So do you think making multiple applications is always helpful?  

An instant answer to this is of course – yes! But remember as you are waiting to get your best option, all your loan applications are tracked by the credit bureau. 

Each time you make a loan application, the lending institution obtains your credit report to judge your credit worthiness. This is reported on your credit report as an ‘Enquiry’.  

Let us understand how these enquiries impact you? 

Firstly, 10% of your credit score is calculated based on your enquiries and hence it has the potential to bring your credit score down.  

Secondly, high number of enquiries indicate a “credit hungry” behaviour which is viewed negatively by lending institutions. 

Thirdly, these enquiries would reflect on your credit report for a minimum of 7 years! 

So what is the solution to avoid a high number of enquiries? 

In this age of technology, there are various loan comparison platforms which would help you to compare the terms offered by various lending institutions. You can filter your choice and then apply to one that suits your need.  

Whilst each time a lending institution obtains your credit report it is reported as an “enquiry”, there is no harm if you check your own credit report. Instead, it is vital to monitor your credit report frequently (i.e. at least twice in a year) to avoid identity theft and keep a check on your score.  

Also if you have obtained your credit report and have found an enquiry which is not a result of an application made by you then you should raise a dispute with the credit bureau.  

Having a credit report which is true and factual to your credit history is always advisable. 

The trick is to apply selectively and wisely!  

It impacts the “credit utilization” ratio i.e. credit used against the available limit. Credit utilization ratio is one of the factors based on which credit scores are calculated. Before closing that credit card understand if it is the correct move for you. Consider the following-

• Spendthrift

If you are a spendthrift and end up making purchases which are beyond your servicing capacity, then you should close your credit card. Although this is not the best solution to the problem, it definitely will ensure that you do not fall into a debt trap. It also reduces your options of shopping around randomly without having a genuine need.

• High fees

If your credit card has high annual fees, then you should repay your balance and close your credit card. Credit card issuing companies do offer credit cards with “zero” annual fees for the initial 1-2 years. These are steps to lure you to buy the credit card. But if you feel that the annual fee charges are high and unfair, then you should do away with the card.

• Repayment issues

If you have been only repaying the minimum amount due on your credit cards or frequently end up making late payments against your credit card then, may be time has come to close your credit card

• Balance transfer

If you have opted for a balance transfer, then it might be a good move to close that high interest credit card. The fact that you have opted for a balance transfer indicates your inability to service that card.

High fees, high interest rate, zero loyalty program or strain in repaying monthly dues….do you associate to any of these? Time to close that card then!

Marriage is a union of two souls and from a financial standpoint, it means saving for the future, buying a dream home or planning for your child’s education. Marriage can also have an impact on your credit score. Whilst, your “marital status” as such does not impact your credit score, there are certain myths that need to be demystified. 

• Merging of credit reports

Credit scores and reports is an assessment of your credit standing only. Although marriage unites two souls, it does not unite two credit histories.

• Your new last name will erase your credit history – This one is for the bride!

Ideally, after marriage you should report your new last name to all the banks from which you have borrowed till date. This will ensure that your past credit history gets linked to your future credit history. You would also not need to build your credit history all over again from scratch!

• Your spouse’s poor credit history impacts your credit score

Just like how credit reports do not merge after marriage, your credit score would also continue to remain independent of your spouse’s credit history. Unless, you have taken a “joint” loan and that loan is in default, this would not happen.

• You automatically become an “Add on card holder”

Getting married does not mean that you would be added as a add on card holder to your spouse’s credit card. Unless you apply for a add on card, this too would not happen,

Like marriage is the union of two souls, divorce is the termination of this union. A divorce can turn out to be an expensive affair to you. Here is how!

• You automatically are free from your “joint” liability if you divorce

If you have entered into a joint loan agreement, then you are both on the hook. A divorce does not dissolve the joint liability of repaying a loan. You would continue to remain as responsible for the repayments as you were when you were married. 

So go ahead; many reasons to get married….just beware of these credit myths!

1. Conversation skills: what they are and why they are important

Ok so here’s the first skill that was not taught – conversation skill. Conversations are supposed to be fun. They involve personal interactions between two or more people about something of common interest. But many people stress about having conversations. They are concerned that they won’t be able to keep the conversation going, or about what they will say or how what they say will be understood. Keeping a conversation going is something of an art, and one which many of us now seem to lack. Conversation is prevalent in every aspect of our lives this could be with our boss, with our work colleagues, with our friends, with our family and many others. Interestingly we are now called the “Silent Generation”- Do you know why? Well because our conversation don’t require us to actually speak with someone in person all thanks to the social media platforms, Thanks to the internet that we are all dependent on. Now by doing so our personal communication skill is destroyed. In real life we must master the art of connecting with someone personally, listen to them effectively and this can happen only if we spend more time in conversing with other people. Conversation skills are important to any career because it is the base means with which you express yourself to other people, specifically your colleagues, your boss and other people you will deal with in the career you have chosen for yourself. … Not all career growth opportunities are easily bestowed. Now that is the best way to have rewarding careers and better relationships as well. So if you haven’t worked on your conversation skill yet well start doing that. Non-verbal communication is another aspect of communication – and it’s extremely important.

2.Logical thinking to make right decisions

So here’s the other skill that was not taught in school – Logical thinking. In school students memorize data and facts essentially to be ready to pass an exam, however in the real world we have to make decisions for the short and long term which will have direct consequences on how our life is. Simply put, logical thinking is the act of deliberately and consciously analysing information so that you can make better judgements and decisions. It involves using- logic, reasoning, and creativity, to draw conclusions and generally understand things better. Now these decisions require quick and logical thinking and that is why we need to use more logical questioning which makes us think through scenarios and situations which indeed will equip us to make right decisions. We make several decisions every day and, whether we realize it or not, we’re all critical thinkers. As humans, we are constantly thinking. It’s something we can’t turn off. But not all of it is critical thinking. No one thinks critically 100% of the time… that would be pretty exhausting! Instead, it’s an intentional process, something that we consciously use when we’re presented with difficult problems or important choices. Logical thinking has a wide range of real-world applications. It can help you to make better decisions, become more hireable, and generally better understand the world around you. 

So that was it for today’s blog and I hope these self- improvement skills would help you develop your confidence and stay ahead in this competitive world of challenges. Ok so in the next part of this series we’ll find out about other soft skills like “Time Management”, “How to handle failures in life?” and “Non-verbal Communication”. Till then do try to apply these soft skills in your life and experience the positive change

Planning and prioritizing is important to ensure that the prize money is put to the best use.

Listed below are simple and easy ways in which should prioritize and use this prize money.

• Track your income and expenses

Continue to keep track of your income and expenses. Remember the money won in lottery is after all temporary. You should have a realistic approach before putting this money to use for meeting routine expenses.

• Pay off your debts first!

The next important step is to pay off your debts. Start taking small and consistent steps and gradually you would be debt free.

This would also help improve your credit report and hence your credit score.

• Create an Emergency Fund

This should be your top most priority after having cleared your debts. If you already have started maintaining an emergency fund then it is a good practice and if not then you should start immediately!

Emergency funds can be literally lifesaving as they could keep you going in case of unforseen events.

• Invest in different avenues

After setting aside funds for emergency purposes, start investing!

Understand your long term and short term goals and invest accordingly. Investments will help your money grow and facilitate you to reap benefits in future.

So plan and prioritize before you use that prize money!  And yes keep hoping that you and I both win a lottery soon….

P.S. Before you do all this, treat yourself and your family for a holiday!

As mentioned in our previous blogs on moratorium – We designed and constructed a survey, to interview industry leaders, with an aim to learn from their experiences of offering moratorium to their customers. Interviewing several business leaders at mid- size to large-scale, non-banking finance companies, housing finance companies, lenders with financial inclusion focus, and newer Fintech companies, our study scope encompassed all retail lending products.

The objective is to learn from these approaches, experiences, outcomes, and bring you relevant insights, from wide-ranging industry practices, and their impact on the credit culture.

Click the above link to download and access the survey report

In my mind I am thinking – wow, what did I help build! An organization – a concept that has replaced the proverbial hockey stick – the not so mythical recovery magic wand of days gone by.

On a more serious note, with some gentle prodding and not so subtle questioning, I discovered the following amazing facts:

• She had 5 credit cards with limits ranging from Rs 15,000 to Rs 30,000 in all aggregating to a limit of Rs 1,00,000 plus
• She had applied and got approved for these cards in the days of “indiscriminate gathering of credit card accounts” by lenders. 
• She was using them rather irresponsibly to pay for things she intuitively wanted, not thinking how she would pay back. 
• She was paying the “minimum amount due”, feeling smug about the fact she was never late on that minimum payment.
• She had now realized the very high cost of not paying the rest of the outstanding on time. 
• The dues had ballooned to a huge amount, due to the interest rate payable on the outstanding dues. 
• The aggregate outstanding was an amount she would not be able to service. 

…. And hence the calls from the recovery agents!!!

Over the next few months, we worked on a specific plan and weaned her away from this huge debt trap.

She was relieved (the calls stopped), her credit history improved and she started “hating” plastic with vengeance, having seen what it did to her financial situation and peace of mind!! And her efficiency at work improved too!!! 

For all of us, the lessons to always remember from this experience:

• Do not apply for or acquire credit cards beyond what you need.
• Cancel or close credit cards you do not use 
• Do not swipe cards beyond your capacity to pay all dues on the date the payments are due
• Remember you have to pay – swiping means delaying that – not wishing it away!
• This delayed payment comes at a huge financial cost – interest rates on outstanding credit card dues ranges between 30-38 % p.a. 
• Paying minimum balance is no answer – in fact it compounds the problem – lulls you into a false sense of complacency and belief that you are in control of your card bills. Don’t forget the huge interest on the unpaid amount. 
• Therefore, always pay on or before due date. 
• Do not put yourself in a position where the payment due hangs on you like a sword. 
• Use the credit card as a convenience – not as a tool to leverage your current income to borrow multiples of that income. 
• Before you swipe that card ask yourself – do I need to and can I pay this amount off when my next salary comes into my bank account?  If the answer to both questions is YES, then go ahead and swipe away!! 

Follow these 10 commandments and the evil plastic will not dominate your life! 

To finish on a lighter note – a bank called its credit card customer to say “your credit card payment is outstanding” and the customer grinned from ear to ear and said “thank you for the compliment”. You don’t want to be in that position!!

Step 1…Know what you OWE

To make sure that you don’t miss your payments and to maintain good credit history and a good credit score, figure out exactly how much do you owe, to whom and how much. Keep a record of all your loans and credit cards, including information such as:

Account / card number, lender/card provider, type of debt (housing loan, auto loan, credit card, etc.)  payment due, date due, interest rates, term, billing cycle and minimum payment due.

Keep these details (on your computer or in physical form) – ensure you have a copy stored elsewhere and most importantly, keep it safe and protected. And most importantly, update this information as and when required.

This will also help you grade the debt you have taken and accordingly prioritise your ability to pay off your debts. It will also help you to determine your servicing capacity, specially for new loans you are planning to take. To prioritise your debt, you should rank them in the order of preference of:

• Highest interest rate to the lowest interest rate
• Type of loan (unsecured loans, credit cards and high interest-bearing loans should be paid off first)

Step 2 – Pay off dues on time

 ‘To build a good credit score and to maintain a healthy credit history, pay back your debt on time’.

Please note that there are tax angles you should also consider whilst repaying your loans; for example, there are provisions in the Income Tax Act, for interest and principal repayments on housing loans and on education loans.

Step 3 – Prepare a Family Budget and pay your debts

Meaning of Budget:

Proper allocation and managing of funds and these funds should be bucketed in such a manner that they are used to pay your debts, maintain your lifestyle and can be used at the time of emergency (contingent funds).

The budget should stand up to a test in good and bad times. As of in this current   scenario it is important that you should allocate your funds in such a way that you are prepared for any emergency. It can be medical or any other financial crisis.  Also, reduce your debt burden by managing a proper allocation of funds in your budget.

Step 4   – Lower your BORROWING COST

Always pay back the higher interest loans first. 

There are various facilities available in the market which will help you to transfer from a higher interest rate loan to lower interest rate loan.

For example, in case of credit cards and housing loans.

For credit cards, making a minimum payment does reduce, to an extent, the repayment burden but has a ballooning effect which will ultimately have a serious impact on your cash flows. Also, the interest rate on credit card outstanding is very high. Thus, at times making minimum payment is not bad but to avoid a cascading impact, you should repay all outstanding in the next cycle.

But there are no free lunches in life; you need to understand the implications of the switch and read whether there is any catch in the “font 2 size “agreement which has all the hidden costs which may not be disclosed upfront to you.

Step 5 – Set up an EMERGENCY FUND

As we read in Step 3 about how to manage your budget, you should have some reserve funds for emergencies like the current situation that we are in. These funds will come to your rescue at the time of a medical emergency, which unfortunately can be a major cost. Not only medical these funds will prepare you for any uncertainties that might arise. Additionally, having a fund like this, will ensure you don’t have to pull out investments and other savings at such times.

Resist the temptation of dipping into this fund, either for day-to-day expenses or buying “desirables”, keep the funds away and assume you don’t have them, and hopefully you will never need them!  As a figure, you should keep and plan for around 3-6 months of your monthly expenses as the amount in the fund.

The other name for emergency funds is ‘Contingency funds.

Step 6- Live within your means

This is often hard to follow but the absolute truth always. You should spend money wisely – within your capacity. The same applies for debt, borrow only what you absolutely need and what you can certainly service. The future being uncertain you must plan your finances looking forward and spend accordingly because there could be endless possibilities of business being shut down, losing of jobs, lockdown etc. in such situations you must be ready to take care of your family along with managing your existing debts.

Banks will be prudent lenders; you have to be a prudent borrower.

Spend or expense in cash and if not in cash, then restrict yourself to use the Debit card but never a credit card, because the temptation of the using credit card starts from the day it come in your hand and if you do use a credit card then pay back the dues on time.

Don’t cut on your lifestyle, that’s tough, just be careful whilst upgrading your life style, do it in a manner that doesn’t dig a debt hole for you to fall into that cash trap.

And with the e-commerce and retail industry on the rise and the economy at large, credit cards won’t be disappearing anytime soon. The benefits of a credit card comes with the ease of carrying, better security and protection compared to cash, increasing your purchasing power, value added benefits like cash back and reward points, and emergency protection are some of the benefits that one can easily avail through credit card.

Here are 3 quick ways to maximize these benefits-

• Go for the long run– Become a long term customer with frequent use of the credit card. The longer the use of credit card showing good credit behaviour, more the positive impact it has on your credit score. Also, your chance of getting a loan, even a bigger loan, from lenders becomes brighter.

• Bridging that extra mile– It is a good practice to utilize maximum of your credit limit towards the beginning of your credit cycle. Suppose your billing cycle is from, say, 10^th of the month, then try to make maximum use of your card closer to dates in and around after the 10^th of that month. The more your usage is closer to the 10^th , the maximum free credit you get.
• Look out for the speed breakers– Try to avoid minimum payments on your outstanding amount. It is advisable to pay 100 per cent of your credit card bills as far as possible. Keep yourself disciplined to pay on time all the outstanding dues as this reflects good credit behaviour which also impacts your credit score.

Be light, be smart and carry a card.

We have come a long way since then and the day is not far when space tourism will become a reality. It has been a journey and the world has learnt along the way. 

Similarly, ways to good credit health are no longer a distant possible, – it is a distinct possibility –Let’s begin the countdown to good credit health today!

1. Be Aware:

The first step to make things right is to be aware of what is not right!  Awareness of your credit behaviour is what drives good credit health. Are you aware that you are spending beyond your means? Do you plan your monthly budgets and cash flow? Do you know your outstanding credit card amounts? Are you always “stretched “at the end of the month to pay of all bills and other expenses? All relevant questions – all answers you must have with you. 

• Credit to establish credit:

If you have taken loans or have an active credit card – make sure you pay all dues – always and on time! If you do not have any current outstanding loans or credit cards – it may be a good idea to take a secured credit card and build a good credit history! 

1.  Timely check-ups:

Just like your routine medical check-ups to ensure that “all is well”, it makes a lot of financial sense to check your credit report periodically (maybe once in 6 months) to make sure that everything there is about you, only about you and nothing else is in the report which is not pertaining to you. .

• Seek expert Credit Counselling:

With the increasing use of credit, the need for credit counselling is the increasing need of the hour. Credit counsellors help you manage your credit and advise you on ways to improve and maximise good credit health. We get busier day by day and do not have time, dedicated enough to manage our credit health, hence credit counsellors help – again like expert doctors when it comes to your health.

• Credit Cards and utilization:

It is better to distribute your credit card usage over more than one credit cards with lower utilization as against having a lesser number of cards and high utilization.   This helps avoid maximising your credit limit on one card. An interesting option would be to pay credit card outstanding – once towards the end of the calendar month (so that when the data goes to the credit bureau, your o/s balances are low) and then again when the billing cycle comes up, so that you are not delinquent. 

• Do not over shop for credit:

Each time you apply for a loan or a credit card, the lender that you apply to, will make an enquiry with a credit bureau. Too many enquiries imply that you are “credit hungry”, are shopping around, or are being rejected, resulting in you needing to apply to other lenders. Do your research before applying, select the lender that is offering you the best and most convenient option and then apply. Too many enquiries impact your score negatively and affect your credit health. 

•  Avoid minimum payments on cards:

If you only make “minimum payments due” on your credit card, be careful, you are digging yourself into a debt trap – and a very expensive one! Adhering to pay full amount due, is a good route to be credit healthy. Avoid minimum payments as they keep accumulating with interest by each passing month. If you borrow what you can repay is an excellent approach to a maximise your credit health.

•  Borrow only when it is absolutely necessary:

Only take loans when necessary. Evaluate the need in an objective manner and do not do “intuitive shopping for large ticket sizes.”. Going overboard with a number of credits to your name will lead you into a debt trap which will worsen your credit health. Limit yourself to the number of loans you need rather than what you desire!

• Plan your cash flows and monthly budgets:

It is all about cash flow management and budgeting. Prepare a 12-month budget and factor in contingency plans and servicing of current loans. Make sure that you will have surpluses to service any new loan / credit you are planning to take – does not make sense repaying loans from savings. 

And finally, the “blast off” –  

• Always pay your loans on time!! 

Make sure you pre plan your budget strategically and pay your loans on time.

Follow these simple 10 “count down” and you will take off to a great credit health!!!