When the banks don’t get it right

Credit information companies in India rely completely on information that is provided to them by their member banks and financial institutions. CIBIL is the premier credit information company in India and already caters to millions of individuals and business entities. Due to the sheer volume of information it collects from the banks, there are chances that your records don’t get updated correctly or as quickly as they should as per RBI guidelines. Similarly, it would be unfair to assume that all banks perform their duties very precisely with absolutely no errors. The occurrence of such issues is rare, but there are many such cases that have been brought to light in India.

These issues are not noteworthy to CIBIL and the banks, but for common people like us, it can create a huge financial and legal mess. It is, therefore, important for you to be determined and vigilant about your credit scores and reports to be maintained correctly. How do you do this? The process is quite simple – you ensure you obtain your credit report at least once a year and check your score and all the other details in it very minutely. The moment you find something incorrect, some information missing or fraud activity in your name in the report, you should leap into action and get as much information about them as possible.

Let us, for example, assume you have an auto loan that was opened in 2012 and has another 5 years to run. You have set up a bank mandate for auto-clearance or ECS scheme under which your payments are electronically collected by the lending bank from your funding bank each month on a specific date. In the past year, the account from which you pay the EMI was compromised, and hence you requested a different account to be allocated to you. The bank did do that and you provided the new bank details along with the relevant “change in payment account” forms to the loan bank. The latter, however, failed to update their records due to which the payments have not been collected at all in the past few months. The consequences of these late payments are horrendous on your credit score – they drop dramatically. Plus you are harassed by collection agents for absolutely no fault of yours.

So, what do you do in such cases? Here are a few ideas for you:

1. You approach the lending bank and ask them to amend their records immediately, asking them to collect the outstanding amount and collect the future payments on time based on the ECS mandate you have issued the lending bank.

2. Request the bank to expunge all negative records on your credit report which would have been added due to the non-payment and negative information they would have sent to CIBIL.

3. Escalate the matter to CIBIL if the bank does not co-operate and they will in turn remind the bank. CIBIL just passes on our request to the bank and only reports what the bank has to say – consumer has no say in the matter other than legal recourse if the bank does not agree to the consumer’s claim.

4. Approach the financial and/or bank ombudsman in India if the bank refuses to make the changes on time and makes all reports to get your credit score to back where it was.

Many customers have already benefitted by being alert and contacting their banks, CIBIL, legal counsel and the ombudsman immediately. The key to succeed in correcting your report lies in speed, observation and determination.

Are credit scores really important?

Although India was one of the richest countries in the world with a wealth of knowledge, precious stones and metals, it slowly opened up to the concept of credit scores and their importance quite late. Now, if a person were to apply for any form of credit – card, loan or overdraft, they will have to face the test of credit scores before they can proceed. There are very few banks which do not consider credit scores before they approve a person’s application. So, it is safe to say that the next time you think about a debt application, you should also be concerned about where you stand with your credit rating.

In India, there are a few private companies that collect details of a person’s credit history and maintain a credit report. But the most important player in this field is CIBIL. It works as per the RBI’s norms and has a huge responsibility towards the individuals whose financial history they keep a track of and to the institutions who rely on their information to lend their money to the applicants.

Where there is money involved, there are many people who try to take advantage of adverse situations and make a profit for themselves by exploiting others or outright duping them. There have been cases reported to CIBIL and other financial watchdogs of some large, private banks which falsely promise people to extend loans without a credit score and later charge exorbitant fees to extend such a loan. There are two problems to this:

1. You submit all the documents required along with the application to a DSA (direct selling agent associated with multiple banks to assist clients in their loan applications) and the bank then scrutinizes it and rejects your application anyway. Suddenly you wonder why there are so many enquiries made on your behalf with banks. Your confidential information may be falsely used by DSAs or one of your own staff/acquaintance and in addition to not getting a loan, you may become a victim of fraud.
2. Every time a bank makes an enquiry with CIBIL about your credit history, it is known as a hard enquiry. If there are too many such enquiries, your credit score gets negatively impacted and becomes lower than what it was before.

The other interesting thing that one faces in such situations is when their low credit scores or poor financial track record gets passed on to the so-called “debt doctors” who immediately start making marketing calls and try to lure you with the hope of improving your credit scores in an astonishingly low amount of time for very high fees. Prices can range between INR 8,000 to INR 16,000 and you are offered various schemes named silver, gold and platinum. You should, however, stay away from those which have tie-ups with banks and earn a profit out of and be helping them recover an inflated amount of settlement monies and out of you by charging you false, high fees for practically no good service provided.

But, there are certainly some credit score improvement consulting agencies that make genuine and expert efforts to help you regain a good financial standing and in a position to get approved for loans and credit cards in future. But the best solution is to nip the problem in the bud and always maintain a good credit history.

A note about loans and financial habits

Credit is a necessary evil. Evil because it implies you may not have the necessary funds to cover the cost due to which you need the credit in the first place. But credit can also have a positive impact on your life. Provided you maintain a healthy credit history, credit rating agencies in India will record every timely payment that you make and you will have a very favourable credit history and credit score. How do these help, you may ask? When you apply for a loan for emergencies or to buy a home, for example, or if you have unexpected expenses that you hadn’t planned to save for, or when you apply for a job in a company that does a very thorough background check of its potential employees, your favourable credit history will guarantee that you never have to face a rejection on these grounds from any of these institutions. Credit score is a compulsory metric that all financial institutions will consider before they give you any kind of loan.

There are various types of credits available in the market. Are all of them considered in the same manner by the banks? Let’s have a look at them:

1. Personal loans – One of the most important types of loans, these do not require a security or collateral and hence have high interest rates. If you make your payments on time, however, a personal loan can have a very good impact on your credit score. Most banks, however, would think twice before granting this loan. After all, they don’t have any secured means of recovering their monies when it comes to personal loans.

2. Home loans – One of the most favoured types of credits issued by banks, this loan has collateral – the house for which the loan is taken. Even home improvement loans are considered “safe bets” as they are used to improve the value of an asset which will only fetch a better price. Home loans are steady credits that people take very seriously else they will end up homeless, and thus have better interest rates than personal loans.

3. Auto loans – This type of loan elicits mixed feelings from bankers. They do have collateral against which the loan is issued but the asset, the vehicle, depreciates in values unlike real estate that always appreciates.

4. Business loans – These loans are viewed in a positive manner as business loans are usually taken to expand business, and thus indicate a prospering company. Banks may or may not require collateral for this type of loan depending on quantum of the loan and the bank’s eligibility criteria.

5. Educational loans – Again a positive type of loan, these indicate that a person is willing to improve him/herself and become more qualified which usually translates into better earning capacity. Most banks do require a guarantee of collateral for this loan type too.

At the end of the day, no matter what kind of loan you have, you must make their payments on time and try to have the loan for its full duration so you have a longer and better impact on your credit score. Before applying for a loan, though, keep the following things in mind:

• Before you decide to make large purchases or incur heavy costs, make sure you have sufficient savings. Should your credit plans fail, you will at least be able to rely on your savings to survive and to pay off your debts without getting into a “bank settlement”.

• Make a budget and try to stick to it. Compare your incomes and expenses. Spend credit on necessary things and not on reasonable personal cravings.

• Use debit cards more than credit cards to avoid having a huge loan to pay off and to curb your spending urges.

• Have an investment plan that will help you with your taxes as well as give you an extra source of income in terms of profits and interest accrued.

A good balance of credit and debit will go a long way in favourably impacting your credit scores and to give you the confidence that you can deal with any unexpected problems in life with ease. So get started with your planning!

Your credibility is much more than your credit score

There is a misconception prevalent in India that if you have a poor credit score, it becomes impossible for you to get a loan or line of credit. While it is true that getting a bank’s nod to a loan, credit card or overdraft under such circumstances is difficult, it certainly is not impossible. A lender will look into much more than your credit scores before he decides to grant you a line of credit and decide its terms and conditions. Vis-à-vis, it also stands to reason that if you have an excellent credit score, that alone will not guarantee you a line of credit. Here are some other factors that will also be taken into consideration while your credit application is being reviewed by a lender:

1. Nature of employment – Most banks will consider which organization you work for. If you work for a reputed one that is known in the market for its stability and goodwill, you stand a better chance to get approved for a loan. In fact, most reputed companies have long-standing relationships with bankers and maintain their employees’ salary accounts with them. When you have a salary account of a reputed company with a bank, you automatically become a preferred customer. It is no wonder such salaried employees get so many marketing calls from banks!

2. Employment stability – From the above point, do you infer that only salaried employees are in the good books of lenders? That is incorrect. People who own their own businesses or work in different capacities in different types of organizations are also eligible for further consideration apart from credit scores. All working professionals’ employment history will be scrutinized, how long you have been in an organization and in what positions will also be evaluated. If you have remained in the same profession for a considerable amount of time, you are considered a good risk. People who change jobs frequently and change organizations every year may get a good pay hike but banks are wary of their flighty nature and will probe deeper into the circumstances of the job changes.

3. Longevity of accounts – This is one area where the adage “Customer is the King” certainly holds well. If you have any form of account – savings, recurring, loan, business or credit card account – for an extensive amount of time, your banker is assured that you will continue to generate business for them and that you will be paying them back their money. They will also be able to offer excellent interest rates and repayment periods so your good relation with your banker is also of value. You should also considering using your bank for other financial activities such as arranging your investments, insurances, etc. More business means better relations with your bank.

4. Personal circumstances – In a few instances, if you are able to prove to the bank that you are a citizen of good reputation and can be vouched for by your relatives and close friends, bankers will look beyond your poor score or a lack of it and may consider giving you a loan. These indeed is a rare occurrence and you should be able to prove that you had unavoidable circumstances due to which your credit history is not up-to-the-mark and you may still stand a chance to persuade the banker to take a risk with you.

Be prepared to pay a higher interest rate and with shorter repayment periods when you have a poor credit score but with an improvement in scores, you can certainly approach the bank for better terms of the loan/credit card.

Tips for making your marriage a financial success

Marriage means a couple coming together with a common outlook about the future. Couples should always plan their solo, as well as joint finances. Without appropriate financial planning, the financial health of the couple could suffer in a big way.

Life partners always maintain two distinct credit records and histories. Both husband and wife should ask for their individual credit information reports (CIR) from a known credit information company such as Credit Information Bureau (India) Ltd (CIBIL) and study them properly. Most of the couples after marriage jettison an individualistic credit strategy in favour of a joint one. In such instances, it would be wise to study the individual CIRs and decide on the steps necessary to improve their financial health.

A favourable credit report or a healthy credit score is essential to borrow money from lenders easily and on better terms. It will help to have a decent repayment track-record, whether the married couple plans to access a home loan or a car loan. Banks will sanction their loans based on the credit information report and an accompanying credit score assigned to them. The credit scores of individuals fall in the range of 300-900. Those with a credit score of 700 or higher can expect to borrow money easily from banks.

However, maintaining a credit score of 700 is anything but a cakewalk. The steps enumerated below are small ones but can go a long way in bolstering your CIR.

Timely repayments

All repayments, including missed ones, are kept track of in your CIR. Missing payments or high amounts of accumulated dues are viewed as negatives for your credit report and credit score. One should always be meticulous in paying EMIs and credit card dues on time and in compliance with the terms agreed upon at the time of borrowing.

Joint, Co-Signed & Guarantor credit accounts

It is worthwhile to keep a track of all joint loans or of loans where you have stood as the guarantor regularly since you are equally responsible for missed payments. Carelessness of the joint holder could hamper your chance of accessing credit/borrowing when you need it the most. Credit/Loan applications

Inquiries that lenders make regarding your CIR with CIBIL when you apply for credit/loan can affect your credit score in India. Too many inquiries could mean that you are borrowing excessively, and you could end up being perceived as somebody in financial trouble. It would be wise for married couples to apply jointly for loans rather than as individuals.

 How to improve scores?

Lenders look at defaults from the perspective of how recent they are. Thus, though defaults are viewed as a blemish on your credit report, they should not impact your credit score if your loan repayments and credit card payments have been timely of late. In the case of couples, one partner having a healthy credit history can compensate for a slightly poorer record of the other partner. Individual credit scores of married couples are viewed as complementary when they agree to accept joint responsibility for a loan.

Credit score is impacted both by positive and negative steps you take. Banks allow individuals to rebuild tarnished credit histories by availing secured credit. A credit card that can be secured with a bank deposit is one such instrument that helps improve a credit record.