Tag: credit card

How to improve your credit score post-pandemic

Personal Finance

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When any adversity hits, we as human beings put our rational thought process on the back-burner and err. If these decisions are linked to financial matters, then the cost multiplies, snowballing beyond one’s control.

When the pandemic struck, the behaviour was no different. Loss of job or paycuts, bulky medical expenses – borrowers were forced to cut corners. Loan and card bills suffered, impacting the credit score.

As green shoots emerge, it is an opportune time to reflect on the financial faults and correct the past mistakes such that your credit score gets a fillip.

The Reserve Bank of India’s moratorium gave respite to borrowers for the period between March 1, 2020 to August 31, 2020, while ensuring that the moratorium seekers’ credit report is not affected.

However, there could be other aspects such as credit utilisation and monthly repayment obligations which need your attention now.

A good credit score not just brightens the prospects of getting a loan, but also determines the rate at which the loan is given. If another catastrophe strikes, a high credit score acts like a shield to guard you from a credit crunch.

Start with the basic step of sourcing a copy of your credit report from either of the credit bureaus. Note that every credit bureau offers the borrower a free credit report once a year.

Pay up costly loans

To make ends meet during the pandemic if you went all out seeking loans, especially withdrawing cash using credit cards, then that should be your first rectification step. Cash on credit card is the costliest loan and any surplus that you have, should be used to pay that at the first instance.

Next on your radar should be to shorten the list of loans, trimming them based on the interest rate you pay – the highest rate loan paid out first. Fewer loans mean better focus at handling debt, which augments your credit score.

Continue older loan/ credit card

To shorten the list of loans, do not consider closing the older loans or credit cards first. With the older loans and credit cards there is credit history, and this can positively impact your credit score.

Restructure loans

If you are struggling with your loan repayment as the pandemic left you without a job even six months later, then sit across the table with your bank and renegotiate the payment terms, interest rate or EMI amount, such that it is easier for you to pay. Such restructuring of loan enables you to make timely repayment on your terms, ensuring your credit score is not affected due to loan defaults.

Minimise credit utilisation

Using up 100 per cent of your credit card or overdraft limit indicates your inability at handling money. Bankers fix their gaze on what is referred to as ‘credit utilisation’ or the amount of free credit limit available on your cards. Instead of using up 90 per cent of your credit limit on one credit card, it makes immense sense to have three cards with 30 per cent credit limit consumed. This simple but critical step aids to your credit score as only a small portion of the available credit limit has been used.

Lastly, treat these credit sanitisation practices like hygiene. Difficult to establish, but once inculcated, they feel like second nature.

(The writer is, MD and CEO, CRIF High Mark)

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Axis Bank launches credit card ‘AURA’ for health conscious individuals, BFSI News, ET BFSI

Banking & Finance

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Private lender Axis Bank has a launched a credit card dedicated towards various health and wellness benefits. The lender said the card, aimed at health-conscious individuals, would have tie ups with Decalthon, Practo, Fitternity, IndushealthPlus, 1MG, amongst others.

Named “Aura”, the card would entitle various benefits including offering an annual medical check-up through IndushealthPlus, and four free monthly online consultations through Practo across 21 specialities. Axis Bank said cardholders would also be allowed four free fitness sessions through fitness platform Fitternity, along with access to 16 recorded training sessions.

Sanjeev Moghe, EVP & Head, Cards & Payments, Axis Bank, on the launch of the card said “Our analytics indicated a strong trend amongst consumers with the way they have been spending on health care products, which showed a significant spend lift in the health and wellness categories. To address this specific customer need and to tap the growing market, we have launched ‘AURA’, a credit card loaded with health and wellness solutions.”

“We believe that there is a genuine need of a product catering to the health and wellness needs of customers, and this can be easily addressed through our unique product proposition,” he further added.

Private lender YES Bank had on January 15 launched its health and wellness dedicated credit cards, which include health check-ups, lifestyle benefits and doctor consultations.



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Why having no credit history is a disadvantage

Personal Finance

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With the Reserve Bank of India (RBI) slashing the policy rate to just 4 per cent in 2020, banks have lowered the interest rates charged on various retail loans — personal, vehicle and home loans — in the last few months.

Yet, many of you, especially the first-time borrowers, may not get the best rate in the market. A common reason for this is your low credit score.

A credit score represents the creditworthiness of an individual, typically assessed by external agencies or credit bureaus. In India, the RBI has licensed four such credit information companies — CIBIL, Experian, Equifax and CRIF High Mark.

The CIBIL score — the most widely used one — for instance, ranges between 300 and 900, in increasing order of one’s creditworthiness.

Borrowers with a CIBIL score of 750 and above are usually offered the most competitive rates by banks. For individuals, whose score is lower than 750, banks charge higher spreads, after considering other factors such as the size and the type of the loan. For instance, SBI charges an interest rate of 3 per cent over the two-year MCLR from a borrower with CIBIL score of 757 and above for loans availed under SBI Car Loan Lite Scheme (a fixed-rate auto loan). Under the same scheme, borrowers with scores ranging between 689 and 756 will be charged a rate of 4 per cent over the two-year MCLR. Some banks might outrightly reject a loan applications because of the poor credit score of the borrower.

While it is a no brainer that borrowers with irregularities in repayment of EMIs or credit card bills would suffer from a lower credit score, the first-time borrowers are not better off either.

No credit history

A borrower who has not availed of any credit in the past would get a credit score of less than 750 only. In some cases, the score may also be reported as ‘NA’ or ‘NH’, indicating that the borrower does not have sufficient credit history and is viewed negatively by lenders.

This is because having a credit history enables a lender to assess your repayment capabilities by determining whether you have managed your credit responsibly in the past. Besides, your credit history helps lenders to assess your ability to service any additional debt that you may require.

In the absence of any such reference to check the payment track record, the lender will have to rely on other factors such as income and demographics to evaluate the creditworthiness. Hence, CIBIL gives such borrowers a low score, implying the need for further due diligence by the lender.

The CIBIL score tracks payment records of the past 24-36 months. Ideally, one should have a minimum credit history of at least six months as on the date of generation of your credit report for a better score.

Frequent loan enquiries

Even if you haven’t taken any loan till now, if you have reached out to multiple bankers to check the best deal available for you, it may work against you. CIBIL captures information on the loan enquiries made by you in the last seven years. Each of your loan application would have in turn triggered a hard credit enquiry by the lender. Multiple hard enquiries in a short span of time reflects a behaviour of seeking excessive credit. Rejected loan applications also impact your credit score.

However, one must remember that when you check your score for your own understanding, it is just considered as a ‘soft inquiry’ and has no impact on your credit score. You can check your CIBIL score by providing details of your PAN card and email ID, on CIBIL’s website.

Mind your limits

If you have now decided to take a credit card, in a bid to improve your credit score, be mindful of your credit spends. Any increase in the outsanding balance of your credit card, or an increase in the number of cards, is viewed as an increase in repayment burden and may negatively impact your credit score.

Besides, your detailed CIBIL credit report also reflects the highest amount ever billed (including interest and fees) for a particular credit card or overdraft facility.

That apart, while evaluating your current loan mix, CIBIL views unsecured debt obligations negatively (juxtaposed to secured debt such as home loans etc. that help build long-term appreciating assets).

To keep your credit score in check, avoid taking up multiple credit cards, and try to limit your credit utilisation within the 30 per cent of your credit limit, unless required.

(This is a free article from the BusinessLine premium Portfolio segment. For more such content, please subscribe to The Hindu BusinessLine online..)

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IDEMIA partners with IndusInd Bank to launch metal credit card, BFSI News, ET BFSI

Banking & Finance

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Metal payment card technology entity IDEMIA, in a partnership with IndusInd Bank, announced the lender’s first metal credit card. The entity said IndusInd Bank, which has named the card as “PIONEER Heritage”, added “Payment cards are no longer a mere payment tool in India but also reflect the lifestyle of the card holder,” IDEMIA quoted “Research shows that buying premium products makes 52% of global customers “feel good, and metal cards are a major differentiator for 58% of the card holders.”

IDEMIA further said “high-quality material, superior style, handcrafted design and artisanal effects,” defined the exclusivity quotient for card holders, whilst adding “Equipped with best-in-class features and privileges across categories like travel, wellness, lifestyle, among others, the all new metal credit card – offers exclusivity to wealth customers of IndusInd Bank by providing them with a superior payment experience powered with innovative technology.”

Amanda Gourbault, Executive Vice President, Financial Institutions, IDEMIA, on the launch of the card said “As the world goes digital, payment cards are arguably the last physical touch-point between the bank and its customers. The significance of metal cards is to promote IndusInd Bank’s brand and serve as a tool to create loyalty for the bank,”

“Our global experience is that Metal cards facilitate Card Holders’ exclusive and premium payment experience and hence the customer loyalty,” Gourbault further added.



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All you need to know about credit card EMI

Personal Finance

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Are you planning to use the credit card EMI option to purchase big-ticket items this festival season?

Here, we lay down some points that you need to know before availing yourself of the equated monthly instalment option on your credit card.

 

Note the rate

Pay attention to the interest rate you are charged.

Different interest rates are applicable to different tenure options that span three to 24 months.

Generally, credit card companies charge interest at the rate of 12-15 per cent per annum.

It’s a good idea to compare the interest rates on credit card EMIs with the rates charged on consumer durable loans offered by various banks and financial institutions.

Also, check if any processing fees are applicable.

Make an informed choice taking into account total effective cost.

Sometimes, banks offer no-cost EMI on certain products, which means you need to pay just the price of the product or the service with zero interest component in your instalments.

It’s another thing that no-cost EMI could be a marketing hook.

That’s because, often, the discount you would have been eligible for — had upfront payment been made on the purchase — will not be allowed in case of credit card EMI payment option.

The discount foregone may nullify the interest benefit.

No ‘MAD’ option

Buying with a credit card using an EMI option is different from making a purchase using a credit card and then opting to pay the minimum amount due on the bill.

In the latter, credit card companies allow you to defer your liability by paying only a portion of your monthly outstanding due — this is called minimum amount due (MAD), which is 5-10 per cent of the total outstanding due.

Despite the higher interest charges in this option, paying MAD provides a breather at times of cash crunch and helps in avoiding the late fee and penalty that is usually charged on non-payment of dues within the cut-off date.

However, the MAD option is not applicable to the EMI charge on your credit card dues.

Say, the due on your credit card for September is ₹30,000, including EMI charge of ₹20,000.

In this case, the MAD would be ₹20,500 (EMI of ₹20,000 plus 5 per cent MAD on the balance ₹10,000).

If the credit card dues do not include EMI charges, the MAD would be ₹1,500 (₹30,000 x 5 per cent MAD).

Pay by due date

If you miss the deadline to pay credit card dues that include EMI charges, you will be heading for trouble.

In addition to the late fee charges, interest at exorbitant rates of up to 40-50 per cent per annum will be charged on the total due amount.

Worse, the interest charge wouldn’t be from the due date of the credit card payment but from the date of each transaction; this could jack up the interest charges significantly.

Simply put, if there is a default of an EMI payment, one would lose the interest grace period of 15-45 days that credit companies offer customers.

For example, say, on October 20, 2020, the EMI is charged to your credit card, which is due for payment on November 10.

If you miss the deadline and make the payment on November 15, you are not only charged the late fee amount but also interest charges from the date of transaction, that is October 20, till the date of payment.

In this case, you would lose the interest grace period of 21 days — October 20 to November 10 — offered by the credit card company.

Limit blocked

When you opt for credit card EMI, the amount equal to the outstanding EMI amount will be blocked in your credit card limit and only the balance can be utilised for your future credit card usage.

Prepay with fee

If you want to prepay the EMI amount before the due date, you will be levied foreclosure charges. For example, ICICI Bank charges a foreclosure fee of 3 per cent.

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