Maintain Your Creditability

Chandralekha Mukerji        Print Edition: April 2012

Financial institutions check your credit score before extending you a loan. Apart from common mistakes, here are some moves that affect your credit score. So, beware!

TOO MANY CARDS
Bankers won't like it you if you are 'credit hungry'. Applying for too many loans within a short period or having too many credit cards may spoil your chances of getting a loan. "Frequent enquiries for finance are considered alarming," says Sumit Bali, executive vice-president, Kotak Mahindra Bank. This is because it is a sign of desperation. So, make sure there aren't too frequent or too many entries in the enquiry information section of your credit report.

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If you have been recently sanctioned a credit facility, your outflow towards equated monthly installments (EMIs) or credit card bills are likely to rise. This will have a negative impact as well.

"Access to multiple lines of credit, which may include unused credit cards, also impacts the score as it signals over-indebtedness," says Sriram Kalyanaraman, director, business and product development, Equifax Credit Information Services.

GUARANTEE WITH CARE
Don't be surprised if your application is rejected if your friend did not repay a loan you stood guarantee to.

Credit information bureaus classify ownership of a loan, that is, the responsibility of repaying, into four categories-single/individual (you are solely responsible for paying), joint (you share responsibility with someone), authorised user (when you have access to credit but are not responsible for paying, as in add-on credit cards) and guarantor (when you guarantee to honour the obligation if loan taker cannot repay).

So, if you have guaranteed a loan and it hasn't been back paid on time, it will impact your score. Keep track of add-on credit cards and monitor joint accounts as the other holder's negligence can impact your access to credit.

CROSSING LIMITS
Frequent use of full credit card limit will be a red flag for lenders. The figure appearing under Current Balances of the 'Account(s)' section of your credit report helps the loan provider evaluate whether you'll be able to pay additional EMIs. A lower balance means you have a better chance of repaying the loan.

WHAT'S YOUR SCORE
Credit score is derived from the 'accounts' and 'enquiries' sections of your Credit Information Report. Different credit agencies have different marking systems. For instance, CIBIL's scores ranges from 300 to 900 points while Equifax India's ranges from 1 to 999 points.

The closer your score is to the upper limit, the better. Sometimes, one may get a score of NA or NH, meaning you're either new to the credit system or you're in the ownership category where you have access to credit but aren't responsible for paying back the loan.

Some lenders may hesitate to give you a loan if you don't have a credit record. A good way to manage this is to apply for a Secured Credit Card.
"While high credit card spending may not necessarily be bad, an increase in the current balance on the card over time indicates a higher repayment burden and may negatively impact the score," says Harshala Chandorkar, senior vice president, consumer relations, CIBIL.

Your repayment pattern and track records also influence the score. The payment history appears in the 'Account(s)' section of your credit report. The Days Past Due, or DPD, shows how many days a payment is late that month. Lenders view anything other than zero negatively.

MORTGAGE MIX
Things such as how old your lines of credit are and the quality of the mix (if credit card dues account for a large part of your total debt) can make a huge difference.

Credit is categorised into secured loans (backed by collateral) and unsecured loans (not backed by collateral). Loans that create an asset, for instance a business, house or car, are considered secured, while credit taken for consumption, such as a personal loan or credit card spending, is unsecured.

"A high share of unsecured credit affects the customer's profile. This is because this means large payouts are due owing to the high interest rates on these loans. Therefore, chances of default are higher," says Abhijit Bose, head of retail assets, Development Credit Bank.

GHOSTS FROM THE PAST
Ignoring discrepancies in credit information reports or credit card and loan repayment records may come back to haunt you later. If you spot a mistake, you can either approach the lender or a credit information company to get it rectified.

However, it is better to approach the bank as a credit information company can't make any change in the report unless it gets the lender's written approval.

"Often, data is updated when lender information, that is, once a month. But we make a change quickly if the lender asks us to do so," says Mohan Jayaraman, managing director, Experian Credit Information Company of India Private Limited.

FOR THE FUTURE
Though, as of now, mobile phone bill payments do not get captured in the credit information, there is a possibility of it getting included in the near future. According to the Credit Information Companies Regulation Act of 2005, telecom companies are allowed to access an individual's credit report.

However, there is no provision for telecom companies sharing data with credit information companies. "Overdue mobile bills may not directly affect your credit report at this stage. However, as the industry matures, such information is likely to come in the ambit of credit bureaus and impact the consumer," says Experian's Mohan Jayaraman.

So do not overlook this bill so that you will be able to meet the future requirements of your credit scores if regulations do get updated. To keep this account pristine, comply with current rules and use all official channels to settle disputes rather than just refusing to pay your bill.

READING THE REPORT

Reading your credit score report

This is the information that identifies you. This includes your name, date of birth. gender and your identification details such as Permanent Account Number (PAN), passport, driver's license, voter ID etc

Reading your credit score report

Your present and past addresses, telephone numbers, e-mail addresses etc appear in this section. The most recently reported information will appear first. Keeping this section up-to-date is very important.

Reading your credit score report

Contains details as provided to the credit bureau by lenders that you have existing credit accounts with or to whom you have applied for a loan. The most recent information on income and employment is displayed.

Reading your credit score report

A snapshot of all your credit relationships along with a month-on-month record of payments for up to 36 months. The name of institutions that have provided you the loan, type of credit facilities availed, the ownership of the loans and details of loans are included.

Reading your credit score report

A list of the lenders that have viewed your credit report for assessment of your loan application. It shows the name of the lender, date of application and the type and size of loan that you applied for.


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