Tag: low CIBIL score

Are You Financially Healthy? 3 Ways to Check it

To add wings to your dreams you need to be financially robust. Being financially healthy is not limited to having a lot of hard cash in your bank account or having a recurring source of monthly income. Your financial health basically defines the overall dimension of your personal financial health. It includes solidarity of what you earn today, how much you save and your ability to draw loans for future.

As important it is to have a stable source of income in your life as is your readiness to face the unforeseen circumstances. From medical, to social, to personal, there could be several types of emergencies in life that can hinder your financial growth. To name a few, medical illness or a fractured leg bone, divorce, unemployment are a few occurrences that could hinder the pace of financial growth in your life.

No one plans for such unlikely or unhappy events in life. However by closing your eyes in the rain doesn’t save you from getting drenched. You should thus always take a good care of your financial health and stay ready for systematic financial aids such as personal loans for emergencies.

Let’s find out 3 clear ways of assessing your financial health:

  1. Credit Score
    A Credit score is basically a score of your financial report card. The better is your credit score, the better is your credit worth. Credit score by CIBIl which is the first major credit bureau of India, is measured between 300 to 900 points. The closer you are to 900 mark, the better is your score. According to CIBIL approximately 80 % of loans are processed to those who have score above 750 points.

    Your credit history primarily affects the score. Factors such as your past credit history of debt repayments, the length of your loans and credit cards, the mix of debts, use of credit limit and your recent loan queries basically affect the score. With a good credit score, lenders consider you as a credit worthy person and are keen to lend money.

    Certainly a person who is more likely to raise loan without a hassle is considered more financially healthy than the one who has a low CIBIL score and needs a guarantor for the same task. Your credit score thus plays a crucial role in reflecting your credit health.

  2. Debt to income ratio
    Another determinant of your credit health is your debt to income ratio. Ideally it is considered that you should not use more than 30 % of your income in repaying the EMIs and credit card bills. For, it is considered that approximately 50% of your income would be used on your basic and personal expenses. Ideally a person should also contribute towards the savings (including insurance) for retirement. However when you use more than 30 % on debts, it affects your savings and running expenses. This also indicates that owing to more financial obligations to meet every month your financial health is compromised. You are not able to save for your future and an unforeseen event may disrupt your financial health.
  3. Credit cards
    In this age of plastic money, one of the key indicators of a person’s financial health is the way s/he uses cards. The high balance on credit cards is indicator of high credit appetite. And when you are unable to repay the balance and roll it over to next month, it not only attracts a late payment charge it also indicates shortage of paying for your financial obligations. This hurts your credit score and reflects bad credit health.

    The best way to keep a check on credit card balance is to use a debit card instead. Every use of a debit card would remind you of the expenses being incurred and help keep a check on how much you are spending. Likewise, those who own too many credit cards and keep balance on each card are considered financially weak people.All in all, how you use your funds today directly affects your credit worth. Right from your monthly income, to your savings, to insurance plan, loans and credit cards all define the state of your financial health. Simply by pulling out your free credit report you can have a direct access to your financial activities and analyze how you are performing today for a healthy tomorrow.

 

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6 Ways to Improve Your Credit Score

If you want to give your credit score a boost, then you must understand that it won’t happen overnight. Credit score improvement is a long process. You have to be patient and just work for it. However, if you are careful enough and take the right steps, then eventually you can easily attain a promising score.

The following are 6 of the best ways to improve CIBIL score:

  1. Watching Credit Card Usage

Credit cards can help build a good credit score. However, they can also ruin it. It all depends on how you use them.

Credit utilization is one of the biggest factors that affect your CIBIL score. Using credit cards excessively leads to a high credit utilization which is harmful to your score. However, there are two ways you can tackle this problem:

  • You can limit your credit card utilization by using cash or other payment methods save for credit cards.
  • You can divide your expenses on multiple credit cards. So, if you have to buy an air conditioner worth Rs. 30,000 and you have two credit cards, then you can charge Rs. 15,000 on each.
  1. Paying Bills on Time

Plain-vanilla timely payments can do wonders for your credit score. Not only you can minimize your debt this way, you can also make a strong case for yourself for potential lenders. Banks and financial institutions simply love those borrowers who have a long history of timely payments because it’s easy to trust them with their money.

  1. Fixing Credit Report Discrepancies

How often do you check your credit report every year? If your answer to this is “once” or “never”, then maybe that’s the reason why you are unable to improve score.

There are several benefits of monitoring your CIBIL report, one of which is the identification of mistakes or errors.

It’s easy to think that a mistake or two in your CIBIL report can’t do much harm. However, it’s completely false. Mistakes in credit reports can have grave consequences that include compelling you to get a loan for low CIBIL score.

Taking an example, if your name or address is printed wrong or if there are false mentions of late payments in your CIBIL report, then your score could easily fall by hundred points or so.

Checking your CIBIL report frequently can help you find and rectify mistakes that are hurting your score. Plus, if you identify anomalies or unrecognized transactions, loan inquiries, etc. then you can also prevent a potential case of identity fraud.

  1. Adding Something New to The Mix

A singular credit history can put limitations on your score. So, if credit report contains details of only credit card usage, or a personal loan account, etc. then you can increase credit score only so much.

Even if you are doing all the right things for your score, you can’t surpass a certain limit unless you diversify your credit usage. This is because the more diverse your credit history is, the better it’s for your score. So, if your score is solely based on your credit card usage, then you can make an improvement by availing a small personal loan, auto loan, etc.

  1. Saying “No” to Minimum Payments

Minimum credit card payments and credit score improvement don’t go hand in hand. You can only choose either of the two.

Banks highlight these “minimum payments” to lure more customers into applying for their credit cards. However, minimum payments lead to debt accumulation and lower CIBIL score. So, if you really want to enhance your score then you should always pay your credit card bills in full.

  1. Debt Consolidation

Debt consolidation is not a direct but rather an indirect way to improve credit score. In this, you combine all your loans into one. So, instead of paying several EMIs every month, you need to pay just one. The result is better money management and timely payments.

Many finance experts claim that debt consolidation can help improve CIBIL score really fast, especially if pay the EMIs on time.

If you don’t want a future in which you have to look for a loan for low CIBIL score, then it’s best you start caring for your credit report as soon as possible. In fact, today is as good as any.

What’s the difference between Soft and Hard Inquiries?

Anytime someone submits a request to the credit reporting agencies to have a look at your credit report, an inquiry is generated. The information regarding the entity making the inquiry, date and reason for the inquiry are captured and recorded on your credit report. But not all inquiries are the same. The key is to understand the difference between two different types of inquiries and how they affect the CIBIL score.

Credit checks are often categorized as hard inquiries and soft inquiries. Let’s see what they mean.

Hard inquiries

Whenever you apply for a credit card, home loan, or any other kind of mortgage you give permission to the prospective lender to pull your credit score and credit report. The information in your report helps them decide whether you are worthy of giving credit or not. A high score gives them assurance that you are a worthy borrower while a low CIBIL score will usually trigger a negative response. So basically whenever you are seeking credit, the lender pulls your credit information and this is considered as a hard inquiry. Bureaus consider that each hard inquiry associated with a new loan, changes the risk factor associated with the borrower. Hence hard inquiries have a negative effect on your score. However they account for only 10% of the overall credit score and therefore bring a dip of only 5-8 points. Factors such as payment history and credit utilization have a greater weightage.

Some situations which will trigger a hard inquiry are

  1. Application for a home loan, student loan, auto loan, personal loan or business loan
  2. Application for a credit card
  3. Mortgage applications
  4. Requesting the credit card company for a raise in credit limit
  5. Responding to a pre-approved credit card offer received.

Soft inquiries

Some situations which generate a soft inquiry are

  1. Initial checks by credit card companies and other loan providers who offer you pre-approved loans.
  2. Background checks conducted by potential employers to ensure that the candidate is a responsible individual with good credit.

 

  1. Periodic checks by credit card issuers to analyse your lending behaviour.

Soft inquiries do show up on your credit report but they are not factored in the credit scoring models. So if you have a low CIBIL score, you need not worry about soft inquiries as they do not affect your credit score at all. Most importantly when you request your own report and score from any of the three credit bureaus, it is counted as a soft inquiry. So doing a self-credit check doesn’t hurt your score at all.

How can one minimize the no. of hard checks?

If you have a very good credit score you may not worry too much about hard inquiries as a few points will not harm you much. But in case you have a low CIBIL score and you wish to get credit in near future then you need to be careful that you are not hit with too many hard inquiries. Multiple inquiries increase your financial risk. Hence it is best to minimize these hard pulls to avoid getting a low CIBIL score. Here’s how.

  1. Before applying for loans check your credit score. Apply only where you are likely to qualify. This way you can minimize the no. of hard inquiries.

 

  1. If you are looking out for the best loan deal possible then make sure you make all your applications within a 30 day period. When credit bureaus notice that you are applying for same size loan they pick up this fact and give a 30-45 day window period for rate shopping. They combine multiple inquiries within this period into just one.

 

  1. In case your landlord wants to check your report, ask if you can submit previous rent receipts, income proofs and bank statements to prove your financial reliability.

 

  1. Time your important loans like home loans so that there is no hard inquiry six month prior to filing your application. This way even minor factors will not affect your ability to get best possible interest rate on home loans.

If you have a low CIBIL score and you are looking at ways to improve it then you must first focus on factors like payment history, credit utilization ratio and the mix of credit. These have a greater impact on your score. Potential lenders give more weightage to these factors than just the number of hard inquiries. Do not get too bogged down by the number of credit inquiries. If you have a solid credit history then temporary setback to the score caused by hard inquiries will not do much harm to your credit health.