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.
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.
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.
Are you confused between a debit and a credit card? Although they look identical, their uses and features like reward points, EMI option and impact on credit score are distinctly different. Read on to know more about these differences.
A debit card is directly linked to your savings account and can be used to make purchases. As long as there are funds in your bank account, you can use the card. The different types of debit cards are:
● Standard Debit Card: The money is directly withdrawn from your bank account.
● Prepaid Debit Card: It can be used to make purchases up to the amount pre-loaded on the card. It allows you to withdraw money without access to a bank account.
● Electronic Benefits Transfer (EBT): This card is issued by federal & state agencies to allow specific users to use some benefits to make purchases. Common benefits provided are food stamps and cash benefits.
Credit cards are issued by financial institutions, typically a bank. The credit card holder is assigned a pre-determined credit limit to use money as a short-term loan by the credit card issuing company. When you apply for a credit card, you agree to pay the money back on a certain date according to the institution’s terms. There are four major types of credit cards:
● Standard Card: This a simple type of credit card offered by the bank.
● Secured Credit Card: It requires an initial security deposit to be placed on the card. The deposit you pay here is equal to the transaction limit of the card.
● Reward Card: It offers travel points, cash back, and other benefits.
● Charge Card: This card doesn’t have a preset spending limit, but the complete balance amount must be paid at the end of each month.
Major Differences Between Credit & Debit Cards:
The only similarities between credit and debit cards are they are almost identical in appearance. Both have 16-digit card numbers, an expiration date, and CVV codes. But, the objective and usage of both cards are different. Let’s look at the differences between them.
1) Impact on Credit Score: A credit card affects your credit score in 3 ways
–Builds your credit history
–Displays your repayment intent
–Shows your credit behaviour
Building a credit history is a hidden benefit of using a credit card. Credit history is an important factor in your credit report and score. The simple logic is if you don’t have a history, how can you have a score? There are simply no parameters to judge you. Debit cards, since they rely on the amount actually in your account, do not count towards credit. So, using a credit card is a good way to build your credit history provided it is managed well. A well-managed credit card has a good payment history. This means that you don’t default on any of the monthly payments.
And, last but not least is your credit behaviour. Do you constantly maximise your credit limit? Is your credit utilisation ratio very high? This ratio is the percentage of actual credit usage out of your total limit. E.g, if your limit is Rs.1 lakh and you regularly use Rs. 80 k, your credit utilisation ratio is 80%. This shows a “credit hungry behaviour”, also viewed negatively.Such factors lower your credit score, create a negative impression in the eyes of lenders, and subsequently, such consumers will struggle to get a loan approval.
Related read— How To Find Your CRIF Credit Score – An Infographic
2) EMI Option: In debit cards, there is no concept of EMI because the entire amount is directly debited from your savings account. However, a few e-commerce sites and some banks are offering a debit EMI option, wherein you need to maintain a fixed/recurring deposit to avail this facility. When you purchase, your money is first debited from your bank account and subsequently reversed in two working days. This means you need to maintain the necessary balance at the time of the initial purchase. The debit card EMI starts after 30 days from the date of reversal.
Credit cards give you the facility to convert your purchases into EMI. But, you have to pay interest every month on the outstanding amount until your EMI is fully paid. You might also have to pay service tax and other additional charges. You may have an idea of using multiple credit cards to fund different purchases and increasing your total credit limit. But, before you hit apply, wait! Multiple credit cards, with high utilisation, will negatively affect your credit score. When you apply for a loan, banks check your credit history of each credit card you use.
3) Protection on Purchase: Both debit and credit cards have a PIN; hence, they are secured. A majority of credit cards have a liability protection feature, which makes them safe & secure from any unrecognized transactions or frauds. In addition, many banks provide a charge back feature, wherein an unauthorised transaction on a credit card is paid back to the cardholder. These features are not offered on debit cards. If you want such security, you can apply for the Card Protection Plan (CPP) and secure your debit card from any fraud or misuse. Unlike debit cards, credit cards offer cashback and rewards such as fuel points, air miles, and free gifts.
Conclusion: Credit cards can come with huge financial benefits if used wisely. They build your credit score and ease loan approval to fulfil your financial goals. But, before you swipe your next credit card, check your CRIF credit score here and monitor it regularly.
Any type of rejection, for example, when applying for a personal loan will leave anyone disappointed. It takes time and effort to prepare the documents that you need to apply for the loan, which means you’ll find it hard to accept the lender’s decision. Moreover, you will spend anxious hours waiting for the approval, meaning if you fail to get an approval, the first thing on your mind will be to ask for an explanation from the lender or bank. Fortunately, in this article, we’re going to look at 8 reasons for why lenders can decline your loan application and how to solve them.
Every transaction on your credit card affects your credit score. One of the factors that affects it is not paying your credit card dues on time. But, did you know applying for a new card or closing an old account can also negatively affect your score? Read on to understand how such common credit card habits can hurt your score:
● Use Credit Card to Create Credit History:
You can use credit cards not only to make purchases but also to establish a good credit history. If you have never availed a loan or used a credit card, you won’t have a credit score. Your credit report will give a score of -1 or NH (no hit). This means that lenders cannot determine your credit behaviour. Using a credit card is one of the simplest ways to start your credit history.The caveat is to build a good history. Pay off all your credit card dues on time every month to establish yourself as a responsible borrower.
● Delay in Credit Card Payments:
Your payment history is the most influential factor of your credit report. It makes up 35% of your credit score. If you are in the habit of missing out on paying your card dues, then you may be damaging your score. Moreover, any delays in payment are reported to credit bureaus like CRIF. To avoid the repercussions of late payments, and boost your credit score, get into the habit of paying your credit card dues fully every month.
Related Read: An Infographic on Ways To Maintain Your Credit Score
● Credit Utilization Ratio:
It is an indicator of the amount you have used out of the credit limit available to you. If you haven’t used your credit card and there is no balance, your credit utilization would be counted as zero. If you are applying for a loan, you need to carry some balance on your card. As a rule of thumb, you should maintain a credit utilization ratio of 30-40%. Anything higher than this may cause a dip in your credit score as lenders can attribute this as credit hungry behaviour. If you think you can efficiently manage your credit card dues, you can ask your bank to give you a higher credit limit on your existing card. Or, you can even apply for a new card with a higher limit. But, ensure that you don’t exceed your credit limit even if you are tempted to spend more.
● Applying for a New Credit Card:
Every time you apply for a new card, a hard enquiry is initiated on your credit report. This temporarily drops your credit score. Your score will recover after a few regular payments. Applying for multiple credit lines like credit cards or loans at the same time can hamper your score. Hence it’s always advisable to keep your credit card applications to a minimum. Apply only when it is really required. Whenever you apply for a credit card, draw a comparison between 2-3 cards. Based on your current credit score, pick the one that suits you the best. For example, if you shop a lot, then look for a card that offers good cashback. Similarly, if you travel constantly, a credit card that offers good air miles can be your choice.
● Closing a Credit Card Account or Discontinuing a Credit Card:
As your scores get affected while opening a new account, similarly, discontinuing an old credit card may hit your credit score badly. This is because credit history makes up to 15% of your total score. If you close an account that has been there for a long time, you are erasing all your credit life. Credit history is an important factor in your credit score.
Additionally, as you no longer have access to the credit limit of your card you closed, your credit utilization ratio will also drastically drop.So, make a wise decision before closing any old credit card. Instead of closing it, you may simply lower the usage of the card or keep it safe. This will not hamper your score. If you have multiple cards, you can close the most recent one.
To conclude, your credit card and other loans have a great impact on your credit score. Make sure you stick to the credit limit of up to 30-40% and adopt the aforementioned credit habits. If you haven’t checked your scores lately, make sure you review your credit report with CRIF.
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.
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.
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.