Three steps for credit newbies to get the ball rolling

If you’ve never taken credit before, your credit score with the country’s leading credit information bureau – CIBIL – will read NH, meaning “No History”. Banks and lenders tend to avoid “NH” applications because of their potential for default and the direct losses the bank will experience as a result. The only way to get credit is to have a good credit history or score – and the only way to get a good credit history or score is by taking credit. It’s kind of a catch 22 situation, but doing these 3 simple things can get you started on the road to financial freedom by slowly helping you build a positive credit record:

1. Use credit cards carefully: For someone with no credit history, getting a secured credit card is easy and highly useful. But the mistake most new borrowers make is to use their credit cards irresponsibly, by delaying payments and making impulse purchases.

Judicious and careful use of your credit card can take you a long way in building and maintaining a good credit rating and will make you eligible for loans and greater avenues of credit in the future. Whenever you make a purchase, ensure that you will have the funds to pay it off before the due date. If you miss making the payment by even just one day, there will be fines, charges and penalties levied which will damage not only your credit rating, but your financial health as well.

Secured credit cards can be acquired by applying for one against the security of a fixed deposit with the same bank. There will be a minimum deposit amount that will need to be maintained. Using this card regularly for small to medium purchases and paying off the entire amount well before the due date will contribute greatly to your credit score.

2. Stand as a guarantor or co-applicant for loans: Standing as guarantor means that you are just as responsible for the debt as the applicant. Details of the loan, its repayment and all other specifics are reported to the credit information bureaus for both people, and will reflect in both credit reports. Ensure that the person whose loan you’re guaranteeing is a person you can trust, and one who is responsible with money, as a default on the primary applicant’s part can leave you in the lurch and destroy your creditworthiness.
   

A successful loan repayment will guarantee positive credit ratings for the applicant and guarantor alike, and can be an argument used in your favour if your loan application is ever denied on the grounds of a less-than-favourable credit rating.

3. Monitor credit reports: Many people who do everything right and think their credit report is positive are usually in for a nasty shock when they receive their actual credit rating. There have been a number of cases reported wherein the credit information bureaus receive faulty information that reflects negatively in credit reports – this can happen due to a number of reasons including negligence on the part of credit information partners. To make sure that all the details mentioned in your CIBIL report and absolutely true, request a copy of your credit report once every 6 months and immediately correct any errors that you find. If you plan on borrowing heavily in the future, a clean credit report is absolutely vital.

There are many more ways you can build your credit report up to be a reflection of your outstanding ability to manage debt – but you need to be diligent and meticulous in your financial planning. It isn’t hard to do, and the reward is all the credit you need. Lenders will, of course, expect you to behave with the new credit with the same care and control as you did with older, smaller loans.

Managing finances is important, and managing your CIBIL credit score and making sure it always shows you in a good light can be considered a vital offshoot of judicious financial planning. Many employers these days are looking at a stable and well-maintained credit report as an indicator of stability and trustworthiness while reviewing job applications.

If your credit history is non-existent, don’t let it worry you – as you are perfectly poised to write an excellent credit history for yourself on a clean slate.

How credit score can impact your employment

The western economies have been considering a person’s credit profile before hiring. The companies consider a bad credit score as an irresponsible behaviour of an individual. The person’s inability to pay the bills on time shows that he is not capable of taking care of things. The companies run a credit check just like they would check for criminal history as it will affect the employer’s reputation as well.

Credit check has become a part of the background check which is done by the human resource team of the employers. A bad credit score is implied as bad intentions in general. If the applicant has ‘settled’ stated across the credit cards, then the HR tries to stay away from such candidates. It is also believed that the people in a high level of debt cannot work efficiently and therefore will not deliver the best results.

It can be argued that those who have been victims of identity theft and wrong entry in the credit report are wrongly judged. Even though this is true, the IT companies are also seen accessing the credit report while running a background check of a candidate. The list of sectors that will run a credit check keeps increasing. The best thing to do is to be aware of your credit score and thoroughly read your credit report.

It is important that you check your credit score and credit report once in a year at least. Access the credit score before you are applying for a job. Check for discrepancies and if you find any, report it to the credit bureau. Check if appropriate actions are taken with the bank and the credit bureau. This doesn’t end there, you need to follow up and see if the matter has been resolved. If this is the case, then you have a valid explanation and make sure that you bring it to the notice of the Human Resource of the company that you are applying at. This will help the Human Resource to take an informed decision rather than simply rejecting your application. 

Though the companies are referring to your credit score, it is not the only deciding factor for a person to get a job. If your credit score is good, then it is only going to improve the prospects of you landing a job that you prefer. A good credit score puts you in a good position. So, pay your loans on time and keep a tab on your credit score and fix it if they are bad. Keep an eye out for false and wrong credit information. IF you find discrepancies, report it to the bureau and take corrective measures and clear it out with the bank and the credit bureau. Follow up on your complaints and check if they have been resolved. 

Companies are now checking the Credit score and report to judge a person’s stability and efficiency. However, the reasoning is held against the victims of identity theft and if there was a wrong entry. But, then they can be resolved.

Reasons to access your credit report

We are always stressing about having a good credit history and a good CIBIL score when we are in need of a loan. Most often we think that it is enough if we have all the documents in place while applying for the loan. But that is not enough, we need to access your CIBIL report and CIBIL TransUnion Score before we are applying for the loan to check where we stand.

According to Harshala Chandorkar, senior vice president- Consumers Services and Communications at CIBIL, CIBIL report and the CIBIL TransUnion Score is a testimony of your financial discipline to banks and financial institutions for approval of your credit card or loan application. A healthy credit report and Free CIBIL Score is an indication that you manage your finances well. 

Why is it important for you to access your credit report often?

• You are always ‘loan ready’

CIBIL report contains information about your income to debt ratio as well as your credit history. This is one of the important parameters that come into factor during the loan approval process. So, before you are applying for a loan it is important that you check your credit eligibility and do your homework. Calculate how much your income to debt ratio is and also aware of your credit history and credit score. Read through the whole report and check if there is any reason for having a low credit score or any other factor such as loan settlement and find ways to correct it and increase your credit score before applying for the loan. The report will prepare you for the unpleasant surprises that you get when your loan is rejected.

• Helps you manage your accounts

The CIBIL report will help you keep a tab on the loan and credit card accounts and helps you monitor the loan performance. It also helps you to keep track of the loans that you have co-applied for and guaranteed. You can also keep a tab on the supplementary credit cards. You will not have to individually check for the status of your loans as all this information is provided on a single platform.

• Run an accuracy check of your credit history

In a place like India, there are many people with similar names and there is a good chance that the data might be accumulated wrongly under your name. So, by accessing your CIBIL report, you can look for discrepancies. There is a huge data being collected and there might be a slight error in the way it is being recorded, but that small error might cost you a good credit score. When you access the report, look for discrepancies and have them corrected through the CIBIL online dispute resolution forum. When you are applying for a loan, the wrong information could be a major deciding factor for the lender to offer you the loan and the lender might reject your application on a ground that is incorrect and when the lender rejects your loan application, it again lowers your credit score.

• Credit health check-up

CIBIL report provides you the insights to your financial health and how much debt you hold and how it is being repaid and gives you the exact number of times you have applied for a loan and a credit card. It will also have a record of the loans that you have settled and loans that were written off or if you have a suit filed against any of the loan account. When you run a credit health check-up, you can find corrective and preventive measures and help maintain a healthy credit report.

• Help you negotiate

The lenders mainly depend on your CIBIL report and CIBIL TransUnion Score to decide the terms and conditions of the loan. When you have a good credit score, you have the leverage to bargain on the terms of the loan and it serves as a powerful collateral and is an added advantage when you know that you are an ideal person that the lenders prefer to give credit.

What's the Best Way to Use the Repo Rate Cut to Your Advantage?

RBI reduced Repo rate by 25 basis points

RBI announced a repo rate cut and all jaws dropped with confusion. I, for one, wasn’t sure if this was a good thing for my money or whether I should be really worried.

Turns out, I had nothing to worry about. The repo rate cut announced by RBI is one of the best that could have happened to all investors and depositors across the country.

 

Commercial Banks will reduce rate of interest on loans

The gist of this piece of news is simple. Commercial banks will have to reduce their lending rate, that is, the rate of interest charged on loans they give out. This reduction should see the light of day somewhere around April, as per current speculation. There is no evidence to support this prognosis.

What is the good news in the above deduction? Well, the demand for loans will eventually have to increase when the banks reduce their lending rates. In the event that the demand for loans increases, banks will need to have enough funds to supply for the increased demand.

Best time to invest in a fixed deposit

And that’s the good news, the rates of interest offered on fixed deposits will decrease in the future, but right now they are at an all-time high. They will continue to be as long as banks need to gather funds for the predicted drop in lending rates.

Repo rate won’t affect commercial banks at least for a few months

That’s more interesting is the fact that commercial banks don’t borrow all of their money from RBI, instead they pick up funds from the market. This means that RBI reducing its repo rate won’t affect the banks for a few months and hence they will use these months to collect money as deposits for future lending purposes.

It is a good time for depositors and investors to lock in their money and opportune interest rates.

How much to deposit into a fixed deposit account?

Depositors can consider dividing a sum of say Rs.5 lakhs into 5 separate deposits of Rs.1 lakh each in order to enjoy maximum returns on their investments.

What about debt investors?

Debt investors, especially, should invest in medium to long term funds for maximum benefit.

Dual opportunity in debt

In fact debt offers a dual opportunity with the reduced repo rate coming into play.

On one hand, capital appreciates from easing yields and other the other hand, credit opportunity from improved corporate fortunes.

Word of caution though, a minimum 2 years have to be set aside for both to come to pass.

What happens to rate sensitive markets with the reduced repo rate?

Another question that is interesting is, how does the repo rate cut affect the rate sensitive sectors?

The year that is coming up is good for rate sensitive sectors like, capital goods, auto and banking. They will do well with the reduced repo rates in the next 12-15 months.

What about loans taken that can be invested into fixed deposit accounts?

For those who are looking to pick up loans in order to use this opportune time for investments, a word of advice.

It is best to take loans on floating rates of interest right now. The EMI on such loans will come down substantially when commercial banks employ the reduced rates of lending.