Will Settling a Debt Affect My Credit Score?

When we take up a loan, our first intent is to pay it back and clear it fully, but it also happens that some of us may not be able to repay the loan EMIs on time. In such a scenario, it becomes very difficult to decide what one must do. There is, however, one way that can get you out of the debt, which is by settling it with your lender. If you & your creditor reach an agreement, then you can settle the debt for a lower lump sum payment. So, you basically put an end to the debt by negotiating on the total loan amount. Hypothetically, say you have a loan of Rs 10 lakh and you are unable to pay the loan EMIs, then you & your creditor can enter an agreement to settle the debt for a one-time payment of Rs. 2 lakh.

Related Reads: 5 Practical Steps to Get You Out of Debt

Better than “Unpaid” but worse than “Paid as Agreed”
Your credit report maintains records of your loan EMI status & history of credit card dues. It lists whether you have paid your monthly dues & loan EMIs on time, before or after the due date. So, when you are done settling your debt with a lump sum payment, your creditor updates the status of the loan as “Settled” or “Paid Settled” on your credit history. It is definitely better than an “Unpaid” status update on your credit report, but it is not as good as a “Paid in Full” status, which would’ve been updated had you paid the full amount. Any status other than the latter can hurt your credit score.

In addition to settling your debt, there are other factors that can have an impact on your credit score. But, the degree of the impact of each factor on your credit score varies & cannot be identified accurately. Debt settlement can, nevertheless, have a noticeable impact on your credit score! When you opt for debt settlement, the account is not removed from your report immediately. If you made late payments while you were paying the loan EMIs, then this account will reflect on your report as a factor for 7 years, starting from the first date of late payment.

Lay the bricks of rebuilding your credit score after debt settlement
The credit score is a dynamic number that keeps changing depending on your financial activities & any score above 700 is considered to be a good score. If you are in a situation of not having paid your loan amount on time & this has affected your credit score, then you must start taking measures to rebuild it:

1. Ensure timely payments of all your dues hereon. In fact, make use of the auto-debit feature on your net banking platforms, so that money is automatically debited from your account as soon as you receive your monthly income. Your payment history is the most important component on your credit report.

2. Monitor & control credit utilization no matter how high is your credit card limit. Make it a point to set a limit of utilizing only 30% to 40% of your credit limit to keep your expenses under control. You can even set daily & monthly spending limits on your credit card. So, you can use this feature as well to make sure you don’t overspend & land in another situation of excessive debt.

3. Keep an eye on your credit score to see its progress. Tap the entries of all your transactions & evaluate your risk factors. Your report consists of the risk factors you are exposed to along with your score & this tells you what you must start improving first to ensure a healthy credit score.

Begin rebuilding your credit score by getting your free credit report from CRIF!

5 Things You Should Do When You Get a New Credit Card

Opening the envelope that holds your credit card is always an exhilarating experience. To tear the seal & open the letter that holds your maximum credit limit is an exciting task for every individual. It gives you an extra layer of freedom to spend and realize all the dreams that you suppressed with an ‘I’ll buy it with my new credit card’ statement! You must, however, not get pulled into the euphoria & keep a few things in mind before you start using your new credit card!

1. Activate your card
The first step is activating your card, which is an easy 2- to a 3-step process. You must simply call the given number & authenticate your details. These days you can also receive an OTP on your registered mobile number to set your card PIN. Alternatively, you can register the card on your account through the net banking platform. Once all of these processes are taken care of, make sure you sign on the white strip given at the back of your card. There are a lot of opinions that circle around the importance of signing, but it is better to do that or you can simply write a directive for someone to ask for proof of identity when the card is produced.

Related Read: 5 Major Ways Credit Cards Affect Your Credit Scores

2. Destroy old cards
In case this new credit card is an upgrade from the bank or opted by you, destroy the old card by cutting through the magnetic strip. In any case, maintain the practice of destroying the cards as soon as they expire & order for a replacement. In case your current card is a replacement, then check to see if your autopay settings are carried forward or not.

3. Read the rules & regulations
Apart from the blessed document that holds your card & its limit, there are other documents that are a part of the kit. Ensure a thorough read through them all as they enlist the rules & regulations that you are liable to follow. While some credit cards have relaxed rules when it comes to repayment, several credit cards, especially the ones with a high limit, have stricter policies & regulations. These documents also hold the rewards system that your card brings for you. Understand the process of redemption & cashback facilities.

4. Spend within your limits to pay within your comfort
However high your credit limit may be, make sure that you hold your horses on the expenditures. To make sure that your credit score is not hampered, make full payment of your credit card dues every month. This will not only maintain your credit score but will also reflect positively on your credit history, showing you as a responsible borrower.

5. Check your credit score
Conduct regular credit checks to know how your score has progressed & what measures you must take to repair it, if needed. Credit bureaus like CRIF offer 1 free report every year. Use it to know where you stand & tap any errors or frauds when you see suspicious changes in your score. This way you will be vigilant to report an identity theft in time.

To begin your credit journey smoothly, get your free credit report here!

5 Easy Ways To Repair Your Credit Score – An Infographic

If your credit history is not where you want it to be, you’re not alone. Improving your credit scores takes time, but the sooner you address the issues that might be dragging them down, the faster your credit scores will go up. You can increase your scores by taking several steps, like establishing a track record of paying EMI’s and card dues on time, paying down debt and checking your CRIF credit report regularly.

Nov-Infographic_5 easy ways to Repair your Credit Score

Build A Business Credit Score from Scratch for A New Business

Just as your personal credit score is built on the basis of your personal financial history, likewise, a business credit score is built on a business’s financial history. Business financial history could include various lines of credit, payment history of business credit card, loans undertaken by business, length of credit history and how you’re using your loan. In India, similar to the personal credit score, a business credit score range is from 300 to 900 where a good score is considered above 750.

If you have recently ventured into a new business or are about to start one, it is imperative to work towards developing a credit score for your business – a one different from your personal score. This is especially important if you are looking for a loan to fuel your business needs without letting your personal spending habits come in the way. Here are a few steps you should start taking towards the path of a decent business credit score.

1. Do Not Mix Business with Self: Sole proprietorships and general partnerships deem the business the same as the owner – which means, your personal credit score is taken into account for all financial matters. Hence, it is essential to incorporate a business and legally separate the business from the owner to let it carve its own identity.

2. Open a Business Bank Account: Open a current business account in the name of the business. Carry out all the business transactions & dealings strictly from that account. If you have received a business credit card, it is best to use it for your business purchases but make sure to pay your EMIs on time. Business credit bureaus will track your monetary transactions and include that information on your business credit report.

3. Establish a Dedicated Business Address and Phone Line: Getting a dedicated business address and phone number will strengthen your business’s claim to separate existence. This history gets imprinted on credit agencies and will help you establish business credit.

4. Borrow from Lenders That Report to the Business Credit Bureaus: While the above steps will make sure you are building a good credit track; it is also important that these acts get recognized in order to be reported to the credit agencies. This can happen only when you deal with the lenders that report your conduct to the business credit bureaus. Ideally, lenders should report to one or more of the four major business credit information companies in India such as CRIF.

5. Borrow Diligently: While you are investing your time in building steady and decent business credit, your motto should be to borrow responsibly. Responsible borrowing habits include drawing from a mix of business credit accounts and paying those accounts on time and in full.

6. Keep a Tab on Your Business Credit Score: Once you start building a business credit history, you should perform a periodic credit check as you do with your personal credit reports. An annual business credit score check at CRIF High Mark should keep you ahead in your game.

In building and maintaining a good business credit score, you’ll realize that you need to flex many of the same muscles you do in maintaining your personal credit scores. Getting there is a slow and steady process which is why it is important to start early. Follow these steps and see your business credit score thrive in no time.

6 Easy Steps to Follow If You Become a Victim Of Identity Theft – An Infographic

Identity theft occurs when someone uses your name, credit card number, or other personal information without your knowledge & permission. This personal information is often misused for performing fraudulent or criminal activities. How your information is stolen, and how it is used, may vary. For instance, your PAN card number could be used by thieves to falsify their income and credit history when they apply for a loan, open new lines of credit or file taxes.

There have been instances where people, whose identities have been stolen, have spent years of time & money cleaning up the mess left behind by the thieves. So, as soon as you suspect that you’ve been a victim of identity fraud, take these 6 steps immediately to clear your name and your credit:

6 Easy Steps to Follow If You Become a Victim Of Identity Theft - Infographic

5 Things You Should When You Get a New Credit Card – An Infographic

Opening the envelope that holds your credit card is always an exhilarating experience. To tear the seal & open the letter that holds your maximum credit limit is an exciting task for every individual. It gives you an extra layer of freedom to spend and realize all the dreams that you suppressed with an ‘I’ll buy it with my new credit card’ statement! You must, however, not get pulled into the euphoria & keep a few things in mind before you start using your new credit card!

5 Smart Ways to Prepay Home Loans

A home of our own is something special that we tend to with all our hearts. It is one purchase where you will end up spending most of your time. Your family will grow here and so will you! Everyone wants to have a house of their own and to get there, a home loan emerges as an integral part. Taking a home loan is important, but it is even more important to clear this loan as soon as you can!

Let’s assume that you have taken a loan for the maximum tenure. Do you plan on spending all of the 30 years in paying back your home loan? You would surely want nothing more than to clear it as soon as you can, which is possible if you plan well!

Related Read: A Complete Buyer’s Guide to the Home Loan Process in India

Here are a few tips you can use if you are planning to take a home loan:

Go for a loan that allows part payments
The loan you receive at one point is based on your income & creditworthiness at that time. But we all know that over a period of time, your income will increase & so will your affordability. Even if you take up a loan for the maximum tenure, you will be able to repay more over a period & finish the loan before its tenure. Check the things you must consider to apply for a home loan & look at those banks that offer a prepayment feature so that you can make more than the monthly installment when possible.

Increase your EMI amount as your salary increases
So, it is established that your salary will grow over a period. Make sure that you increase the loan EMI as well. This will reduce the tenure & interest rates too. If you contact your lenders, they will be able to help you in restructuring your loan as per your current salary. This will also help in boosting & strengthening your creditworthiness.

Invest specifically with the aim to prepay the loan
When you start planning to take a home loan, understand that you must have some money set aside to make the down payment. In addition, if you go for a loan with prepayment features, then you can divide your investments accordingly. Your investment plan corresponds to specific goals. So, make sure one of them is clearing your home loan.

Plan a mutual fund to prepay your home loan
If you start investing in SIPs early on, they can help you accumulate a great sum of money over a period of 15 years or so. If you start by investing Rs. 3000 each month for 15 years, you will have a good sum of money at the end. Even if you go for a loan tenure of 30 years, you can use this chunk to clear off a considerable amount of your home loan. This could cut your tenure by approximately 10 years. In addition, mutual fund investments can help you save on taxes too! So, it is a double profit for you to invest in mutual fund SIP.

Direct your bonuses & other income towards the prepayment
There are chances that you have other sources of income as well. It could be rent or other variables from work. This extra income can also be directed towards clearing your home loan. You may receive a bonus from work as well. Any extra money that you receive in the year can be directed towards your prepayment.

A handy tip is that you start your research early, identify the price range that you are looking at and shortlist the property you would want to invest in. This will give you a good buffer time to prepare for the down payments as well as arrange your loan EMIs. Prepaying your home loan will not only relieve you from a major financial burden, but it will also give you space to plan for other financial milestones.

When you begin planning for a home loan, the first step should be to check your credit score in order to understand your next steps. So, pull out your CRIF credit report & move a step closer to your dream home.

How Do Banks Set Up a Credit Risk Management System? – An Infographic

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:

5 Simple Steps to Create a Successful Monthly Budget – An 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:

 

5 steps to maintain monthly budget_Updated

4 Signs You Are Dealing with an Identity Fraud

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.

Safety measures:
● 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.

Safety Measures:
● 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.

Safety Measures:
● 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.

Safety Measures:
● Contact the local police and the federal trade commission.