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How to get the BEST Credit Score and loan rates
And get lenders offer you the best possible interest rates on home, personal and car loans.
Rajiv Raj of CreditVidya.com shows how to join the exclusive 800 plus Credit Score club of the Credit Information Bureau of India (CIBIL) and become a darling of banks and lending institutions.
Rangan NV, a New Delhi-based middle-aged businessman owned a house, which he bought over 15 years ago. He had defaulted on couple of credit cards and arrived at a settlement with the banks at much lesser amount after a lot of bargaining. When he did that he was proud of his achievement.
But soon he realised it was all in vain. He wanted to invest in a second home on the outskirts of New Delhi at an exotic location. He wanted to spend his weekends there. So he applied for a home loan. "I was shocked to know that my credit score was around 600 and the bank rejected my loan," said Rangan. Today he is working towards improving his score.
Improving a credit score is no big deal for someone with a sense of financial discipline. But it could be a humungous task for someone who doesn't have any kind of norm or procedure to invest and spend the money they earn.
But with Indian economy moving towards risk-based lending, it is imperative for every individual to fall in line when it comes to financial discipline, else they will end up losing a lot.
It is important to note that the financial discipline is not impossible to achieve. Here are a few steps:
The author is a credit expert with 10 years of experience in personal finance and consumer banking industry and another 7 years in credit bureau sector. Rajiv was instrumental in setting up India's first credit bureau, Credit Information Bureau (India) Limited (CIBIL). He has also worked with Citibank, Canara Bank, HDFC Bank, IDBI Bank and Experian in various capacities.
How to get the BEST Credit Score and loan rates
Check your CIBIL credit report
This is the first and most important step in bringing in a discipline to your financial life. Logon to www.cibil.com, fill an online application form. Make a payment of Rs 470 using net banking or credit card. Go through the authentication process; if it is successful the credit score will be e-mailed to you in a couple of days.
After you get your credit score please check if your name, age, date of birth and PAN numbers are accurate. If not, report this to CIBIL immediately. Then check for the accounts held and loans being serviced under your name. If there are any discrepancies, report to CIBIL immediately, as it could bring down your credit score.
How to get the BEST Credit Score and loan rates
Manage your credit cards well
Some people like to flaunt their credit cards. If their wallet has some 10 divisions, they would like to fill it with 10 different cards. This is a definite no for a lender.
"It simply shows that a person is credit hungry and this is not something we would like to see on a person's credit history," said a credit card department official of Axis bank. So if you have more than two credit card accounts close them immediately.
How to get the BEST Credit Score and loan rates
Make payments on time
Having too many credit cards becomes a problem when it comes to payment. You may not remember last date for all the credit cards. Any delay in payments would attract surcharge, late payment fees, interest charges and proportionate service taxes.
So you might actually end up paying a lot more than usual. And banks won't let you go without getting their money.
Make sure you pay not just your credit card dues on time but also your telephone, utility and insurance premiums on time. "Missed payments negatively impact credit history which most lenders look into it to determine the risk on a prospective borrower, though the recency of this occurrence is also considered.
As an example, a default which occurred a decade ago will not have the same impact as a default which occurred a year ago," said a senior official with one of the bureaus.
Pay your dues in full
Every bill will show you minimum amount due. Don't get excited that the amount is much lesser than what you actually owe the bank. Always pay your entire amount, because the remaining amount will show as overdue in your CIBIL score, which could hurt your score dearly.
Also the banks will charge interest on the entire amount even if you pay minimum amount due.
How to get the BEST Credit Score and loan rates
Close unused accounts
If you have ten different bank accounts close the ones you don't use. You can do well with 2 to 3 accounts. Dormant accounts can attract fraudsters to misuse your accounts. Same is the case with loan accounts. After you have cleared all your dues please make sure that you follow up with the loan officer and get your loan closure letter.
How to get the BEST Credit Score and loan rates
Do not use your entire credit limit
If your credit card has Rs 1 lakh limit, it does not mean that you have to use the entire Rs 1 lakh every month.
Just because you are eligible for a loan of Rs 50 lakh, it does not mean you have to borrow the entire Rs 50 lakh. Give a lot of room for credit. Lenders like to issue loans to individuals who are not credit hungry. It could work in your favour as your interest may go down.
So wake up to reality. Go get your credit score and work towards achieving that dream home or car. Live a financially healthy life.