Author: Credit Sudhaar

Is Buying a House Good or Bad for Credit Score?

Having your own house is often a dream come true. However, do you know that it can affect your credit score too?

When you buy a house with a loan, then the way you manage the loan repayment and other types of credit during the tenure affects your credit report.

Home Loan Process and Credit Score

One of the biggest mistakes you can make when applying for a home loan is overlooking the importance of CIBIL score check.

There are two main reasons why you should always check your CIBIL score before applying for a loan:

  1. Credit Health

When you apply for a home loan, the banks send an inquiry for your credit report to assess your credit profile. However, this affects your score itself.

If you have applied for a loan at multiple banks at the same time, which many people do to increase their odds of loan approval, then it can have an adverse effect on your report. This is because this behavior is commonly dubbed as “credit hungry”. In other words, it suggests a sense of desperation and may lead to credit score damage.

By performing a CIBIL score check, however, you can see whether your report is in a good state or not. If it isn’t, you can work on it first and then apply for a loan. This way, you don’t have to apply for multiple loans. Since there will be fewer credit report enquires now, there won’t be any credit score damage.

  1. Better Interest Rate

Generally, a home loan has a long tenure which can be as much as 20 years. Thus, you would want to get the lowest home loan interest rate possible. Again, this is where checking your credit score can help.

If your score is low, then you can work on it so that when you do apply for a loan, you can negotiate with the lender for a better interest rate.

Credit Score During Home Loan Repayments

The way you repay your loan can also affect your CIBIL score. In that regard, the following are some of the things you should keep in mind:

Repayment Pattern

One of the most important things that you should be careful about during the loan tenure is the repayment schedule. It’s super important that you pay all your EMIs on time. This is because punctuality matters a lot when it comes to credit score calculation.

If you miss an EMI, then your bank informs their credit bureau about the same. They, in turn, mention this in your credit report under the tag DPD which stands for “Days Past Due”. So, if you pay an EMI 11 days past the due date, then in the accounts section of your credit report there shall be a remark like “DND: 11”.

Remarks like DND can have a big impact not just on your credit report but your score as well. Thus, make it a point to repay all the EMIs on time at all costs.

Credit Report Details

If you want to maintain your credit score, then be sure to conduct a CIBIL score check every once in a while. This is because as you will repay your loan, it’s possible that an error takes place in your report which affects the score.

For instance, your bank may accidentally inform the credit bureau that you missed a payment, or you may become a victim of identity fraud, etc. Thus, by checking your report every few months you can avoid these issues easily.

Improved Variety

While you have to be careful with a home loan, it can also improve your score easily and open more doors for a better home loan interest rate in the future. This is because when you take a home loan, it improves the credit variation in your credit report, assuming that it’s currently based on just a credit card repayment history or a personal loan repayment history, etc.  In fact, the more is the variety, the better is the score.

The bottom line is that home loan can be good or bad for you depending on how you manage it. If you are punctual with your EMIs and don’t accumulate a high debt, then it’s good for you. However, if you delay the payments frequently or simply default at one point, then it can have serious repercussions on your score.

Advertisements

Is Crowdfunding The Right Choice For Your Business? Lets Know!

Businesses run on finance and depending on the nature and scale of the business the requirement of funds could be small or large. The business owner has the option of choosing from the various sources of funding that are available depending upon his/her requirements and the willingness of the lender to dispense funds for that particular venture. One could use his/her own funds, borrow from friends or family, take a business loan from the organized or the unorganized sector or explore the option of crowd funding if they find it suitable and useful.

Crowd Funding Explained

Crowd funding as the name suggests is contribution received by several people for funding a business venture or idea. This is usually done online through crowd funding platforms. There are various platforms that facilitate crowd funding for those who might be looking for funds to start a business or for some other idea or requirement that they may have.

Thus when one is using the crowd funding method for financing, capital is raised by the collective contribution of friends, relatives and individual investors who may or may not know the person seeking the amount. The entrepreneur or the promoter needs to choose one of the various crowd funding platforms and present his idea in the most lucrative and interesting way.

People will be willing to contribute to the fund only if the find that the idea interesting or they think there is potential in the proposed venture. Having said that, contributors would not like to fund the venture unless they are promised something in return. The businessman could choose one of the various methods of crowdfunding and offer returns to the investors; the returns can be in the form of rewards (a product or service that may be offered by the business), equity or discounts. Sometimes crowd funding campaigns may be donation based too, where the contributors expect nothing in return as in the case of disaster relief, funding for a medical condition etc.

Is Crowd Funding a Good Idea for Your Business?

Crowd funding may seem like a great option for someone who is looking to start a business as you don’t have to pay hefty interest rates, there are no documents to submit, you need not bother about the credit score or collateral and so on. However it is not that simple as each crowd funding platform has its own rules and you need to check the viability of this option for your business idea.

The first thing is the idea. Getting a loan from the normal banking channels may have its own challenges but there you have to present you idea and convince one person about your business plan. When you opt for the crowd funding method your idea has to be liked by multiple individuals for them to be willing to make a contribution so is your idea good enough to convince them? For this you need to have a sound business plan that will convince people to contribute something to the fund.  Do you have a lucrative idea and business plan ready? If yes then go ahead and use this option else you need to work on it.

Getting your target audience right is very important when using this method of financing. Your target audiences are your potential funders so you need to choose the right platform and focus on the right group of people. If you are not sure about whom to target to raise funds, then this option is not suitable for you.

What are you willing to offer in return and do you have something that you can offer in return? When you seek a loan you pay interest on it so what do you offer in exchange here. Let’s say you plan to start a apparel or food venture then you can offer your products in return but if you want to start a venture where you would be supplying technology to a niche industry then what do investors get in returns? In such a scenario you will have to be willing to offer them equity? If you do not want to dilute your stake in your business and do not have a product or service that can be offered in return then this may not be the best option for you. If you can offer products or discounts or equity then this option could work for you and you will be saved from worrying about business loan interest rates.

Apart from this you one need to figure out the quantum of funds you need, do the platforms require some payments for their use, how and when do these platforms dispense funds and so on. Research well to understand whether your business idea requirements match with what crowd funding has to offer before choosing this option.

Buying A House? 6 Things To Keep In Mind While Arranging For A Down Payment

The biggest aspiration of an average Indian family is to buy a house. Though home loans have made it quite easy for people to make the payments over a span of 15 to 20 years, it does not offer a complete solution. Banks fund only 80% of the property value and the borrower has to arrange for the balance on his own. As the property prices are soaring high, arranging for this 20% down payment is also an uphill task. It would take a few years to set aside and accumulate funds for the down payment.

Here are 6 things that you should keep in mind while arranging for the down payment

 

Start planning early- As soon as you become financially independent, you must start putting aside a portion of your salary for this purpose. The price of the house you wish to buy, and the amount you can set aside each month will determine the time it will take to collect the required amount. Instead of keeping this fund in a savings account, you may also choose other options that fetch better returns. Investing in debt linked mutual funds through an SIP is a secure way of accumulating the funds. You can also invest in equity if the time frame you have in mind to buy the house is more than 3 years. By starting early and following a discipline financial approach you can easily achieve this goal.

 

You must handle your existing debt responsibly and take care of the factors that affect CIBIL score calculation to ensure that your credit profile is in good shape. Banks are flexible with the amount of down payment they ask the buyer to put forward if he has an excellent credit score.

 

Liquidate existing savings– If you are planning to buy a house very soon, then taking stock of your existing financial resources and then liquidating your investments (Stocks, Mutual Funds, Fixed deposits, gold, bonds) is the most effective option. When you do so, do not forget to keep a portion of your savings for emergency requirements and short term needs of cash.

 

Borrow from relatives- If your own savings are still falling short, you may seek help from your friends and family. Remember to take only the amount that you can easily repay after an agreed upon time. Though this borrowing is usually interest free, it is still your liability and you need to keep your word in order to avoid straining your relations.

 

Other borrowings

Some employers offer soft loans to its employees at little or no interest charges. You can try and explore whether this option is available to you. An amount will be deducted from your income every month as repayment towards this loan.

You may also raise funds by borrowing against fixed deposits, mutual funds, stocks or jewellery, when liquidating them isn’t a wise decision. The loan amount will be only 70% of the savings value but it can be availed at a very low rate of interest.

You can also withdraw money from your provident fund to arrange money for the down payment.

Loan can also be taken against a life insurance policy at low interest rates. This is not an ideal decision, since it adds up to your liability.

A last resort can be to take a personal loan. But this is a very expensive option as the rate of interest can be as high as 20%. These loans can put a severe strain on your budget and hence they should be avoided as far as possible.

 

Calculate down payment amount correctly

 

As mentioned earlier banks finance upto 80% of the property value. However for property worth less than Rs 30 lakhs banks may even finance 90% of the value. Some banks may reduce it required and offer a greater amount of loan if the borrower has an excellent credit score. So check the loan to value ratio offered by your bank to estimate the down payment amount that you need to arrange.

If your credit score is low you may even be asked to put in a greater percentage of down payment. Find out the factors that affect credit score calculation and work to improve your CIBIL score to avoid such a situation.

When banks offer home loans, they do not include the stamp duty and registration charges in this amount. These expenses have to borne by the buyer completely. So make sure you are clear about the amount that you need to arrange.

 

Be sure of your capacity to pay the EMIs

Even though you can take a home loan for 80% of the property value, you don’t necessarily have to. Make sure you can pay the EMIs comfortably before taking on the liability. If you think that EMI will put too much strain on your monthly income, then you may want to postpone your plans so that you can arrange for a bigger down payment and reduce the loan amount.

With proper planning, budgeting and a disciplined approach you can ensure that the down payment amount is readily available when you need it to buy the house.