Understanding my Cibil Score
Pawan Sharma is a 30 year old mid-level executive who lives with his parents in Lucknow. Unlike his father Mukul Sharma, who hates the idea of living on credit and has spent his life savings to build a retirement home, Pawan like most others of generation uses credit cards, has taken a car loan and is now preparing to take a home loan before he gets married in 2015.
Easy access to credit and the ability to repay debt in small amount through EMIs has made life a lot simpler for the likes of Pawan. But there is another side of the coin. If you are irresponsible with your debt you will end up having a poor Cibil credit score, which will in turn thwart your chances of getting a loan when you need one.
A CIBIL credit score represents an individual's financial stability, and helps lenders assess his or her financial credibility.CIBIL is India’s first credit information bureau. CIBIL is a repository of information of your repayment track record on your loans and credit cards.
Why is it hard to get a home loan if my CIBIL Score is bad? How do I improve it?
35 year old Suresh Rangarajan had at all going for him last year. He had just got a promotion and a substantial jump in his salary and thought it was time for him to make the big move of buying his own house. He had already set his eyes on a small apartment close to his parent’s place in Thane. But little did Suresh know there was a shock awaiting him, when reputed Bank ABC rejected his home application.
When Suresh asked his loan officer what was wrong with his application he was told that he was denied a loan because his CIBIL score was only 650 (out of 900). Top banks in India have become stringent in their credit appraisal processes and one of their most important norms is a CIBIL score of 750 and above. Suresh tried making another home application with Bank DWE, but this bank was offering a loan at a rate that was at least 3% higher than what Bank ABC had offered. Suresh then thought the better of it, and is now working on improving his CIBIL score. He plans to re-apply to Bank ABC for a home loan in 2015.
1. Scrutinize your CIBIL report :
The reason why you have a poor CIBIL score is because your CIBIL credit report is poor. So the first thing you do is pull out your credit report and see what is wrong with it. If you do not understand it yourself, go to your loan officer and ask him to explain to you what your delinquencies are. The other thing to do is to check out if there are any discrepancies in your report. Sometimes there may be disparities in your report like a loan that you may have closed may not have been updated on CIBIL by your previous bank. If you find such a discrepancy, raise a dispute via the Dispute Resolution Process of CIBIL. Ideally, you should have done this before applying for a home loan.
2. Make planned payments :
There is no escaping from this one. If there are no discrepancies in your report and you have not been approved a loan because of unpaid debt you need to start paying off your debts. Choose your most recent and cheapest debt and start making repayments. If there are smaller debts to be repaid, choose them over that big one. Not only will it be easier for you, it will look better on your credit report too.
3. On time payments :
Now that you know the importance of timely repayments, start doing that religiously. The same goes for your credit cards too. Do not make the mistake of surrendering your credit cards if you find your credit score is not too flattering. Continue using them and try to pay your balances in full, if this seems difficult, keep utilization below 30% (do not keep more than 30% amount of your credit limit on a revolving cycle). Also make sure you make payments on credit card bills before the due date.
4. Do not make fresh inquiries or applications for new debt :
If you have just been refused a home loan because of a poor credit score, do not even think of getting a car loan or a personal loan instead to compensate for it! In fact do not even make an inquiry about the same as that will be recorded by CIBIL as well. Unless you have cleared out past dues, it’s best to lie low, cut down on all other expenditures and concentrate on improving your score. While your CIBIL score is something that is not etched in stone, it does take time to improve it. It may take six months to a year, depending upon the number of accounts having an issue. Be patient and give yourself time to get back in shape financially.
Is it important to check my CIBIL Score before applying for a Home Loan?
Angelina Xess is a young, successful corporate executive. After six years of service in a multi-national company in Bangalore, she received a promotion a month back and finally thought of materializing her plans to buy an apartment and bring her parents to live with her in Bangalore from their rented apartment in Kochi. She had no doubts about her getting a loan, because her salary was good, her papers were in order and Bank ABC seemed only too happy to give her a loan.
But just about a week later after she had submitted her application, she received a call from Bank ABC saying that her loan application had been rejected because her credit score was poor. Being a financially disciplined individual, Angelina was completely distraught and ran to her loan advisor who advised her to purchase her CIBIL report and score online to find out what was wrong.
On receiving her report, Angelina found that there had been a case of mistaken identity wherein the credit history of one Angelina Gnomes who had a major credit card default was showing under her records. All she had to do then was to raise a dispute with CIBIL. CIBIL resolved the dispute and updated her report within a thirty days of her raising the dispute. Angelina’s report is now clean and she is all set to re-apply for her home loan now.
The mistake Angelina made was not to have looked at her credit report before applying for a home loan. Ideally, she should have checked out her CIBIL report a year before applying for her loan which would have saved her a lot of trouble. If you want to apply for a mortgage, there is no way that you should neglect your CIBIL report and score. Make sure that you have made timely repayments on all your loan accounts and credit cards and all your other details are in order. All banks insist on a score of 750 plus on a total of 900 to even consider you for a mortgage.
Here are some tips that will help you maintain a good CIBIL score :
Do not be desperate for credit :- Applying for too many credit cards or loans in a short period of time will have a negative bearing on your credit report.
Spend within your limits :- Credit utilization is an important part of your credit handling assessment. Being perilously close to your card limits does not indicate well for you when you want to apply for a loan.
A good mix of credit :- Improve your credit profile by having a mix of both secured and unsecured debts. Secured loans will include debt like home loans, loans against security, car loan, etc. Whereas, unsecured debt will include credit card outstanding, personal loan, etc. A healthy credit profile has a balanced mix of both secured and unsecured loans.
Timely repayments :- This is the most important parameter influencing your credit score. Ensure that you always pay your bills, EMIs and insurance payments on time. Keep enough provisions well ahead of time and make the best use of alerts.