Skip to main content

Know Your Credit Score before Filing Loan Papers

Invest In Tax Saving Mutual Funds Online

Call 0 94 8300 8300 (India)

 

Know the components of credit score


Your application for a home loan has been rejected by the bank? You are a little annoyed because you don't know why it was rejected as you have never defaulted on any loan repayment, you have always paid your bills on time, and you have submitted all documents — property and income-related — required for securing the loan. Only later, you find out that your application was rejected because of your low credit score.


Most lenders today rely on credit scores and credit reports while reviewing loan applications and those with higher scores are given preference. As per data released by CIBIL recently, over 90% of new credit is sanctioned to people with scores of 700 and above.


According to CIBIL, the credit score is calculated after taking into account defaults made by the individual, amount of credit being used, number of loan applications, loan mix and so on. Simply put, default on repayment is just one of the factors that determine your credit score.


Borrowers tend to assume that having a clean repayment history alone can ensure a good credit score. However, there are several other factors that can influence the score. Of course, repayment history gets the maximum weightage (35%) while computing the scores. The second-most important fact is the credit utilisation, which accounts for 30% of the score. That is, how much of your available credit you have utilised. The third factor would be vintage of credit – for how long you have been using credit — which gets a weightage of 15%. The fourth factor is account mix — the composition of the secured and unsecured loans in your credit profile. A good mix of credit is important to have a robust score. Do note, however, that the weightage could vary as per the credit information company.


Seeking And Taking Too Many Loans


Even if you are diligent with your EMI (equated monthly installments) payments, the fact that you have obtained multiple loans could work against you. What's more, merely applying for too many loans could drag your credit score down. Don't apply for too many loans or credit cards as this would mean more enquiries are added on your credit report, which negatively impacts your credit score. Simply because, this credit behavior indicates that you are 'Credit Hungry' and implies that you are constantly looking for credit.


Unfavourable Loan-Mix


Lenders, for obvious reasons, see borrowers with a higher share of secured loans as more reliable. If the individual's loan portfolio is skewed in favour of unsecured loans, it is viewed with caution by banks as this is a sign of irregular fund flows to the customer resulting into an overleveraged customer. It would be wise to have a good mix of all kinds of loans. Also, be careful not to apply for secured loans simply to boost your score.


Frequent Closure Of Loan Accounts


Once you have availed of a loan, it is advisable to keep it for at least 12 months before closing it. The velocity of "opening" and "closing" a loan account impacts your credit score. If your score goes down due to constant opening and closing of accounts, banks could take a call after understanding the nature of your fund usage.


It is important to ensure that the money is not being invested in stocks or for speculative purposes. Also, the lender would like to see, if the customer is revolving by taking a new loan to repay an existing one, which is not good . However, if the borrower is an entrepreneur borrowing to finance his/her working capital needs, or is engaged in a seasonal business where there is a short-term demand, - it will not be a cause for concern. Put simply, as long as lenders see a justifiable explanation for the borrowing and repaying pattern, borrowers' future loan prospects will not be affected.


High Utilisation Of Credit Limits


All credit cards come with credit limits, that is, the extent to which the card can fund your expenses. If you are too close to breaching this limit, again, your credit score is bound to suffer. For instance, if you have used . 90,000 out of a credit limit of . 1,00,000, this may affect your credit score. While increased spending on your credit cards may not necessarily negatively affect your score, an increase in the current balance on the card overtime is an indication of an increased repayment burden and may negatively impact your score. It's always prudent to not use too much credit reckons that to have a good score, your credit utilisation should be less than 30% of the sanctioned limit. However, remember, while high utilisation of credit limit may affect your score, it will not necessarily hamper your chances of securing a loan. Even if it is assumed that credit information companies have information on the individuals card limits, high utilisation of these limits may not be a negative factor as lenders will also take into account your income level and the number of active and in use cards. High utilisation coupled with other factors like revolving tendency, high bounce rates, etc will have an adverse impact on your loan applications. After all, if you are not regularly clearing your credit card bills or have been merely paying the minimum amount due, high utilisation of credit limit indicates that you are in a bad situation.


Defaulting On Loan Repayments


This is one factor most borrowers are now familiar with, as it is the primary cause of an unfavourable credit report and a low credit score. Repayment history has the maximum weightage for score calculation which is pegged at 35%. Here, the recency and severity of default impact the score a lot. And if you have paid late, then how late. For instance, if it is delayed by 30 days, 60 days, over 90 days, etc. The greater the delay, the worse it is for your score

Happy Investing!!

We can help. Call 0 94 8300 8300 (India)

Leave your comment with mail ID and we will answer them

OR

You can write back to us at PrajnaCapital [at] Gmail [dot] Com

---------------------------------------------

Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

  1. ICICI Prudential Tax Plan Invest Online
  2. HDFC TaxSaver Invest Online
  3. DSP BlackRock Tax Saver Fund Invest Online
  4. Reliance Tax Saver (ELSS) Fund Invest Online
  5. Birla Sun Life Tax Relief '96 Invest Online
  6. IDFC Tax Advantage (ELSS) Fund Invest Online
  7. SBI Magnum Tax Gain Scheme 1993 Invest Online
  8. Sundaram Tax Saver Invest Online
  9. Edelweiss ELSS Invest Online

------------------

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds Invest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds Invest Online
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds Invest Online
      1. DSP BlackRock MicroCap Fund
    1. Sector Funds Invest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Tax Saver MutualFunds Invest Online
      1. ICICI Prudential Tax Plan
      2. HDFC Taxsaver
      3. DSP BlackRock Tax Saver Fund
      4. Reliance Tax Saver (ELSS) Fund
    2. Gold Mutual Funds Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

Popular posts from this blog

National Savings Certificate

National Savings Certificate Here's everything you need to know about the 5-year savings scheme offered by the Government This is a 5-year small savings scheme of the government. From 1 July 2016, a National Savings Certificate (NSC) can be held in the electronic mode too. Physical pre-printed NSC certificates have been discontinued and replaced with Public Provident Fund-like passbooks. What's on offer The minimum amount you can invest in them is Rs100 and there is no upper limit. Under this scheme, all deposits up to Rs1.5 lakh qualify for deduction under section 80C of the Income-tax Act, 1961. The interest earned is taxable. You can invest in multiples of Rs 100. These certificates can be owned individually, jointly and also on behalf of minors. The interest rates for all small savings schemes are released on a quarterly basis. The effective rate for NSC from 1 October to 31 December is 8%. The interest is calculated on an annual compounding basis and is given along w...
Read more

Am you Required to E-file Tax Return?

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...
Read more

Mutual Fund Review: HDFC Index Sensex Plus

  In terms of size, HDFC Index Sensex Plus may be one of the smallest offerings from the HDFC stable. But that has not dampened its show, which has beaten the Sensex by a mile in overall returns   HDFC Index Sensex Plus is a passively managed diversified equity scheme with Sensex as its benchmark index. The fund also invests a small proportion of its equity portfolio in non-Sensex scrips. The scheme cannot boast of an impressive size and is one of the smallest in the HDFC basket with assets under management (AUM) of less than 60 crore. PERFORMANCE: Being passively managed and portfolio aligned to that of the benchmark, the performance of the index fund is expected to follow that of the benchmark and in this respect, it has not disappointed investors. Since its launch in July 2002, the fund has outperformed Sensex in overall returns by good margins.    While every 1,000 invested in HDFC Index Sensex Plus in July 2002 is worth 6,130 now, a similar amount invested in Sensex then wo...
Read more

Different types of Mutual Funds

You may not be comfortable investing in the stock market. It might not seem like your cup of tea. But you can start by investing in Mutual Funds. Many first-time investors invest in Mutual Funds. This is because they do not know how to invest in individual securities. Basic information on Mutual Funds People invest their money in stocks, bonds, and other securities through Mutual Funds. Each Fund has different schemes with specific objectives. Professional Fund Managers look after these schemes. Your Fund Manager could help you invest in a scheme that suits your financial goal. Functioning of Mutual Funds You could make money through Mutual Funds in different ways. A single Mutual Fund could hold many different stocks, bonds, and debentures. This minimizes the risk by spreading out your investment. You could earn dividends from stocks and interest from bonds. You could also earn capital by selling securities when their price increases. Usually, you could choose to sell your share any t...
Read more

IDFC - Long term infrastructure bonds - Tranche 2

IDFC - Long term infrastructure bonds What are infrastructure bonds? In 2010, the government introduced a new section 80CCF under the Income Tax Act, 1961 (" Income Tax Act ") to provide for income tax deductions for subscription to long-term infrastructure bonds and pursuant to that the Central Board of Direct Taxes passed Notification No. 48/2010/F.No.149/84/2010-SO(TPL) dated July 9, 2010. These long term infrastructure bonds offer an additional window of tax deduction of investments up to Rs. 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly. Long term infrastructure Bonds by IDFC IDFC issued an earlier tranche of these long term infrastructure bonds on November 12, 2010. This is the second public issue of long-te...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now