Wednesday, March 27, 2013

Let me be a financial Guru for the time being !!

Individual Credit rating, a must for our financial wisdom.

Credit appraisal. Credit rating, these are buzz words for a banker especially when he face customers who come for Loans (be it corporate or retail), and as it is a big thing for the bankers/financial institutions, It is a big thing for IT companies also as we need to provide them adequate technology support. What does it mean? The credit appraisal/rating is a process to identify the credit worthiness of the particular customer based on his financial and non-financial capabilities. It is a critical indicator for the banker/institution to understand the intentions and ability to repay the loan amount by the customer.

So it is important for the customers to prove his repayment capabilities in front of the credit appraisers to avail the loan. It is often we hear from the customers that he is unable to get the loan amount from the financial institution, although he earns sufficient salary income. Let us check some of the important parameters considered by an appraiser during the credit appraisal.

1. Regular inflow of cash , sufficient to pay the monthly installments

The customer should have a consistent inflow to repay his potential EMI

2. Existing assets and Liabilities

The customer should be able to maintain a good balance between his Assets and Liabilities, and he should not have too much unsecured loans (like credit card loans, Personal Loans etc).

3. Previous credit history

Bank shall examine the previous credit history in which how he repaid back his secured and unsecured loan liabilities. CIBIL report would help them understand the history better

4. Any Cheque Bounces

Cheque bounces are considered serious and it may adversely impact the credit rating, if you have many bounces

All the above parameters should define an indicative measure about a customer’s repayment behavior pattern and it is more important than understanding a repayment capability in absolute terms.

Now, how do we, as retail customers understand our own credit history? Banks may not inform you about your credit scores but they tell about your eligibility and other facts. So it would be good if we have our own credit history with us before approaching the financial institution for any loans, and that can avoid lot of embarrassment in fact. It is like doing a simple blood test before your marriageto avoid lot of future embarrassments (alas!)

Know your Credit Score

Credit Information Bureau (India) Limited (CIBIL) is India’s first credit information bureau, a repository of information which contains the credit history of consumer and commercial borrowers. Most of the leading financial institutions, NBFCs, Banks, housing finance companies, SFCs and credit card companies in India are the members of CIBIL and hence it has all information of credit history recorded. On request of the members, it will provide the credit history report to them. Recently (Around a year back) CIBIL started providing the individual credit rating on customer’s request. It’s a very simple 3 step process; First customers need to complete the on-line form, with all mandatory details. Second step involved the payment through its gateway and third step is an authentication process, in which customers should authenticate themselves by answering at least three of the five questions generated by system. These questions are very personal to the customers and it should be accurate. If your answers are correct, CIBIL will provide you a detailed credit history report with a rating score by email within a week or two. If you are unable to answer the questions, you may still complete your application, generate the printout, and send to CIBIL via post/courier, they can provide you with a detailed credit history.

Now about the score. CIBIL score is calculated based on your previous credit history and the score would be out of 900. Anything above 700 is a good score for sanctioning loan subject to other eligibility conditions met and less than 700 is often leads to rejection.

Sounds good right! So be ready with your credit score and approach the banker confidently for abetter loan negotiation, who knows he might even approve a higher loan amount than you expected as your scores are excellent! (Should be 750 and above).

What’s new?

CIBIL is working towards generating a similar credit index for companies as well but it may not be a score, shall be a risk index of 1 to 5.

Bottom line

Recently I got my score from CIBIL and it says 847! No wonder banks are happily increasing my loan limit even though they don’t see any significant improvement in my salary 

Are you ready to check your credit health and be relaxed to face the banker?