December 14, 2016
When you find that house of your dreams, the first thing that springs to mind is to apply for home loan since it’s your ticket to funding the big purchase. But sometimes, loan applications get rejected for various reasons, among which the most common is a low CIBIL or credit score. It is major factor that determines your loan approval, loan amount and even rate of interest.
Why is high and low credit score important?
While a high credit score is viewed as a low probability of a default, a low credit score reflects the opposite, making financial institutions wary of the person applying for a home loan.
Credit score is a three digit number that ranges between 300 and 900. It reflects your creditworthiness as it is a summary of your payment history, outstanding balances, number of loans, total credit limit, credit utilization, every loan detail taken from different lenders. Higher credit scores are great for you if you are applying for a home loan. On an average, a credit score of 750 is great for borrowers as lenders find themselves at less risk. Moreover, at this score, you can get good deals on your home loan and better rates of interest.
Your credit score is impacted positively by:
● Consistent payment of loan EMIs
● Credit card bill payments on time
● No over-leveraging
● Payment of credit card bills in full as opposed to minimum due amount each time
● Good financial records
● Many types of credits, especially unsecured personal loans in family
● Good utilization of credit limit on cards
Your credit score is impacted negatively by:
● A lot of credit report enquiries by banks and financial institutions
● Dishonoured or bounced cheques
● Loan repayment irregularity
● Defaults on credit repayments and even defaulting as a guarantor
● Late payments on credit cards or making part payments consistently
● Number of unsecured credit (multiple personal loans)
● Numerous applications for unsecured loan, especially when rejected
● Going beyond the approved credit limit and even high utilization of it
Other than these, your credit score can also be impacted negatively when banks or financial institutions you are dealing with make errors in their records. Hence, it’s important that you keep checking whether or not your banks are submitting the right information. It comes really handy if you request and maintain a copy of your credit history personally as compared to a financial institution doing that for you.
, Home Loan
, Interest Rates
December 13, 2016
CIBIL Score is a crucial aspect in determining your home loan eligibility. Every time you apply for home loan, your lender checks this score for approving/disapproving your application. It is a summary of your credit history as per your credit behaviour. It depends on the following factors:
Past payments: All your previous payments, whether on time or delayed, are recorded with CIBIL. Consistency in making payments is considered good whereas more recent delays are seen negatively.
Settlements, defaults and write-offs: Multiple write-offs, defaults on previous loans and more recent write-offs (as opposed to older ones) have negative effects on your credit score. Defaults and delays on secured loans are worse than on unsecured loans.
Credit as proportion of income: The higher the loan balance you have, the lower your credit score will be. Less loan balance shows smart credit utilization on your part.
Credit cards: If you have high credit card balances, your credit score will be low. Consistency in repaying credit card debts improves the score. Credit cards (unsecured loans) are viewed negatively by lenders as compared to secured loans.
Different ranges of CIBIL Score
Every person with a financial history has a CIBIL score and it can range anywhere between 300 and 900, with 900 being the highest. A person can also have a score of 0 or -1, which means that they have no credit history in terms of loans and credit cards. So to get the credit history started, you must have at least one credit card or applied for a loan. Here is a breakup of CIBIL scores and what it means:
- 550 – 650: It is a fair score and accepted by many lenders. This score shows that you have been quite regular with your repayments, other than a few exceptions. Most lenders trust borrowers with this score and approve their home loans but usually with a higher interest rates.
- 300 – 550: This is the worst score anybody can have and it means that you have been defaulting on your payments. With such a score, getting credit is extremely difficult.
- 650 – 750: For home loan eligibility, this score is very promising. And if you have this credit score, you will not face any issue regarding approval of application.
- 750 – 900: It is the best possible score anybody can have and it indicates your expertise at managing your finances. Lenders will approve even a larger loan amount to you at great rates when you apply for home loan.
, Home Loan
, Interest Rates
November 26, 2016
Low credit ratings often increase the interest rates on various financial products, such as home loans or credit cards. Borrowers with higher credit scores are able to save significant amounts on their loans when compared to individuals with lower credit scores.There are several ways that help people to improve their credit scores given by credit rating agencies like Credit Information Bureau (India) Limited (CIBIL). The agencies do not treat all types of debts in the same way while calculating the credit score. The ratings are affected negatively if the outstanding balance on the card increases.
Here are five ways that help improve credit scores.
1. Lower the Credit Card Balance
The best way to improve credit rating is to lower the outstanding balance on the card. The rating agencies make a downward revision to the score if the credit utilization ratio exceeds a certain percentage. This ratio is the amount used by the cardholders as a percent of the overall credit limit. Reducing card balance may seem to be a difficult task but is achievable with the help of discipline. Users must adhere to stringent limits to reduce the balance and improve the credit score. If possible, individuals may ask the issuing company to increase the limit on their cards. This may also help improve the credit score provided the users do not increase their spending because of the higher limit.
2. Convert Card Debt to Personal Loan
With some diligent planning, card users may be able to improve their credit ratings even before paying off the debt. They are advised to consider converting the card debt to a personal loan. Higher outstanding balance on card reduces the credit score much more than personal loans. Loans with fixed installments are not considered by the agencies while calculating the credit ratings. Therefore, availing a personal loan instead of maintaining a high balance on the credit card is advisable. In addition, to improve credit score, such conversion is beneficial in reducing the cash outflows. The interest rates on personal loans are often lower than the card interest rates. It is important that the cardholders discontinue the use of their credit cards after such conversion to ensure the ratings are not affected.
3. Selective Accelerated Debt Payments
Repaying loans in a timely manner has several benefits. However, individuals who want to improve their credit scores must consider postponing such pre-payments. The money should instead be used to pay off the card outstanding because this kind of debt affects the scores more than loans.
4. Keep Regular Checks on Credit Report
Research shows that a significant percent of individuals have errors on their credit reports. It is possible that errors have severe results on the credit scores. This further impacts their borrowing capability and rate of interest that is levied on their loans. It is recommended that borrowers check their credit report prior to applying for any kind of loan. If any errors are found, they must immediately contact the rating agency and seek rectifications. This would help improve their credit score and enable them to borrow at a lower rate of interest.
5. Make Timely Repayments
Credit scores are significantly affected due to delayed payments. Lenders report delays to the agencies after 30 days from the payment due date. Such late payment reports are reflected in the credit score for many years, which impacts the individuals negatively. To avoid this, making timely payments is recommended.
Unfortunately, several people in India are not aware of the importance of good credit ratings. They fail to understand that even a slight improvement in their credit score may help them save huge amounts and get a lower interest rate on their borrowings.
, personal finance
October 31, 2016
Private lending companies will provide the facility of merging several loans into one and charge a lower monthly interest rate than the prevailing one. But it should always be carefully noted that federal loans provide better interest rate than the private ones and hence these two should be kept separate. Detailed information has been provided below regarding the advantages of consolidation and refinancing of student loan to have a better view of the two.
Advantages of Federal Student Loan Consolidation
Getting hold of an experienced and knowledgeable company equipped with a streamlined online application process provides its borrowers with an opportunity to save well before the subsequent loan amount is up for due. The hassles of searching for a reputed company has been solved by online service providers like financial hot seat who after comparing among several possible alternatives provides a list of the top six companies who have a good reputation in the market regarding student loan consolidation and refinancing. Unlike the traditional ways of borrowing money, the student loan consolidation facility provided via internet substantially reduces the loan amount to be repaid at the end of the term by keeping a check on the rate of borrowing. This is a big help for students who are the budding face of an economy and has been newly introduced in the job market.
Advantages of refinancing
There are several benefits of consolidating or refinancing a student loan, be it private or federal, which each and every borrower must know in order to derive the maximum possible benefit from its use. The advantages are briefed as under:
Convenience – Students who opt for loan refinancing needs to make only a single payment every month instead of multiple payments since refinancing combines all the existing loans of the borrower into a single loan amount.
Market fluctuations – The rate of interest prevailing in the market is quite volatile and is prone to frequent changes every year. Borrowers who have been paying higher interest on their existing loan have the opportunity to take advantage of any fall in the rate of borrowing which was not available at the time of initial borrowing.
Greater cash flow – Refinancing a number of loans into a single one will require lesser payment per month than each one being paid separately. This will indirectly lead to more cash to spend at the end of the month thereby ensuring improved cash flow.
Better credit history – Making a timely payment for a single loan is easier than individual payments being made. This creates a higher chance to improve the credit worthiness of the borrower increasing his chances to obtain more loans from the market easily.
Improved savings – The last but not the least is the advantage of saving a substantial amount of money when it comes to loan consolidation and refinancing.
A more detailed information about the beneficial effects of refinancing can be gathered from the internet and reliable sites like the financial hot seat to explore and experience its benefits in case the situation demands for exercising such facility.
, financial planning
, Interest Rates
, personal finance
October 5, 2016
It is one of those timeless conundrums which has tested the thinking of man for centuries. If you had to, would you do something you know was very dangerous.
If you saw a child about to be run over, would you step in front of a car to save them? If you are dying of thirst, would you drink filthy water to survive? If you house is on fire, would you jump out of the window to escape.
We have all pondered these kinds of questions at some point, but fortunately most of us never have to contemplate the dilemma in reality.
But there are other everyday dilemmas that we do have to confront which, whilst perhaps not involving the same danger, can still expose us to significant risk.
One such example of this is when we use online banking. We know online banking is insecure. It doesn’t matter which bank you use, and how many trendy keypads and other gadgets they give you, we all know there is still a risk when we log into our online account which isn’t there if we want into a branch.
The popularity of online banking suggests two things about this. Either we don’t fully understand the extent of the risk, or we have decided it is a risk we are willing to take. For most of us, it is a combination of both.
But make no mistake, online banking does pose a significant risk. The level of security used by all banks is extremely weak and the techniques of online hackers gets ever more sophisticated. And often we don’t help ourselves, making basic errors like using easy-to-break passwords or logging on while connected to public Wi-Fi networks.
The ramifications if you are hacked can be significant too. Of course, you can lose a lot of money. However, as most banks will compensate you in those circumstances that is sometimes not a big worry. But going into overdraft or losing a sizable amount of money can affect things like your credit cards, and premium accounts you may hold, and of course run up charges with your bank that can take months to sort out.
Then there is your credit score. If you are hacked and miss payments as a result, it can affect your credit score which might cause you to be unable to get credit and secure mortgages and other financial services.
So, the question I am often asked is whether there is a way to protect ourselves when using Online Banking. Is it possible to make the process more secure?
Encouragingly, the answer is yes. And in this article I will give you my tips as to the top 3 ways to keep your online banking secure in 2016:
1. Use an ‘Anti-Spy Privacy Screen:
For all the high-tech ways that people get hacked these days, there are still a significant number of incidents where data is stolen simply by watching over people’s shoulder as they use their online banking account in public.
It might seem silly, but it happens a lot and it is unnecessary because there is a cheap and simple bit of kit which can prevent it: an Anti-Spy Privacy Screen.
There are available for all devices these days and work in the same way as a regular screen protector. However, they are a little thicker and a little darker, and this means that when you look at the screen of a device from an angle, you can see nothing.
Only the person directly facing the screen can make out what is there, so when you log onto your online banking on the go, you can be sure that the only person looking, is you.
2. Change your Password Regularly:
Passwords are another big vulnerability of online banking. Often they are easy to guess, simple to crack, and offer little or no real protection.
One way around this is to use a Password Manager such as Last Pass which can make it easy for you to use complicated passwords without having to remember them all.
But another relatively effective approach is just to change your password on a regular basis. If you are an occasional user, making a password change every few months is a sensible precaution, but if you are logging into your account regularly and from different locations, every few weeks would be more sensible.
3. Use a VPN:
Perhaps the most important tip on this list is to use a VPN. A VPN can help ensure your online banking is secure in a variety of different ways.
Encryption is vital to keep your data secure online and whilst all banks will encrypt their online banking data, some are more secure than others. A good VPN will ensure all of your online activity, including online banking is encrypted securely.
They also protect you when you are using public Wi-Fi. Again the encryption they offer means even the weakest of Wi-Fi connections becomes secure.
Indeed, VPNs are so good at encrypting your online activity that you can even access otherwise inaccessible online services, like being able to log onto Gmail while in China, where it is usually blocked.
With a VPN in place, and using these other precautions as well, you can be pretty confident that your online banking will be secure, no matter who you bank with.
, Financial Securities
, Online Banking