Do Not Panic if You Don’t Have a Credit History

Are you seeking small personal loans or home construction loans? Do you know what are the requirements to get a loan approved? No matter what kind of loan you want you must have a good credit score to have it sanctioned by a bank or another financial institution. You can get your CIBIL report (the most popular credit report recognized by the banks in India) online and check your credit score yourself. However, what do you do when you don’t have a credit history, and hence a credit score?

A lot of people get panicked when they realize their credit history is blank and worry they won’t be able to get a loan ever. However, this is not true. One can apply for a personal loan without CIBIL score also. Not having a credit history doesn’t mean you can’t quality for a loan or credit card. You do however need to provide valid reasons for the same. But first things first.

Why do Some People Don’t have Credit History?

Most credit report bureaus, such as CIBIL or Equifax India, consider your credit activities from the past 2 years to calculate credit score. However, if you didn’t use a credit card or took a higher education loan, land mortgage loan, etc. during this period then there will be no history to cover in the report. In fact, many college-goers and bachelors don’t have credit history as they don’t need loans or credit cards.

If you do have taken some form of credit within past 24 months but still your lender has informed the absence of history then there could be another reason for that. Different banks and financial institutions have their own preferred credit bureaus. For example, maybe SBI home loans are sanctioned on the basis of CIBIL report, and HDFC home loans on the basis of the credit report released by Experian.  The lenders don’t necessarily have to report your credit activities to all the major credit bureaus of India. Thus, if your previous lender had reported your loan details to CIBIL, and the lender you are applying for a used car loan now is associated with Equifax, then when they will send request to them they will find no credit history of you. To avoid such kind of misunderstanding you can contact your bank and check the report yourself. You can also request them to review the report (from a certain credit bureau)f that carries your activities rather than the one they usually prefer.

What to do When you don’t Have a Credit History?

As mentioned earlier, you don’t need to panic if you don’t have a credit history. It’s true that getting a loan or credit card is difficult without a credit history, but it’s not impossible. There are many lenders who can overlook your absence of credit report and credit score. However, you may not get good interest rates.

If you are having trouble getting a loan due to absence of credit history then you may have to build a credit score after all.

One of the easiest ways to start a credit history is by taking a credit card. It is easier to get one if you have a steady income or a decent business. Another benefit of getting a credit card is that you don’t have to provide collateral.

Once you have obtained your credit card make sure you pay attention to the following tips to improve credit score in a small amount of time:

  • Pay your bills on time, every time. This is the most influential factor in the credit score development process. So, make sure you are consistent with the payments. Even one late payment can harm your score.
  • Use the credit card responsibly. Excessive credit usage is detrimental to your credit score. Thus, use your card with caution. Your monthly utilization ratio should not exceed 30%. So, if your credit limit is Rs. 1 lakh, then you should spend less than Rs. 30,000 a month.
  • Check your report from time to time. To ensure you don’t deviate from your path do check your credit report from time to time. If you notice a drop in the credit score then you can check what has caused it, and then fix it.

Having a good credit score is extremely important today. If you don’t have it at all, then you should start building it ASAP.

 

Understanding the Confusing “Loan to Value Ratio”

Sumit, a senior software engineer in a popular MNC in Bangalore, decided to buy a house worth 80lakh, in one of the most posh areas of the city. However, when he approached a bank for a home loan, he was surprised when they only offered him Rs. 65 lakh as the loan amount. He had only 10 lakh in his savings, and he needed at least Rs. 70 lakh to make the purchase.

Sumit was greatly surprised, as his income was really good, and so was his CIBIL score. He couldn’t understand why the bank would grant him a lower amount. Confused, and disappointed, he decided to approach another bank,  where he was again surprised when they offered him a loan of Rs. 71 lakh.  How the loan amount is decided by the banks, was totally a miss on him.

Many home buyers who seek loans get confused when they see a discrepancy in the loan amount calculations in different banks. The problem is even worse when the applicant has no savings of their own, and are thus unable to pay the remaining amount to fulfil the purchase. The reason behind all this confusion, is the “Loan to Value Ratio”.

What is LTV (Loan to Value) Ratio?

When you apply for a home loan, factors such as your credit score, income, assets, etc. play a role in the application’s rejection or approval. However, if it is approved, then LTV comes into effect. LTV is the ratio of the actual property value, and the value of the loan a bank is willing to offer. Most banks offer only about 85% of the property value. Although, some banks may go as high as 90%, or 95% in certain conditions. It is also worth noting that lenders often have their own technical evaluator to get an estimate of the property you are applying for, which is based on the market values they consider.

When you seek a loan that establishes a high LTV then it becomes a risky transaction for the bank, or the seller. Similarly, if the LTV is low for the loan amount you have applied for, then there is less risk on the lender’s side. Thus, if you have a better change at securing a loan with a low LTV.

LTV in Land Loans

Although land appreciates in value more than homes and apartments, banks generally tie them with low LTVs. This is because with lands the legal risks involved are a lot more, and they are also more likely to get caught in encroachment issues. Thus, if you seek a land loan you will be provided 80% to 85% of the value in most cases.

RBI Guidelines on LTV

The central bank of India has increased the maximum LTV for housing loans up to 90%. However, this means that you can’t get a loan value higher than 90% of the property value. You have to arrange the remaining 10 percent on your own to secure the property.

While understanding LTV is important, it is also important to consider additional costs. Many people overlook other expenses that are involved when you take a DHFL home loan, ICICI home loan, or any other bank’s loan. These include:

  • Insurance and Taxes: Home insurance is generally a separate expense when you apply for a home loan. Thus, you have to deal with it individually. However, some lenders offer home loan insurance, which can be an add-on product coupled with the actual loan itself. Apart from this, assorted taxes that are involved are also to be paid by you separately.
  • Stamp Duty and Registration Fees: Stamp duty is a significant expense that you have to take into consideration when you apply for a loan. it can be as high as 4% to 8% of the property value, which is why you must ensure you have enough saving for it, as it is also not covered in the loan.
  • Furnishing: Unless you have existing furniture, you will have to buy it for the new home. Plus, you might also have to spend money on interior designing, etc.

If you are applying for a home loan, make sure your credit score is high, and that you have informed yourself on the important aspects of the procedure. This will make everything easier, and simpler.

 

Why Poor Cibil Score Destroys Your Financial Objectives?

If you have ever applied for a loan or a credit card, then you must know what CIBIL score is. Although it is a lot easier today to get small personal loans, home construction loans etc. the significance of CIBIL score is still there. In fact, its importance is increasing by the day. Today, CIBIL score is not just an assessment parameter considered by private and government banks, and other financial institutions, it can also affect your job prospects, as some banks have started making it mandatory for the job seekers to have no history of loan defaulting or a poor CIBIL score.

It can’t be emphasized enough why you must improve credit score as much as possible. Even if your current score is above average you should strive to make it even better. A good CIBIL score can improve your chances of getting a loan or credit card greatly. On the other hand, having a poor score can literally destroy your financial objectives. Here are a few ways how:

  1. Loan for Low CIBIL Score

One of the biggest problems that a poor credit score can create, is making loans of any kind almost inaccessible. Say, you just married a few weeks back and now you want to enjoy the new phase of your life by purchasing a new house. However, since your score is below average you won’t get a home loan. Even if you did manage to find a lender who is willing to sanction a loan, it is unlikely they are offering low interest home loans. Since you can’t afford to buy a house yourself, you decide to take it nonetheless. This is where the problem starts. Managing finances becomes a nightmare for you soon, as you have to pay huge EMIs every month while taking care of general expenses to run your home. Instead of enjoying your life with your partner you end up spending days under the burden of debt. All this because you didn’t pay attention to your credit score in the past.

  1. Credit Limits

If you have been a loyal and trusted customer of a bank, they can sometimes take that into consideration and approve a loan despite low credit score. However, this doesn’t mean you can get a loan of any amount. The lower is your score the lower will be the credit limit your bank will be able to offer. Thus, getting a loan won’t be as helpful when you can’t the full amount, or at least an amount that is enough. Say, you want to start a business and since you have been unable to bring in angel investors your bank is your only hope. However, considering your score they are willing to offer only half of the amount that you have applied for. How good will it be to you? Arranging the other half can be almost impossible.

  1. Credit Card Issues

A poor credit score can also give rise to a number of issues with your credit cards. Not only getting a credit card approved is a challenge in itself in that case, your approved limit will also be low. This can cause a lot of problems for you financially. Credit cards are an easy and convenient way to get credit. They allow you to buy items you can’t afford on EMI basis. However, with a low credit card limit you will have to arrange funds for several items by yourself. Getting  supplementary credit cards for your family members can also be a problem.

Your CIBIL score is important. If it has been a while since you took a look at your credit report, then you should get a copy today itself. If your score is not good you can start working on it ASAP. Fortunately, it is not difficult to improve credit score. By merely paying your EMIs on time, limiting the overall credit usage, and rectifying errors and mistakes in your CIBIL report (if there are any) can greatly improve your score. However, if you need expert advice you can also consult a professional company such as CreditSudhaar. They have some of the most experienced credit professionals who can help you improve CIBIL score in the soonest possible time.