Never close your old card

Your oldest credit card age will do a significant role when the banks decide to open a new account under your name. In such cases, you can earn more points for keeping a long-established relation with the bank. The credit history of your old card is always better; and for taking loans, you could use your old credit card. If you wish, you could keep another card also for several other references and shopping online. Don’t ever close down your good old credit cards, even if you’re not using them frequently because they will definitely work towards building your good credit history.

Opt for right Credit Card

The credit card market in India is overwhelmed with attractive offers and deals that are quite tempting for the customers. As per the needs, every sensible card user can acquire several credit cards frequently. If you’re a constant traveller, then you could go for a travel credit card. Petro cards and special cards for getting discounts on restaurant bills are also highly popular in India. Whoever looking forward to multiple card options can decide buying these credit cards for a suitable experience.

Ideally, cards should be used as a temporary substitute for carrying cash. And, if that is the only motive you have when you carry a credit card, you will find that having one or at most two is quite sufficient.

Source- Secondary

Right time to shop for credit cards

There’s no uncertainty that credit cards are extremely portable, ideally, they should be used as a temporary substitute for carrying cash. Often credit cards come with various discounts and additional benefits about which you must be acknowledged. However, when you decide to acquire a credit card, there are abundant elements to be reviewed to obtain the ace advantages for using credit cards.

Credit Limit

This is the amount of money that you are granted to borrow subjected to credit card without involving other costs. Depending on your credit history, the credit limit will be decided. You don’t want a situation in which you’re close to maximizing out your credit limit, as you are likely to attract the over-limit fees. It can hurt your credit score – and some credit card issuers have cut customers’ credit limits to an amount that’s lower than their current balance.

The interest rate

The interest imposed as the annual percentage rate on a credit card. You can opt either for a fixed rate or a variable rate that is bound to another financial symbol, usually the prime rate. With a fixed-rate card, you can predict how much you will be charged as it maintains the same interest every month; a card with a variable rate fluctuate every month. However, even a card with a fixed interest rate can change based on certain parameters, such as paying your card – or any card – late, or going over your limit.

Ease of balance transferring

Almost every credit card company provides the facility of balance transfer. Due to this option availability, you can easily transfer existing debt from one credit card to another as per the usability. The new card credit limit will be lessened subsequently. While transferring the balance, you cannot exceed 80% of the credit limit. The transfer procedure takes more than seven working days.

Fees and other penalties

Go for cards which offer moderate fees. Common charges include fees for transactions, such as balance transfers and cash advances, or for asking to increase your credit limit or paying your bill late. The annual fee varies among card issuers as well as cards depending on the negotiation at the time of purchasing the card.

Incentives

While using the card, one can earn reward points every time as an added benefit to users of credit card. These reward programs does not get expired and you can redeem them anytime as per the convenience. Assuming you’re going to make the purchases anyway – and the card issuer doesn’t charge extra for the rewards program – it can be a good advantage. Opt for a program that offers more elasticity and rewards you will really utilize.

Access to cash withdrawal

The banks gives an ATM PIN to the credit card holder as per to make cash withdrawal from your credit card easily. Keep in mind, doing cash transaction against credit card attracts the high interest rate from the ATM. However, it is suggested to use this facility at time of urgent needs only.

Visit: www.cibilconsultants.com

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How to use a credit card?

Keep control of your cards instead of letting them control you. Cleaning up your credit card debt takes time and self-control, but the steps outlined here aren’t difficult. There’s no reason that credit cards can’t be a helpful, convenient tool – assuming you can learn to use them sensibly and responsibly. Use these simple tips to stop adding to your existing credit card debt and start regaining control of your finances.

To start with credit

While getting started with your credit card, don’t make maximum use of credit card immediately.  Instead, make small charges on your credit card and pay the balance in full each month. The motto of a credit card isn’t to buy things you don’t have the cash for, but to begin building a good credit history and instill good spending habits.

Plan your payments

Manage to pay more than the minimum balance every time. It’s tempting to send in the minimum monthly payment when you’re under financial duress, but don’t do it. Not only will you never pay off your bill, but the interest rates that credit card companies charge will actually keep your bill growing every month. Instead, send as large of a payment as you can afford to. Where possible, reduce your spending in other areas to focus on paying off your credit card debt. Building a good credit score takes time so, doesn’t try to rush it. Use credit responsibly and a great credit score will follow.

Review your activity

Monitor your credit card statement thoroughly every month. Don’t take for granted that everything on your credit card statement is accurate. Go through each transaction on your card to be sure that: your last payment was applied correctly, you were charged the right amount for all your purchases, and there are no unauthorized transactions on your credit card.

Self- control

You’ll have to maintain self-discipline and stop yourself from using credit card to make a purchase, but can’t pay your bill in full at the end of the month. Make sure that you put money aside to pay your credit card bill on time and don’t spend it on something else. Initially, manage to use just one credit card, so you can keep a track of your payments easily. Several balances and due dates can cause confusing and lead you to debt and a damaged credit score.

Wise decision-making

Are you ready for bigger purchases? Make wise decisions about purchasing items you need versus those you simply want. Using your credit card responsibly means recognizing which things you need and which you just want. Once you’ve created a habit of paying your complete bill, you are better prepared to use your credit card for slightly larger purchases.

Source- Secondary

Revolving credit and its impact

The tide of the future seems likely to carry with it ever increasing waves of revolving credit in the sea of borrower credit extensions. Already revolving credit represents more than a ripple in that sea. The reasons are primarily economic. Think before you spend – if you don’t pay off your monthly bill, the amount can snowball into a pretty big figure as it revolves and gains interest. Here are snippets on the functioning of revolving credit and how it can make you fall into debt traps.
                 

A loan with a difference

Here, you get credit while you go spending or paying bills. You can use the credit limit to purchase anything you desire. Further, you don’t have to pay EMIs or an amount equivalent to that. All you need to pay, to keep your credit card alive, is a minimum amount, which is normally five per cent of the money spent plus interest. Do that and your loan keeps getting revolved in minimum monthly payment cycles.

Unsecured Credit

While an unsecured revolving line does not require collateral. One of the most common unsecured revolving credit lines is a business credit card. Obtaining a business credit card typically requires the business to have a positive credit history and high credit score but does not require an asset to obtain the credit. Another type of revolving credit for a business is an account with suppliers in which you have a set purchasing limit and the company invoices you for purchases. Once you pay the invoice, the amount is available for you to use again.

Understanding revolving credit account

Revolving credit is a type of credit in which the consumer’s balance and minimum monthly payment can fluctuate, and where the cardholder usually has the option of avoiding finance charges by paying the last statement balance within the established ‘grace period’. This type of credit account also has a predetermined credit limit. Credit cards are the most widely used type of revolving credit. Unlike a loan, a revolving account doesn’t automatically close when the account reaches a zero balance. It tends to remain open and available for use until the lender or the consumer chooses to close it.

How it Works

With revolving credit, a bank allows you to continuously borrow money up to a certain credit limit. Every time you buy something on credit, that amount is subtracted from your total credit limit. And every time you pay off your balance, your credit limit goes back up.

The interest rates on credit cards are much higher than that on other loans. At times they can be twice as much. This makes it impossible to repay the bills in minimum monthly pay-outs. A rough calculation suggests that of the minimum payment made every month; only around 1.5 to 2 per cent goes towards repaying the principal amount. The rest goes towards interest payments. So, keep a check on your credit card spending and avoid revolving your credit card balance.

Impact on your credit score

Maintaining a low revolving credit balance has a significant, positive impact on your credit score because your credit utilization ratio is a key factor in your rating. Revolving credit helps in cases where you need to borrow in unpredictable amounts for ongoing projects, education or other needs. The challenge with revolving credit, though, is the temptation to overspend because you have more credit available. Remember, your credit rating is important when you apply for new loans and want to get a good rate. The reason a low revolving balances are important is the perception of lenders. Typically, they assume that if you use a small portion of your available credit, you are in a safe debt position. This makes you seem like less of a risk if they choose to issue new credit to you. Paying down high balances not only helps your score, it puts you in a better position to manage your debt.

Find your credit score at www.cibilconsultants.com

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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

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