How to keep your credit rating at a favourable level

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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

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Using Credit Wisely – How to Track Repayment Obligations

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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

Why is it Important to have a Financial Plan of your own

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The more customised and monitored it is, the better. Of the many things that one takes for granted in Life, personal finance is one area that requires constant attention. Just as seeds, pupa and ideas need attentive nurturing to bloom into trees, butterflies and path-breakers respectively, so do the five siblings – Income, Expenditure, Saving, Insurance and Investments. After all, Rome did not grow in a day and neither will your own home. But it can grow and flourish over time, when finances are well planned and monitored. Financial Plans help in many ways

  1. A Financial Plan gives wings to your dreams – by building financial security, you allot more and more spare time towards individual life passions
  2. A Financial Plan makes sense of the various options available, and customises the myriad products according to what fits your universe. It is best to understand finance, in the way you want it to function for you.
  3. A Financial Plan measures and monitors your individual assets and liabilities, across the various stages of life. Right from being a student, to an individual working professional to having a home, family and children, their education and finally your own retirement.
  4. A Financial Plan constantly shows you that Finances, Financials and Financing are all means to an end and rarely the end itself.
  5. A Financial Plan reassures you about what is actually enough for you, by classifying individual requirements into Needs, Wants and Luxuries. After all, you can do without the 2nd, aspire for the 3rd but cannot live without the first!!

In financial terms, we can break a plan into three pillars – Protect, Save and Grow. To be sure, it is best to trust yourself to make your own Financial Plan. Having made one, it is always wise to show it to an expert (or a Certified Financial Planner) before swinging into execution mode. By the law of probability, chances of an error come down drastically with each additional person reviewing it. It is of course wise to limit this to a maximum of two or three trusted persons since you don’t want to have private data passed around.