How The Length of Credit History Affects Your Credit Score?

Your credit score is a significant determinant of your creditworthiness. The credit report contains a comprehensive record of your payment history, your credit age, and other factors which eventually determines your credit score. Among other factors, the length of credit history plays a meaty role. It accounts for 15% of your credit score. Hence, whether you’ve had credit for 6 months or 10 years can make a big difference in your credit score. You’re a much better candidate for credit cards and loans when you’ve had a long and positive credit history.

What Determines the Length of Credit History?

The credit scoring model looks at the age of your oldest and newest accounts to determine the average credit age. The age of credit history refers to the length of time you’ve been using credit. The length of time since your newest account was opened and the average age of all your accounts are also factored into the length of credit history. Several recently opened accounts can lower your average credit age and hurt your credit score.

How the Length of Credit History Affects Credit Score?

When making lending decisions, lenders review your credit history to determine how likely you are to repay your loan on time. A longer history shows you have more experience using credit and longer track record of repayment. In theory, the longer your credit history, the more accurate lenders can be in determining the level of risk they take on when lending to you. Do not stress out if you are just joining the league as the essential elements of a credit score is not just the length, but to pay your dues on time.

So How Do You Improve Your Credit History?

Do you know that you can check a free credit score on credit bureau websites such as that of CRIF High Mark? Well if you haven’t checked yet, you can do that first. In case you have never applied for a credit card or a loan in your name, your most likely reaction after viewing your score would be “why is my credit score -1 or NH or not available?”. Well don’t worry, it shows -1 or NH because you don’t have any credit history yet. This is your step 1 of building your credit score.

1. Start Early

You will have a good credit age only if you have enough credit history. Hence, although you may be in a position today where you seldom require a credit card, it would be advisable to own one. In this way, your credit history will be established at an early age and would help improve your credit score. Later, when you are actually in need of a loan, you can use this to your benefit.

2. Pay Your Dues on Time
Good credit history is what lenders are looking for. So, if your credit history indicates that you’ve missed payments or over utilized credit cards, a long credit history might not help. On the other hand, if you have a long history of timely payments with a low credit utilization ratio, it shows that you are responsibly managing credit and are worth the risk for lenders. This means that when a lender performs a credit check, you could be more likely to be approved for credit cards and loans at a better interest rate.

3. Retain Older Credit Accounts
Since credit age is all about how old your payment history dates back to, It’s worth considering old credit accounts with a decent track record before closing them. Generally, the longer an account has been open and active, the better it is for the credit score. That’s particularly true for an account with positive payment history, without any delinquency. They surely add to your overall creditworthiness. Having said that, Even when you close a credit card, it will stay on your credit report and continue to reflect for around 7 years.

4. Limit Loan Applications
Applying for multiple loans with multiple banks indicates credit hungry behavior. Also, each time you apply for a loan, the bank conducts a hard inquiry on your account, a number of which hampers your credit score. It also does not help with your credit history length as the average age is reduced due to the opening of simultaneous accounts.

5. Check Your Credit Score Every Once in A While

Regular checking of your credit score is known as a soft inquiry. It does not affect your credit score in any way and is rather a good and harmless practice to keep a track of your progress. Although, overdoing the same is not recommended as it may lead to anxiety and worry. You can check your Credit score for free from CRIF services.

All You Need To Know About Education Loan Process In India – An Infographic

Every parent dreams of their child graduating from a distinguished university or B-school. Here are key points to consider before you apply for an education loan.If you are considering an education loan to help finance your child’s higher education, here are some things you should keep in mind, before you decide:

Keep these points in mind, and you can easily plan your child’s education without a worry. Timely repayment of the education loan will eventually build a healthy credit score, not only for your child but for you too.

NO-HIT Or -1 Or No Score: Is It Bad? What’s The Best Way To Get Build A Credit Score?

If you have never ever availed any loans or possessed any credit cards in India, you will not have your records with any of the credit information companies – therefore no credit history. As such, when you will try to check your credit score from any of the four credit bureaus, you will get a score of -1 or no score (also called No Hit or NH cases).

Is -1 or NH bad? If one doesn’t have any credit history, a bank or a NBFC lacks information from one credible source so it becomes difficult for them to take a decision on your loan application. The lender, in absence of a credit score, will use alternative mechanisms to assess your application and therefore may take longer to decide or may even reject an application. Having a -1 or NH score isn’t bad by itself, it is a genuine condition for a youngster who is starting with the first job or a housewife who is looking to be a co-applicant for a housing loan with her husband.

For a person with no credit history in India, what’s the best way to get started?
If you would like to build your own credit history and get yourself a credit score, you will have to begin by taking a loan or a credit card and use it effectively over some time. Here are a few simple ways by which you can build a credit history:

1. Apply for a Credit Card with your Existing Bank: You can apply for a credit card with the bank with which you have an existing relationship like your salary account. As the banks are generally inclined to offer additional facilities to its existing customers, the absence of a credit history may not bother much to them. Go for the most basic credit card on offer to begin with. However, you may get a lower credit limit in such cases, but nevertheless, your credit card is there and so is your credit history. Further, once you have a credit card, make sure to pay off the credit card dues well in time as regular repayments will translate into a better score for you. Do not spend too much, limit your utilization to 30–40% of the card limit.

2. Apply for a Secured Credit Card: if the first option doesn’t work out for you, you can deposit a small amount say 30K into a Bank FD, and apply for a “secured” credit card against the deposit. The bank will assign you a credit limit of up to 80% of the deposit amount. This is generally a good starting point for even self-employed and professionals.

3. Apply for a Small Ticket White Goods Loan: You may also purchase your next smartphone, TV or laptop on EMI by applying for a small consumer durable loan/ EMI loan. The financiers are available on most large format electronics retail stores as well as on the online e-commerce websites. Consumer Durable Financiers are more comfortable approving loans for customers with no credit history, and the approvals are also almost instant. The good news is that these loans are usually zero cost EMI loans.

4. Apply for a Secured Personal Loan: Most of the banks can offer you a personal loan against the security of your existing term deposits (loan against deposits). Since the term deposit is generally enough to cover the personal loan amount along with interest for a reasonable period, banks may not check your credit report and sanction you a personal loan. Usually, such personal loans may be lighter on your pockets too, as such loans typically carry an interest rate of your FD rate plus 1-2% and FD rates are presented in the range of 6-8%. So, the effective interest rate can be 7-10%.

As they say, ‘Rome was not built in a day, neither will your credit history be.’ It may take six months or even a year depending on how well and often you use and handle credit. However, ensure regular repayments of your loans and credit cards, so that you have a good credit score, reflecting good credit habits. Further, once you have a credit history and a credit score, make sure that you manage your loans and credit cards smartly.

5 Practical Steps to Get You Out of Debt

You are aware how debt limits your opportunities and disturbs your financial life. Also, if you are asking yourself “does debt hurt my credit score?” then yes, it brings it down too. Your debt could be a result of various actions. It could be that you had not anticipated certain medical emergencies, educational expenses or any other unavoidable expense or it could be a result of your relentless spending. Whatever the reason, you have now realized that you want to get out of the debt zone. Here are some practical tips that could get you out of debt:

Create A Plan and Stick to It

Get a piece of paper or open a Google Spreadsheet on your computer. Write down all the amount you owe and plan to clear out all the debt in the next 6 months or any other realistic duration. Chalking out a good plan and religiously following it gives you the determination to come out of your debt. A good debt payment plan involves identifying the areas where you spend your money regularly. You can start by maintaining a spending journal. Many times, we neglect the seemingly minor expenses which mount up to become a decent amount.

At the end of the month, you can manage your money by identifying and eliminating unnecessary expenses. You can try to cut off on some expenses which you can live without such as your YouTube premium or Netflix membership, eating out, clothes, etc. These expenses, although small, may accumulate to become a great saving once you start noting them.

Lower Your Debt to Income Ratio

Your debt-to-income ratio is all your monthly debt payments divided by your total monthly income. This is one of the ways how lenders measure your ability to manage the payments you make every month to repay the money you have borrowed. For example, if you pay a house loan EMI of Rs. 35,000/-; Your Car EMI of Rs. 10,000; and another Rs. 2000 for the rest of your debts with a monthly income of Rs. 90,000/-, then your debt to income ratio will be ((35000+10000+2000)/90000) *100 = 53%. This indicates an unhealthy debt to income ratio.

The ideal debt to income ratio should be 30% or less. Don’t worry if you are not there yet for it is understandable that conditions will not always be perfect. But you can always try to slowly and steadily push yourself below the 30% mark by avoiding further unnecessary debt. While you are at it, keep a track of the developments in your credit score. You can check your free credit score on CRIF High Mark.

Focus On Clearing One Debt at A Time

There are two approaches to go about clearing off your debt, one at a time. The first way, known as the debt snowball, is to make a list and pay off your debts amounting in the ascending order, i.e. from smallest to largest, regardless of the interest rate. The point is to tackle the smallest account at a time and eventually snowballing into larger ones. While this method might accelerate your debt clearance and may give you the confidence to tackle the larger debts as you go down the list, it is not a mathematically sensible method as we aren’t considering the interest rates here. This is where comes the more logical technique called the debt avalanche or laddering.

In laddering, you arrange your debts in the descending order of their interest rates. The one with the highest interest rate becomes your priority. Here you make the minimum payment for every account except the one that you are trying to get rid of first. For this debt, you try to pay the maximum possible amount to clear it off as early as possible. Once that debt is paid completely, move on to the card with the second highest rate and so on. By doing so, you clear off the debt with the highest interest rate and will save the most money. Remember to NOT close the account once the balance is paid off as that will damage your credit. Just let the account sit at zero balance.

Stop (Ab)Using Your Credit Card

One of the easiest ways you can come out of debt is by avoiding going further into debt. One of the factors which keeps you clinging to debt is the use of your credit card. Using a credit card rampantly only serves to add more debt on you. So stop using your credit card, at least for a while, until you get yourself out of debt. This would also add discipline to your life when you stop spending on everything your card can buy. Moreover, your credit score would also benefit hugely as this would bring down your credit utilization ratio.

Sell Your Unused Items

Just a look around your house and you will find that there are a lot of unused items which you are better off without. It could be the pile of newspapers and books, your old printer or DVD player, or even an extra motorcycle, depends on what you need the least right now. In this way, you can also earn some extra cash!

If you follow the above steps diligently, coming out of debt will transform from a distant dream to a cake walk!

Become A CRIF Credit Score High Achiever – An Infographic

Uh oh…remember when a 650 credit score was deemed sufficient to secure the best rates and terms on credit cards, auto loans, home loans, and so on?Well, not anymore! You can also the join the club of high credit score by simply following the practices listed on our infographic and climb all the way to become an achiever.

CRIF Credit Score

A Complete Buyer’s Guide To The Home Loan Process In India – An Infographic

Today millions of Indians are opting for home loans to purchase their dream properties. However, not everyone is acquainted with the process of procuring a home loan. Consequently, many a loan application gets rejected and many a buyer finds himself in a quandary after securing the loan because he is unable to pay off its EMI. It is therefore imperative for home buyers to be well versed with banks’ criteria for disbursing home loans, know their monetary obligations to the bank or financial institution funding their purchase to avoid a negative impact on the credit score in the future. Read on to know more about the home-loan procedure and your loan eligibility and repayment liabilities.

CRIF Home Loan

Get The New Car You Want in 7 Easy Steps – An Infographic

Buying our own car is an aspiration many of us are able to meet quite early in our professional lives, due to the availability of numerous vehicles within various price ranges, and easy loans on offer to finance them. Banks and NBFCs offer car loans with easy EMIs, which make it easier to avail a car loan without disturbing one’s finances. However, for a hassle-free loan process, abide by these simple 7 steps, which will not only reduce the processing time but also help you save money and build your credit score the right way:

CRIF Car Loan Tips

Credit Utilization Ratio: How it Works & How to Improve It?

The Credit utilization ratio is one of the key ingredients in determining your credit score, so it’s crucial to understand how it works. After all, a good credit score can qualify you for higher loan amounts and lower interest rates, while a low credit score can make it difficult to reach your financial aspirations. In this blog, we’ll try to cover everything you need to know about credit utilization, including:

• What is the credit utilization ratio?
• How is the credit utilization ratio calculated?
• What is a good credit utilization ratio?
• How to improve the credit utilization ratio

Let’s Begin With What is Credit Utilization Ratio?

Your credit utilization rate, sometimes called your credit utilization ratio, is the ratio of your credit card outstanding to your credit limit. They can impact up to 20-30% of a credit score, depending on the scoring model being used. If you never use your credit cards and there’s no balance on them, your credit utilization would be zero. If you typically carry a balance on one or more cards, you are ‘utilizing’ some of your available credit—lenders and credit bureaus will take note. While a one-off higher utilization rate for your credit cards may not really impact your credit score, your credit score will certainly be impacted adversely if the credit utilization rate continues to be higher on a regular basis.

How is the Credit Utilization Ratio Calculated?

Credit utilization ratios can be calculated for each credit card (card balance divided by card limit) and on an overall basis (total balance on all cards divided by the sum of credit limits). For instance:

 BalanceLimitCredit Utilization Ratio
Card 1₹0₹5,0000%
Card 2₹8,000₹10,00080%
Card 3₹1,000₹7,00014%

Total Credit Card Balance / Total Available Credit    =   Credit Utilization Ratio

Total credit utilization ratio in this case will be 40%.

What is a Good Credit Utilization Ratio?

The general rule of thumb with credit utilization is to stay between 30-40 percent. This applies to each individual card and your total credit utilization ratio. Anything higher than the above-mentioned percent can cause a dip in your credit score as lender relate this to a credit hungry behaviour. This doesn’t mean that one cannot ever cross 40% of the credit utilization on any card. The impact on credit score is more only if high utilization seems to be a common pattern over last 6-12 months.

Finally, improve your credit utilization rates and eventually your credit score through these smart moves:

1. Paying credit cards on a more frequent basis – While you may be using your credit cards for availing the card benefits on different transactions, try to reduce your credit card outstanding by more than minimum each month and paying more frequently. For example, even while the credit card statement is generated on a monthly basis, you may keep paying your credit card outstanding every 10 days. As such, your credit limit will keep getting replenished and thus, your credit utilization rates will be visible as low.

2. Availing a Higher Credit Limit – Just in case you believe that you can effectively toggle between credit card dues and your regular payments, you can ask for a higher credit limit from your bank. Given the current credit card usage remains to be the same, the credit utilization rate will automatically reduce as the usable limit has increased. However, in such times, you should be careful that having a higher credit limit may also tempt you to spend more.

3. Using Multiple Credit Cards for Managing the Limits effectively – In case you are holding multiple credit cards, try to use different cards for different transactions instead of using a primary credit card for all the transactions. Accordingly, you will have a lower credit utilization rate across all the credit cards, instead of having a very high utilization rate for one card and very low/ nil utilization for the other cards.

4. Leave cards open after paying them off- By paying off the card, you’re reducing your total balance. By keeping the card open, you’re maintaining your total credit limit—thereby lowering your credit utilization ratio.

You should keep monitoring your credit score on a regular basis and strive to maintain a good credit score with the help of better credit habits. To check your score from CRIF, click here

How To Find Your CRIF Credit Score – An Infographic

There are four credit bureaus in India from where you can download your credit report and find out your credit score. By law, you are entitled to a free credit report from all the four credit information companies at least once a year. Alternatively, you can also check your credit score either free of cost from online websites which have tied up with one or more of these credit bureaus. Let’s find out how you can get your CRIF credit score in  3 easy steps!

How-to-Find-Your-CRIF-Credit-Score-

What Is a No Cost EMI and Does It Work In Your Benefit?

With e-commerce websites running fantastic discounts 24x7x365, shopping has ceased to remain a ‘festive activity’ and has instead been replaced by a year-long affair. Buying behavior has inclined towards becoming more impulsive than ever with the continuous bombardment of notifications tempting customers to buy at the best discounted price. Although on the surface it seems like you have saved a goodly amount with a lucrative deal, in reality, you end up buying stuff which was not even required in the first place.

One such scheme that has gained popularity in the recent past, especially in the white goods sector, is the no-cost EMI or zero cost EMI scheme. It is not uncommon to hear someone happily buying a mobile phone or a television or an electronic appliance which they initially thought impossible, using the zero cost EMI offer. But is this really a great deal or a smart trick? Let’s find out!

What is a No Cost EMI?

What is the first thing that strikes your mind when you hear the phrase, No Cost EMI? No interest payments involved. Isn’t it? You feel it’s a no interest loan. But it’s not. No Cost EMI is a loan involving interest payments. On availing No Cost EMIs, your bank enjoys a discount in the form of interest. The Reserve Bank of India (RBI) in its circular in 2013, has said that the concept of zero percent interest is not valid. This means the banks are clearly not entitled to provide loans at a zero percent interest. Then how are the retailers running this offer?

How Does This No Cost EMI Scheme Work?

There are two ways in which these schemes operate. One of the common ways is to forego the discount and instead pay this amount to the bank or financial institution to cover the interest cost. Another one is by adding the interest amount to the price of the product. Let’s look at these schemes in a bit detail:

a) When discounts equal interest: The most common way through which retailers offer ‘No-cost EMI’ is by offering discounts equivalent to the total amount of interest to be paid. Suppose you want to buy a phone that costs Rs 30,000/-. Under the 3-month EMI plan, at an interest rate of 15%, you would have to pay an interest amount of Rs 4,500. But in Zero Cost EMI, you are exempted of discount and you pay the original price of the Smartphone in EMIs. What does this mean? But if you make an upfront payment, the Smartphone would cost just Rs 25,500. You get it at a discounted price of Rs 25,500. If you opt for the No Cost EMI, you end up paying Rs 30,000. You don’t get the Rs 4,500 discount which goes to pay interest on the loan. The total price you pay on the Smartphone is split into money paid to a retailer and interest paid to a financier.

b) When the interest amount is added to the product price: Another way in which such schemes work is by adding the interest amount to the price of the product. Let us say the product costs Rs 15,000. The retailer lures you to buy this product under the ‘No-cost EMI’ plan for Rs 17, 250. Here the interest of Rs 2,250 is already added to the cost of your product and will be paid by you in installments. Therefore, if you have taken a three-month EMI plan, then the amount payable by you will be Rs 5,750 per month. Sometimes the Rs 2,250 may be covered as the processing fees.

Should you opt for No Cost EMI? You can opt for No Cost EMI if:

• You want to buy an expensive or popular product which now is beyond your budget.
• You don’t want to spend in one go or do not have enough cash to make an upfront payment.
• You are getting a good deal by availing an additional discount.
• You want to start building your credit history and credit score by availing a short quick consumer durable loan.

When you opt for a loan on No Cost EMI option you should also be careful about the down payment and processing fees, if any. Read the fine print and terms and conditions carefully. The retailers don’t offer this scheme on every product that they sell. Also, if you do not have a credit card of the relevant bank that offers the scheme, you can’t get the No Cost EMI deal if it is attached to the credit card. The credit limit on your card gets blocked too for the entire transaction value even though you are liable to pay just the EMIs. There are other financiers who give such offers to consumers with no credit cards or even with no credit scores. Such financiers have people in store to support you with the processing of loan within 5-10 minutes. The offer may sound lucrative but if not used carefully it can affect your financial budgets and ultimately your credit scores!

Be Wise, Be Happy!