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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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.