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Banks are increasing loan rates: Why your CIBIL score matters more now than ever | India Business News

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NEW DELHI: Several public and private sector banks have increased their home and auto loan interest rates from June 1 after the Reserve Bank of India (RBI) raised India’s repo rate by 40 basis last month. When the repo rate is high, the cost of funds is higher for banks , resulting in rising interest rates for home , car and personal loans. But did you know that if your credit score is high, you can avail the lowest interest rate possible with banks?
Your CIBIL score tells the bank of how well you can manage your credit as well as your ability to opt for loans and repay them.
How and what affects one’s credit scores?
Credit score is a 3-digit number which determines one’s ability to repay the credit on time, in other words it is a proof of one’s credit worthiness. “While the credit score is given out of 900, any score above 750 is considered to be a healthy score. .Any score lower than 720 is considered to be a ow score and can restrict your ability to acquire credit.There is no single feature which decides how good or bad one’s score is but a list of factors cumulatively affects an individual’s credit score,” said Anurag Sinha, Cofounder & CEO, OneScore & OneCard, a veteran in the consumer credit space.
These include: Past credit repayments, credit utilisation, umber of hard inquiries, credit mix, any settled loan, which is still showing as active, despite the payment being done, irregular address details among numerous accounts, a timely credit repayment history, a lesser number of loans availed, having a healthy mix of different credit products, and keeping a check on one’s credit card bills.
Hence, the CIBIL score is computed by TransUnion CIBL credit bureau after considering your past payments, credit history, current and old credit accounts, among others.
Benefits of a high CIBIL score
A higher CIBIL score will put you in a position to negotiate with lenders to get a lower interest rate on the loan. There are several lenders who offer preferential pricing on loan interest rates to people who have a high credit score.
According to BankBazaar, interest rate on a home loan or a car loan varies from bank to bank, however, if you have a high CIBIL score, you can get a discount on the interest rate. If you have a CIBIL score of 750 and above, banks will offer you loans at a competitive interest rate.
Banks charge cheaper interest rates for consumers with high CIBIL score and higher interest rates for people with a low or poor CIBIL score. Therefore, it is important to build a good credit profile and monitor your CIBIL score from time-to-time.
For example, State Bank of India offers interest rates based on the CIBIL score. Regular SBI home loans have an interest rate of 7.05 percent for credit scores more than or equal to 800. The interest rate is 7.35 percent for credit scores 650-699, and 7.55 percent for credit scores 550-649. The interest rate is 7.25 percent with NTC/no CIBIL score.
Housing Development Finance Corp has also hiked its retail prime lending rate (RPLR) by 5 basis points (bps), its third increase in a month. The latest increase means the minimum rate for a borrower with a credit score of more than 780 is now at 7.05%. borrowers below a credit score of 780 will have to pay a minimum of 7.15% for loans up to 30 lakh and 7.40% for loans between 30 lakh and 75 lakh.
“A good credit score helps you get the best loans and credit card offers basis your eligibility. Every lender you apply for a loan or credit card will check it and base your offering on your credit score. Your credit score is contained in your credit report, which carries a summary of your previous history, which will show whether you’ve paid your debts in full and on time. You enjoy multiple benefits of a good credit score, and a lower interest rate is one of them. Almost all lenders consider a credit score of 750 and above as ideal. They offer lower interest rates to applicants with high credit scores as such borrowers pose less risk and are less likely to default on payments. With a high credit score, you can negotiate for lower interest rates and request to waive off some of the additional charges,” said Adhil Shetty, CEO, Bankbazaar.com.
More importantly, banks check on your CIBIL score to analyse if you’ve ever defaulted in your financial journey in the past as it would have been recorded on your CIBIL report. So, if your CIBIL score is good, the lender won’t hesitate before granting a loan. But a bad CIBIL score might lead to loan rejection as the lender is unsure of your creditworthiness.
A good CIBIL score will also ensure that you get a housing loan without any hassles whatsoever and the same things holds true for availing a place on rent.
A good or high CIBIL score will also ensure that you get approval for higher limits from the bank.
How can you improve your credit score?
“Timely repayment of the EMIs, paying more than minimum due on credit card bills can help you improve your credit score,” said OneScore’s Sinha.
You should use only 15-30% of your credit card limit. Using your credit limit to the fullest suggests that you are credit hungry and are not able to handle your finances.
Another trick, according to BankBazaar, is to request your bank to increase the credit limit on your credit card. Once the credit limit is increased, you should keep the credit utilisation low. This will suggest that you are not credit hungry and are able to handle the credit.
A long credit history will help you improve your CIBIL score. So, if you have old credit cards with a good credit history, it is better to not close them. When you close your credit cards, you lose out on good credit history and that can hamper your CIBIL score.
Fix errors in your CIBIL report (if any): If you have seen a sudden decrease in your CIBIL score, you should check your credit report as it could have errors.
“Regular monitoring of the credit score, avoiding sharing personal details on online platforms, unverified apps, and immediately reporting any error can help safeguarding your credit health against identity frauds,” said Sinha.
How to get credit scores rectified and long-term implications of the same on the score?
When one finds an error in his/her credit report, the first step is to file an online complaint with the credit bureau to dispute the error. Once the form is submitted, the credit bureau approaches the bank to verify the errors as it cannot resolve the errors on its own.
Post the confirmation from the bank, the bureau and the bank come up with a formal solution to the discrepancy within 45 days of the complaint. The user is then informed about the error in the revised score. If the discrepancies aren’t identified on time, it might lead to the downfall of credit score and users would have to go for a secured product to repair his/her credit score. That will take its own due course of time,” explained Sinha.
How you can check your CIBIL score:
Go to the official CIBIL website https://www.cibil.com
Select ‘Get your CIBIL Score
Click on “Click here” to get your free Annual CIBIL Score
Type your name, email ID, and password. Attach an ID proof (passport number, PAN card, Aadhaar or Voter ID). Then enter your PIN code, date of birth, and also your phone number
Click on ‘Accept and continue’
You will receive an OTP on your mobile number. Type in the OTP and select ‘Continue’
Select ‘Go to dashboard’ and check your credit score
You will be redirected to the website, myscore.cibil.com
Click on ‘Member Login’ to see your CIBIL score.



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