Making yourself financially rich

India is still one of the countries that believe in saving for a rainy day rather than living largely on credit. Thanks to the money saving tips passed on by our elders to us, we are familiar with different saving and investment options. There are, however, times when you must rely on someone or an institution for financial aid.

In the past decade, lending institutions have made a number of lending policy changes that affect us directly. Apart from the usual changes in interest rates and closure formalities, they have also strictly started following a credit check routine.

What does this check involve?

When you understand how the check works, you will also perceive the credit score meaning. Credit scores are a measure of how reliable you are as a re-payer or borrower. Whether you are taking an electronic gadget on a short-term loan basis or you are building a house worth a crore, the moment you approach a lending or finance institution, they will try to find out what your credit score is. Ranging from 300 to 850, a credit score of 720 and above is supposed to be excellent while a score between 600 and 720 is considered moderate. Anything lesser than that; you run the risk of not being able to get any type of credit.

Credit scores and ratings have been popular in the Western countries so far and have recently made an entry in the Indian market. Managed by CIBIL in our country, the credit score is based on the following factors:

1. How promptly you repay you loans and credit commitments. Any late payments affect your score negatively.
2. The number of credit commitments you have – an excess of this and you may not be eligible for any further credits.
3. The duration of your credits – if a loan has been on-going for a very long time and there have been payment issues in the meanwhile, you are not considered a safe risk.
4. The ratio of the amount of debt you owe and your income at any given time (known as the debt to income ratio)
5. Any bills that are paid at the end of a beginning cycle – post paid bills.

There were days when sufficient ID and address proofs and employment details were sufficient to get a loan. Now-a-days, even if you have an excellent track record with private lenders and do not have a good or any credit score, all your financial transactions do not improve your credit worthiness. So while it is important to have some amount of credit and to manage them wisely, it is also important to note that all of them are being recorded by several rating and monitoring Government bodies and you must be careful about keeping a good track record to have a good credit score.

If there are any further tips you require about scores and how they can be improved, there are several agencies that can easily help you with such tips and help you make your life financially secure.

Financial health – For businesses and people

The financial world is an arcane one that involves a lot of rules – some simple logic and some complex legal ones. In this world of a myriad of financial transactions taking place physically and online, it is tough to keep a track of the ever-changing guidelines. For the better or worse, money-lending institutions and even some employment agencies have started keeping a track of the credit-worthiness of a person. But, not just private individuals are subject to this rule; even companies big and small fall under the scanner.

Money has to be lent from time to time by people and companies alike. The simplest way for one to be eligible for loans and overdrafts is by maintaining a good credit score. Credit rating meaning, however, is slightly different. Credit scores are usually given to individuals and in India are managed by CIBIL, a government body that provides credit reports based on the scores collected by the reputed credit score company – TransUnion. Credit rating is assigned to government and private organizations all over the world by companies such Fitch & Moody and Standards and Poor. Unlike scores, ratings are in the form of grades such as AAA+ or B-, depending on how a company or even a nation’s economy has performed.

What does it mean for a common man?

Credit rating is not what a private individual needs to focus on. His focus lies on achieving and maintaining the best possible credit score at all times. Why is it important?

1. You will only be eligible for loans and financial credits from banks and finance companies only if you have a satisfactory credit score.
2. Large transactions that have an element of credit, such as the purchase of expensive jewellery or electronic goods, will be declined if you do not have a credit card from a major bank (unless you save for the purchase, which may take a long time). Credit cards are now-a-days only issued to people with good credit scores.
3. Some companies will run thorough background verification about your financial history using your PAN. Pan, of course, is the key to a credit score, as well. Maintain a solid financial reputation by keeping a good credit score.

Banks place special emphasis on good credit scores. They urge people to keep a track of their scores by ordering a credit report from CIBIL. If the scores are not satisfactory, you can take advice from credit health improvements agencies that have come up recently in India. This will help you tackle low credit scores and getting past thorny issues like bankruptcy and defaulted loans.

Credit scores can be improved by:

1. Making all your payments on time.
2. Maintaining a healthy debt pattern.
3. Not exceeding in debts and limiting the number of credit cards and loans.
4. Making all your bill payments on time.
5. Having an adequate debt to income ratio at all times.

Credit scoring can also be worked upon by companies by asking for appropriate guidance plans from the agencies that help people with their scores. You just need to ask and diligently follow their steps and enjoy a healthy financial life always.