The goal of credit risk management in banks is to maintain credit risk exposure within proper and acceptable parameters. It is the practice of mitigating losses by understanding the adequacy of a bank’s capital and loan loss reserves at any given time. For this, banks not only need to manage the entire portfolio but also individual credits. How can banks set up a credit risk management system in place? What are the advantages and disadvantages of Credit Risk Management? Let’s find out in below infographic:
Every effective financial plan starts with a sound budget. If you’re trying to pay off dues or save for a dream vacation, a budget is your first step towards turning your financial goals into a reality. Follow these simple steps to put a solid budget plan and credit score into action:
As our world becomes increasingly transparent and all monetary transactions a click away, data privacy and security have become of utmost important. With credit cards being swiped every minute and funds being received and transferred electronically round the clock, protecting your money as well as your standing in the credit world has become imperative. Your credit report, which is your financial resume with your complete financial history, needs to be in safe hands. In case this information lands in the wrong hands, you might be a victim of identity theft, where someone might get their hands on your credit report. Placing a ‘credit freeze’ will help you in case of an identity theft scare.
What does a Credit Freeze Mean?
A credit freeze is a powerful tool that restricts access to your credit report. In case of identity theft, the thief might use your personal information to open a fake account in your name and may misuse it thereafter. Placing a credit freeze on your account will prevent such thieves from opening a new account in your name and getting a new credit line such as a loan or a credit card, because new lenders will not have access to your credit report.
How Can You Place a Credit Freeze?
You can contact the credit bureaus like CRIF, and place a credit freeze. You will need to provide them with your personal details for verification and identification. Once these are confirmed, the credit bureau will send you a unique PIN, which you must keep safe. You will need the PIN in case you want to lift the freeze. You can ask the credit bureaus to lift the freeze temporarily or permanently. The time required to lift the freeze depends on how the request is placed, i.e., online, by phone or over email. Typically, the credit bureaus lift the freeze within an hour if the request is made online or over the phone.
Let us look at some implications of placing a credit freeze.
○ Placing a credit freeze does not affect your credit score and neither does it stop you from getting your free credit report.
○ You can also open a new account if you wish to after temporarily lifting the freeze.
○ You will continue to receive offers from credit card companies for a new credit card despite the freeze.
○ Your current creditors and marketers will continue to have access to your credit report.
○ You can also give limited access to your credit report to a potential employer or a landlord for screening purposes.
○ Some government agencies may continue to access your credit report even if you have placed a freeze.
How is it Different From Fraud Alert?
A fraud alert is a way to alert the credit bureaus if you suspect you are at risk of identity theft. In case of a fraud alert, banks or lenders have to take additional measures to verify your identity before extending new credit. Unlike a credit freeze, a fraud alert does not block access to your credit report.
Related read: 6 Things To Do If You Become A Victim of Identity Theft
When Should you Use Credit Freeze & What are its Advantages?
A call or a notification from lenders seeking payments for an account you never opened might mean that you are a victim of identity theft. Further, if you suspect that someone might have used your name to open a new account or obtain a new credit line in the form of a loan or a credit card, you should immediately consider placing a credit freeze on your account.
The advantages of placing a credit freeze are:
○ A credit freeze is the most important way in which you can protect yourself from identity theft.
○ It prevents fraudsters from opening new accounts in your name.
○ You can prevent misuse of your financial information.
○ Your credit score remains unaffected.
Despite the various security layers in place, anyone in today’s world may be a victim of identity theft. Should you be one, all your efforts of building a strong credit score may go in vain! Monitoring your credit report and protecting it will go a long way! So, avail your free CRIF credit report every year and monitor it; you can access it even if you have placed a credit freeze!
By definition, “identity theft” occurs when someone steals your identity whereas “identity fraud” occurs when that person uses your identity to commit fraud or deceive someone. There are many ways in which identity theft can occur such as by phishing, by use of malware and by other tactics such as simply stealing credit cards, your personal documents or secretly sneaking over your information. By whatever means, once this information falls into the notorious hands of the fraudster, he is now well equipped to commit the crime.
What kind of crimes can be committed once thieves get hold of your personal information?
Your Personal information can be used to open a new bank account, apply for an IT return, apply for a credit card or a loan. Your credit card can be used to make unauthorized purchases. These crimes can affect your credit scores too. Here are 4 giveaways to indicate that someone has stolen your information.
1. Your Account Statement Looks Suspicious or Your Checks Bounce:
When checking your account statement, even a small discrepancy should raise an alarm. You may have become a victim of financial identity fraud. Check for unknown withdrawals, deductions or payments.
● Be aware of your spendings, subscriptions, and purchases. Make an excel sheet in your drive online which can be accessed from anywhere using the internet. Note down your monthly, quarterly, annual subscriptions and auto deductions with their amount. By doing this, you will be aware of your spendings and easily recognize any unknown charges.
● Keep a regular check on your accounts for any suspicious or unfamiliar activity and immediately contact your bank in case you smell a fraud.
● Get your bank KYC done by completing PAN verification and other identity verification procedures so that you fortify your identity.
● If you suspect unapproved access to your bank account, it’s better to close that account and open a new one with a new account number.
P.S. When you change to a new account, remember to update any automatic payments with your new account information.
2. You Detect Some Dubious Activity from Your Credit Card or Your Credit Report Doesn’t look Right:
Another sign that you may be a victim of financial ID theft is suspicious activity on your credit card statement. You may see a small but unknown amount deduction on your credit card statement. This could be a ‘check trap’ by the fraudster to see whether you are vigilant enough to file a fraudulent charge. If you don’t ignore it, the fraudster will go ahead with a bigger withdrawal.
● If you notice fraudulent purchases using your credit card, contact the merchant and card issuer to alert them of the fraud and ask the card issuer to immediately block the account.
● Contact any of the four major credit information companies such as CRIF High Mark to place a fraud alert or a credit freeze on your credit report, which prevents identity thieves to open accounts in your name.
● The credit reporting agency you contact, ideally informs about the fraud to the other agencies. Always keep an eye on your credit score and credit reports for signs of any unauthorized activity.
3. Debt Collectors Start Calling You Out of the Blue:
If you receive even a single call from creditors asking you to pay the unpaid bills that you don’t even recognize, it is possible that someone has stolen your personal information and is now buying credit under your name. Check your credit report for unfamiliar accounts.
● If you are a victim, you’ll need to contact the merchant or service provider where the fraudulent account was opened and close that account immediately.
● Inform the credit agencies about the fraud so that it does not affect your credit score.
4. You’re Unable to File Taxes
Identity thieves may file taxes using your personal details to route your tax refunds into their accounts. This would inhibit your ability to pay taxes.
● Contact the local police and the federal trade commission.
Your credit score is a reflection of your credit habits as it provides the details on your outstanding loans and credit cards along with the outstanding and overdue amounts. Your credit score can be accessed through any of the following modes:
1. By Self – You can check your credit score through the websites of any of the 4 credit information companies operating in India. CRIF Highmark is the youngest of the lot and you can access your credit report by visiting the link – http://cir.crifhighmark.com. You can check your credit score through CRIF HighMark for free once every year.
2. By a Bank/ Lending Institution – Banks generally have an access to the credit information database being maintained by Credit Information Companies. So, when you apply for a loan or a credit with a bank or a lending institution, it will typically access your credit report to know your credit behavior and the health of your outstanding loans and credit cards.
3. By Loan Marketplaces – Loan marketplaces like BankBazaar, PaisaBazaar, IndiaLends etc. generally offer consumers a facility to compare and apply for loans or credit cards from different banks through a single application. In this process, these platforms may also access your credit score to check your eligibility for loans/ credit cards. They may also offer you to check your credit score free from the credit information companies they would have partnered with. Since the facility is offered free, many visitors may be tempted to use such services. However, it must be noted that such marketplaces may retain your data that you provided directly on their website as well as what is sourced from credit information companies with your due consent. All such data can be directed to remarket more products to you in future, and also to build internal analytics. As such, you must also carefully read the terms and conditions that you consent on such lending marketplaces to know how and what will they use your data for.
With regards to the safety of your data, it is worth noting that your data is generally transmitted through secure servers in an encrypted form when your credit score is checked across the portals. As such, the information kept in credit databases with credit information companies or in transit while being checked by banks/ lending marketplaces is safe and secure.
However, you must also be aware that there is always a difference between checking your score by self or through banks. Whenever your credit score is checked for a prospective loan/ credit card application, it is also recorded as a credit inquiry in your credit report. A higher number of credit inquiries reflects you as a credit-hungry individual to the bank and also has an adverse impact on your credit score. Instead, you may check your credit score directly through credit information companies and avoid any adverse impact on your credit score. Check your credit score with CRIF HighMark for free once in a year by clicking here.
Just as it takes time and determination to climb a mountain, it takes time and determination to conquer a mountain of debt. But if you’re equipped with the right knowledge and tools, the journey to conquering that mountain can be relatively smooth. So, here are some practical ways you can quickly tackle your maxed out cards and take your first real steps toward getting out of debt and maintaining a healthy credit score.
A business requires capital for its growth and expansion. Whether it is buying new equipment, inventory, expanding operations, increasing working capital, etc., you need enough funds to execute your plans well. Moreover, you need to have enough liquidity to run the daily operations of your business. To meet such business needs, you may need a loan. Your loan approval depends on various factors like business revenue, assets, profit, liabilities, collateral value, etc. But, this still isn’t enough. Before approving a business loan, lenders check your credit history too. Long and good credit history is an important part of business loan approval. You must have a good credit score to show your creditworthiness.
Business Credit Score— At a Glance
Simply put, it tells whether you will be able to pay back an amount that is borrowed. Business credit scores typically range from 300-900. A score of 700 and above is a good score. What this means is that lenders are very confident in lending money to individuals or businesses with this credit score. In addition, those with scores in the range of 500-700 can obtain loans easily. Credit scores in the range of 300-500 are considered average, and with 300 are very poor. Getting a line of credit is very difficult in case of low credit scores.
Banks and lenders go beyond the business credit scores and check the owner’s personal credit score. By checking personal credit, the lender would get to know how well you manage your personal finances and if you are responsible towards them. Therefore, managing both business & personal credit score is very important. A bad credit score is an obstacle that prevents you from obtaining loans and thus can hamper your business.
Business Loan Eligibility: Generally, the following people are eligible to apply for a business loan in India:
● Private Limited or Limited Company
● Partnership or Proprietorship Company
● Chartered Accountant
● Self Employed Professional
● The applicant should be between 21 years up to 65 years of age
● The business should be making a profit for the past 2 years
● Rs 1,50,000 per annum must be the minimum annual income of the company
Business Loan Options for a Bad Business Credit Score
Businesses have many options to obtain financing. Banks and other financial institutions extend loans to business owners. But, banks and lenders need an assurance of getting their money back before approving your loan, which is where your credit score comes into the picture. Missing out on paying your credit card dues or defaulting on a loan EMI payment may hamper your credit score, thereby reducing your chances of obtaining a loan for your business.
Related Reads— How Do Banks Assess Your Business’ Creditworthiness?
So, what do you do in case you have a bad credit score, but you require a loan to run and expand your business? The first important thing to note is you must work towards building your credit score! A few other options you can consider exploring for getting a loan are:
1. Banks: Although banks are reluctant in providing business loans to individuals with a bad credit score, they may be willing to do so under certain conditions. For example, some banks may agree to provide the loan at a high interest rate. Further, if you have a fixed deposit with a bank, you may be able to obtain a loan up to the amount of the deposit held.
2. Business credit card: A business credit card can also be used to get a line of credit. The credit eligibility may vary depending on your past payment history, etc. Although obtaining a business credit card may be easier than obtaining a loan, it’s important to know that the interest rates associated with such cards are typically very high.
3. NBFCs: You can also approach non-banking financial institutions for your business loan requirements. NBFCs do not have a banking license, but they are authorized to provide loans. While NBFCs can sanction high loan amounts, the interest rates they charge are also higher. Further, the credit score requirements are not very stringent when it comes to obtaining a loan from NBFCs.
4. Revenue-based loan: In this option, the business receives funds in full upfront, and agrees to repay the loan based on a percentage of the future monthly revenue. The repayments continue until the principal and interest are fully paid. For a revenue-based loan, the company must have a good credit score and must make above Rs 100,000 sales in a year. Moreover, the loan amount cannot exceed 10% of the company’s revenue.
5. Microloan: It is a small loan made for emerging small businesses and startups. A microloan is offered by nonprofit organizations called as microlenders. This type of loan typically has repayment terms of up to 7 years and offer favorable interest rates compared to those available through online lenders.
6. Secured loan: If the company owns valuable assets like property, machinery, technology, etc., you can obtain a secured loan against these. Such loans come with less risk for the lenders.
Capital is one of the core things that any business must have in order to smoothly run its operations.But qualifying for a business loan can be hard if you don’t meet business lenders’ strict standards.t is therefore very important for you to know the necessary steps for getting a business loan from a bank so you can improve your chance of getting an approval. Here’s what you need to do to get funding for your business with a business loan.
Many of you might get emails and notifications saying, ‘Your credit card is pre-approved’. But, do you know what such emails mean? Should you respond to such offers immediately or totally ignore them? Before you take any steps in a rush, let’s understand what a pre-approved credit card means.
What does pre-approval mean?
Credit card companies and banks always plan different ways to increase their customer base. Pre-approved credit cards are one such tactic used by most credit card companies. Credit card issuers often send out emails or letters to prospective customers labelled as pre-approved applications. Before sending out such emails, the issuer will first do a basic screening process to see if you have a fair credit score. If you meet the criteria, your name will be on their mailing list. If you receive such mails, think of this as an invitation and not an approval for the same.
It’s a fact that such deals can be tempting, but as a user, you should be very smart on how to react to such marketing strategies. So, first things first, you should ensure to read all the terms and conditions carefully before applying. Understand their T&Cs well before taking any action!
Related Reads: 5 Major Ways Credit Cards Affect Your Credit Scores
Does applying for a pre-approved credit card hurt your credit score?
If you choose to respond, you can follow the process given in the mail. But, note that when a credit card issuer sends you an email or letter saying you are pre-approved for a credit card, it does really mean you will get the card as soon as you respond. When you apply, a level of inquiry will be conducted on your credit profile in order to assess your creditworthiness. The issuer will further judge you based on your current income, credit history, number of credit accounts, etc. So, until you apply, the credit card issuer will not be able to access your credit history.
In case the issuer thinks you are not creditworthy, your application may get rejected. And, a credit card rejection might also bring your credit score down.
Related Reads: The Difference Between a Debit Card and a Credit Card
Be aware of red flags
The mail sent to you had been designed and strategized to gain your attention. So, as a smart user, you must watch out for some red flags—
● Lifetime free premium credit cards
● Low-interest credit cards
● Free Add-On cards
● Expensive joining gifts
How to apply for pre-approved credit cards?
After reading the terms & conditions, you would need to submit documents as mentioned by the issuer. The documents generally are:
● Proof of Identity
● Proof of Residence
● Income Proof
● Copy of PAN
Once the issuer gets your application, they will look at your credit score, income and repayment criteria to make the final decision.
So, the final call is yours. You can respond to a request for pre-approved credit cards, or you can apply via the normal route. In both cases, your application will be treated like any other normal application. The issuer will make a hard inquiry on your credit score and report to check your creditworthiness. Ideally, it is suggested to apply for a credit card when you are really in need or you feel you are responsible enough to pay credit card dues on time.
You can avail your free annual CRIF credit report to check if your score is good enough for approval.
Calculated with a formula based on variables including payment history, the number of accounts, and the amounts owed, your credit score may affect the interest rate you pay to a lender and even make the difference between a loan being approved or declined. Here are the basics of what scores within a variety of ranges may mean for your borrowing future.