How to keep your credit rating at a favourable level

16260976057_a82b52ab8c_z
A credit rating report is a summary of an individual’s past borrowing and repayment track record(s). In India, these have been popular post 2010, although many bureaus started operations post 2005 itself. Of late credit reports have enriched information such as KYC particulars, address history and declared income levels. Using the same data to derive a score is another very recent development. The country’s largest bureau has also commenced (http://www.cibil.com) selling individual’s credit reports to the subject directly. A wealth of information can be found in the other bureaus also – http://www.equifax.co.in, http://www.experian.in and http://www.crifhighmark.com

The safest way to maintain a good standing is to meet all lender-obligations in a timely manner. (To achieve the same, the individual must maintain his/her credit obligations – both short and long term, meaning all credit card minimum dues and longer tenure loans as for example, purchase of a car or home). Naturally, good behavior builds viz., an individual who has had a string of positive loan track records is likely to be sanctioned a higher amount during the next request.

The opposite is equally true!!

Patchy repayment records bring down the rating report and also pull down the individual’s credit score. Sure, this can happen – after all, life is a combination of both downs and ups. There are times when one needs to keep basic ends met – leave alone repayment of contracted obligations. Hence delays and defaults could happen despite the best of intentions. Some tips to tackle the same:-

  1. Keep the lender informed about the scenario and seek temporary relief in terms of a holiday period with lower contracted interest rate
  2. Do not drop the repayment to zero – can a small (e.g., minimum due) be met so that lender is comforted that person’s intention and effort are behind the repayment
  3. Go for credit counselling in case there are many transactions
    1. Bank of India’s http://abhaycreditcounselling.com
    2. ICICI’s http://www.dishasfc.org are two examples
  4. Rebuild your credit history (resurrection!) after settling with the lenders
    1. Recently companies such as Credit Vidya, Credir Sudhaar and Credit Mantri have established frame works to accelerate the process

The Author, Kalyanaraman M, is the Consultant – New Products with TVS Credit Services

Advertisements

Car Buying Tips

6july blog

Whether it’s your first car or your tenth, you can never benefit enough from advice to help make your purchase decisions. For the simple common man, buying a car is a rational choice to get from one place to the next, and to fit the family within safely and comfortably, and in many instances, at a low cost. Investing in a car is not a linear decision – it involves a fairly considerable thinking process that centres around the core goal of fulfilling the basic needs and expectations from owning a car. Here are a couple of things you should keep in mind when you’re buying a car.

Understand the kinds of cars there are
Cars come in different kinds, sizes and models to suit your utility needs. To start with, get your basics right. A convertible is good on the aesthetics, but not so much on the functionality, unless you have small children whose safety is better guaranteed with two doors rather than four. A sedan is a good idea if you have a small family with young children, so your kids can climb into the vehicle with ease. Hatchbacks come with a comfortable space in the seating space of the car, with the comfort of a wagon like structure at the back – which works great if you’re a larger family and like to go on long trips with your luggage in tow. Station wagons and mini vans work if you’re plying a large family around, or a large amount of cargo – it isn’t exactly the kind of vehicle a family usually goes in for.

Safety is as safety does
The right car size really depends on your own needs. While there is a common belief that larger vehicles are safer than smaller ones, it is really a misconception to say that. The key point here is to ensure that safety is a valuable factor in your purchase decision. You need to understand the engineering of the vehicle, its ability to respond to crashes and accidents, and the sturdiness of the body to help choose a durable car for your every need.

Size wise
If you are a small family, and would like to keep your savings in order at first, a small car is not a bad idea at all. Go in for a big car when you know that your needs and affordability have risen in a suitable proportion. You also need to consider parking-related concerns wherever your vehicle goes: at home, at work, outside school and wherever it is that you will be running errands to. If your vehicle is likely to find a smaller parking spot, you’d be wiser indulging in a smaller vehicle. One point to remember is that a car maybe small in structure, but on the inside, it needn’t be. You have plenty of cars in the market that come with spacious interiors packed within a light and small frame of a vehicle.

Take your surroundings into consideration
There are a lot of factors around where you live that can account for the kind of vehicle you should invest in. In a place that is hilly, or has rugged terrain, you’ll be doing a wise thing in investing in a heavier vehicle that has the capacity to handle rugged terrain. For a more urban lifestyle, a lighter vehicle works well. If you are in a place that is seasonal, invest in a car that will help you adapt to each season – such as through winter tires for snowy and wet terrain, skid free tyres for rainy terrain and the like.

Budgetary considerations
Owning and maintaining a car is not child’s play, and can be demanding in terms of the amount of money one is expected to plough into the car on a near-daily basis. To this end, low maintenance and diesel cars work like a charm if you know that you’re on a shoestring budget or thereabouts. But if you can afford to set aside a decent amount of money each month for your transportation needs, indulging in a middle-to-high maintenance car is a viable option.

Using Credit Wisely – How to Track Repayment Obligations

credit-squeeze-522549_1280

Why is it important to spend within your means and track repayment obligations closely?

Credit is an activity widely used and well understood by all sections of society. The neighborhood store-keeper is glad to defer your payment since he is familiar with your residential and personal habits. (Note – do not try in organized chains, where credit cards work better; this is best suited for mom & pop stores!) . Electricity and telephone suppliers provide you with a month of free utilization in-between billing cycles. A cab-service or a restaurant measures you at the time of entry – they have their collection methods clear, if you don’t pay up at the end of the activity!!

Put simply, credit in the financial world, is nothing but an extension of the above into a structured format.

  1. You identify an asset or a need that is urgent
  2. The capital cost of the same is beyond your current budget
  3. To bridge the same, you consider financing options

Once you have narrowed the best option, the doubts start coming up

  1. Should I borrow at all? Yes. You deserve it. No – unless you are already over borrowed.
  2. Have I borrowed too much? Not if your existing repayment obligations are within 50% of your net monthly earnings.
  3. What if I am unable to repay on time – this is usually a sign of impending trouble. It is best to take a hand-loan from a friend, parent or relative and meet the outside lender’s obligations. Sometimes lenders offer skip-payment if a locality is affected by a calamity (or) an individual faces unforeseen emergency.
  4. Will lenders take me to court if I don’t repay. Yes, they would. However this itself is only a headache compared to the larger problem. Your future borrowing would be hamstrung by this blot. This is because, post 2000 all lenders participate in credit bureaus. By law, every lender needs to submit details of all loans granted (including periodic repayments) to at least one bureau. Since all details of your monthly repayment behavior are fed into an analytical system, your credit history is visible to the organized lending community.
  5. What if I repay all obligations on time? As with many things, the rewards for punctuality and obedience come in surely but a little later, once you complete 6-12 months of good repayment. Your existing lender could offer you an interest or tenure break. Other lenders could offer higher loan amounts. In short giving you better financial flexibility.

Equally, a spotty credit history considerably reduces your chances of future borrowing.

In a nutshell, borrowing is an excellent tool – be it for student loans, first automobile or wowing an identified life partner. It is a bad idea if you are not serious about the partnership and its purpose – be it university, a vehicle or life’s journey itself. Commitment to timely honoring of obligations is valuable anytime, anywhere across time and situation. In the world of financial credit, the positive and negative effects are visible, starkly & promptly. A nice approach would be to bite this in small chunks – borrow progressively larger amounts up on settlement of a prior loan.

The Author, Kalyanaraman M, is the Chief Operations Officer of TVS Credit Services