Many Financial Experts share several tips on how to improve one's credit score and brighten prospects of
getting a bank loan. Originally propagated by credit information
companies like Credit Information Bureau (India) Ltd (Cibil), Experian
and Equifax as part of their campaign to educate the average individual
about the importance of a good credit history, the dos and don'ts list
has acquired a demonic flavour at the hands of some of these experts.
For example, a 35-year-old executive at a private firm was told by his
financial adviser that he should consider taking a loan just because it
will improve his credit score. Another was asked to get rid of his
multiple credit cards to boost his credit score.
The expert wouldn't budge even after the person explained to him that he was using those cards for specific purposes like air travel, buying petrol, eating out and so on and that he gets discounts and other benefits on those cards. Also, those cards were issued to him free by the banks he had accounts with. "Even I was told recently that I should go for a loan because it will enhance my credit score and my chances of getting a loan from a bank in future," says Gaurav Mashruwala, a certified financial planner. "Somehow the Gujju blood in me doesn't buy the argument that I should pay interest now on a loan to get a loan in future."
Enter Credit Score
What's the score is almost always about cricket in this country. However, loan seekers have started dealing with another score --credit score -- in the past few years. Cibil was launched in 2000, but in the past three to four years the company has managed to get into the consciousness of loan seekers with their credit score and credit information report.
"When we started out there was very little consumer awareness about the importance of having a good credit history or a good credit score. Our efforts were to fill this gap through a series of educative articles in the media," says Harshala Chandorkar, senior vice-president, consumer relations, Cibil. However, these seemingly simple pointers (minus the valuable details) have become almost a mission statement for some selfstyled advisers.
Bankers' Day at Work
Mashruwala says he finds it incredible that banks wouldn't go beyond credit score while assessing loan applications. "I don't think any bank would overlook the history of your relationship with it," he says. Rajesh Kumar, senior executive vice-president and head of debt management, risk intelligence and business analytics at HDFC Bank, clears the air: "The objective of a bank's credit appraisal process is to evaluate the capacity and the intention of a customer to repay a loan as per the agreed terms." He goes on to explain the process in detail: the bank collects information, relevant documents from the applicant and the credit information from bureaus.
This information is then processed against the predefined credit policy of the bank and, depending on the type and quantum of loan, typically banks collect the applicant's personal information. "This provides insights into the applicant's capacity to repay a loan. The credit bureau report provides details of the applicant's existing and closed loans, card details like amount sanctioned, tenure and promptness of repayment.
This clearly indicates the intention of the applicant, in terms of discipline towards debt obligations," he adds. Jairam Sridharan, head of consumer lending and payments at Axis Bank, says it is always a combination of factors that helps secure a loan. "Of course, a credit score of above 650 would definitely help, but a bank will also look into a host of other factors, including age, growth profile of the individual, demographic profile, the profile of the assets..."
Fixing the Problem
"Typically, banks inform the customer about the reasons for the rejection of her loan. If the customer finds that the reason given is wrong information about poor credit repayment in the past, then she needs to contact the credit bureau and the lender who reported the same and get the same rectified," says Kumar of HDFC Bank.
"The regulators have put in place a well-established process with clear timelines to help the customer carry out the rectification." Jairam says individuals shouldn't look for oversimplified methods to improve credit scores. "Individuals should remember that if they have a loan for an extended period of time, they should make payments on time." Chandorkar also asks individuals to pay attention to the details.
At the end of it, it all boils down to good financial habits, say financial advisers. Multiple credit cards won't spoil your chances of getting a loan, but your spending and repayment habits definitely can. Similarly, entertaining every other offer for a personal loan won't automatically disqualify for a loan, but you may have to do some explaining to the bank. This is because your credit history will show that you are always looking for credit. Always remember that there are credit information companies maintaining your record of payments on loans and credit cards, and submitting it to banks and other lenders on a monthly basis. And that eventually settles your credit score.
The expert wouldn't budge even after the person explained to him that he was using those cards for specific purposes like air travel, buying petrol, eating out and so on and that he gets discounts and other benefits on those cards. Also, those cards were issued to him free by the banks he had accounts with. "Even I was told recently that I should go for a loan because it will enhance my credit score and my chances of getting a loan from a bank in future," says Gaurav Mashruwala, a certified financial planner. "Somehow the Gujju blood in me doesn't buy the argument that I should pay interest now on a loan to get a loan in future."
Enter Credit Score
What's the score is almost always about cricket in this country. However, loan seekers have started dealing with another score --credit score -- in the past few years. Cibil was launched in 2000, but in the past three to four years the company has managed to get into the consciousness of loan seekers with their credit score and credit information report.
"When we started out there was very little consumer awareness about the importance of having a good credit history or a good credit score. Our efforts were to fill this gap through a series of educative articles in the media," says Harshala Chandorkar, senior vice-president, consumer relations, Cibil. However, these seemingly simple pointers (minus the valuable details) have become almost a mission statement for some selfstyled advisers.
Bankers' Day at Work
Mashruwala says he finds it incredible that banks wouldn't go beyond credit score while assessing loan applications. "I don't think any bank would overlook the history of your relationship with it," he says. Rajesh Kumar, senior executive vice-president and head of debt management, risk intelligence and business analytics at HDFC Bank, clears the air: "The objective of a bank's credit appraisal process is to evaluate the capacity and the intention of a customer to repay a loan as per the agreed terms." He goes on to explain the process in detail: the bank collects information, relevant documents from the applicant and the credit information from bureaus.
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This information is then processed against the predefined credit policy of the bank and, depending on the type and quantum of loan, typically banks collect the applicant's personal information. "This provides insights into the applicant's capacity to repay a loan. The credit bureau report provides details of the applicant's existing and closed loans, card details like amount sanctioned, tenure and promptness of repayment.
This clearly indicates the intention of the applicant, in terms of discipline towards debt obligations," he adds. Jairam Sridharan, head of consumer lending and payments at Axis Bank, says it is always a combination of factors that helps secure a loan. "Of course, a credit score of above 650 would definitely help, but a bank will also look into a host of other factors, including age, growth profile of the individual, demographic profile, the profile of the assets..."
Fixing the Problem
"Typically, banks inform the customer about the reasons for the rejection of her loan. If the customer finds that the reason given is wrong information about poor credit repayment in the past, then she needs to contact the credit bureau and the lender who reported the same and get the same rectified," says Kumar of HDFC Bank.
"The regulators have put in place a well-established process with clear timelines to help the customer carry out the rectification." Jairam says individuals shouldn't look for oversimplified methods to improve credit scores. "Individuals should remember that if they have a loan for an extended period of time, they should make payments on time." Chandorkar also asks individuals to pay attention to the details.
At the end of it, it all boils down to good financial habits, say financial advisers. Multiple credit cards won't spoil your chances of getting a loan, but your spending and repayment habits definitely can. Similarly, entertaining every other offer for a personal loan won't automatically disqualify for a loan, but you may have to do some explaining to the bank. This is because your credit history will show that you are always looking for credit. Always remember that there are credit information companies maintaining your record of payments on loans and credit cards, and submitting it to banks and other lenders on a monthly basis. And that eventually settles your credit score.
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