Focus on credit factors and not on your credit score

If you are a financially conscientious individual, you may already know that your credit score is an important three digit numeric expression that is looked upon as a barometer of your financial health. But even those who know all about credit scores and credit reports tend to focus only the three-digit number that is their CIBIL score. It is important to make a constant effort to improve CIBIL score, as it will improve your chances of getting timely credit at competitive rates. But what is most important to have a complete and thorough understanding of the factors that influence your credit score. Here is a summary and respective weightage of the factors that constitute your CIBIL score:

 

Payment track record- 35%

 

Any article that you have read about how to increase CIBIL score may have always begun with the need to make timely payments on whatever line of credit you have availed of. This is simply because your payment history is the most important factor that influences your CIBIL score. If you are habitually late in making payments for a considerable stretch at the time of servicing credit, it will have a negative impact on your CIBIL score. Therefore, the first and the foremost rule that you must keep in mind while availing of any type of credit is that it is mandatory to make payments on or before the stipulated date. This is half the job done and will help you increase credit score in the long run.

 

Credit utilization- 30%

 

People often wonder why their credit scores don’t improve even though they are making timely repayments. This is probably because of credit utilization- another important but neglected factor that influences the credit score of an individual. Simply put, credit utilization is the amount of credit you are using as against your total available credit. Ideally your credit utilization should not exceed 30%. A lower utilization rate over a time leads to a better credit history and thus an improvement in your CIBIL score. A good way to keep utilization rate low is to keep your credit card debt under check.

Did you know that your oldest credit card can help you keep your credit score high? This is because the age of credit or credit history is a factor that influences your CIBIL score. The longer your credit history the better your chances of enhancing your credit score. So, even if you are not using a credit card that you had taken long back, do not make the mistake of closing it. Make the full payment on it and keep it locked away by all means, but do not relinquish it. This will not only shorten your credit history, it will also enhance your credit utilization.

Amount and timing of new credit- 10%

Each time you make an application for a new line of credit through Emi Calculator, the prospective lender puts in a request with CIBIL to get permission to access your CIBIL report and CIBIL score. A request of this nature is called a hard inquiry. Each time there is a hard inquiry on your CIBIL report, your score comes down by a little. Too many hard inquiries over a short period prove to be detrimental to your credit health. On the one hand, it brings down your credit score and on the other projects you as being “credit-hungry”. A lender is usually wary of lending to those who come across as credit hungry individuals as it increases their risk factor. To avoid coming across as credit hungry, you must try to space out credit adequately. For instance, if you are planning to take a big loan such as a home loan in a year, do not avail of any other new line of credit at least six months prior to it.

 

Mix of credit-10%

In the modern world credit is available easily. On any given day, you perhaps receive a dozen calls to avail of a personal loan or a credit card. In a moment of weakness, when funds are running low, you may even be tempted to avail of fresh line of unsecured credit. But in the long run, it turns out to be a debt trap that you find difficult to get out of. The first rule of credit is therefore to avail of it only when there is dire need for the same. Unsecured credit such as easy personal loans or an online credit card may seem convenient, but too much of unsecured credit does not augur well for your credit health.  To keep your credit score high, you should have a good mix of secured and unsecured credit, as the mix of credit is another factor that influences your CIBIL score. Ideally a home loan with a credit card or two or a car loan with a credit card and a personal loan are considered a good credit mix.

[Source: https://www.creditsudhaar.com/blog/2017/01/30/focus-on-credit-factors-and-not-on-your-credit-score/%5D

Why Should You Use EMI Calculator Before Applying For A Loan?

Loans are an integral part of our lives today. They help achieve some important financial goals which would otherwise not be possible. Be it funding your child’s future education or arranging money for marriage, paying for your dream home or that much wanted car. Whatever the need be, there is a loan for every purpose. There are important terminologies associated with every loan. “EMI” is one such common term.

 

Loans are repaid in Equated Monthly Instalments (EMIs). Every month a stipulated amount is deducted from your monthly salary towards repayment of your debts. EMIs can either be paid through auto-debit instructions set up on salary accounts or the borrower can send cheques every month. In either scenario, the amount to be paid back is the same, month on month, for the entire tenure. This amount is officially referred to as EMI.

 

How EMI is calculated?

Primarily there are three factors that are taken into account when computing an EMI. They are:

 

  1. Amount of Loan – This the total amount of money borrowed. In some cases, the loan may be sanctioned for a larger limit however; only a part of it is used so the EMI is calculated not on the sanction limit but on the amount of money actually borrowed.
  2. Interest Rate – This is the rate of interest that will be charged by the lending institution on the sum lent. The interest is calculated on reducing balance.
  3. Loan Tenure – This refers to the entire period for which the loan has been granted. The tenure in months is used for calculation purposes. Alternatively, this can also be called the number of instalments due.

 

EMI is calculated as below:

 

EMI = P * r * (1+r) n/ (1+r) (n-1)

Where,

P = Principal or Amount borrowed

r = rate of interest per annum

n = number of instalments.

 

Thankfully in this age of technology you do not have to indulge in manual calculations. You can make use of online loan EMI Calculator to instantly arrive at a possible EMI. Given the calculation above, it is aptly clear that EMIs are directly proportional to interest rate and principal amount, while it is inversely proportional to the loan tenure. In simple words, higher the amount borrowed or higher the rate of interest, the EMI will be higher too. However, longer the tenure, smaller will be the EMI.

 

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For example:

For a personal loan of 1, 00,000 at the rate of 12% for 12 months, the EMI would be = 8884/-. For a personal loan of same amount for the same tenure but at rate of 15%, the EMI would be = 9025/-. For a personal loan of 2, 00,000 at the rate of 12% for 12 months would yield an EMI of 17,769/-. Whereas, for a loan of 1, 00,000 at the rate of 12% for 36 months would spell into an EMI of 3321/-.

 

Thus you can see how your EMI changes with a change in any of the three primary factors.

 

Why Calculating EMI is so important?

A lot of people are extremely enthusiastic about getting financed. While they plan extensively on what to do with the funds received, they often go underprepared from the debt-repayment perspective. Knowing what your EMI would be before you have applied for a loan would enable you to budget your monthly expenses accordingly.

People who have calculated their EMIs are prepared for what they are getting into, plan for how their lives will be impacted post the EMI and deal better with the burden of debt-repayments than those who don’t plan enough. Goes without saying, the difference of better planning often shows in better credit scores.

 

Comparing EMIs on loan offers by different lenders guides borrowers to better deals.

 

EMIs are calculated in such a fashion that with every installment, a part of the principal and a part of the interest is repaid. Interestingly, and contrary to popular customer belief, during the initial phase of the loan tenure, a larger portion of the EMI is allocated towards repayment of interest. Practically after half the tenure has passed, a larger fraction of the EMI is accounted towards principal.

More of this can be made clear through an Amortization Schedule. This is an important table that shows the break-up of your EMI into interest and principal components, month on month. You can either request for an amortization schedule from the bank you apply to or you can calculate the same using online loan interest calculator. This is another important document you must go through before signing any documents.

 

Why does the EMI change over the tenure?

Incase during the loan tenure, there is a change in any of the three variables that go into the calculation of the EMI, then the EMI might change. Some of the common reasons are:

 

  1. Borrower prepays the loan – this means the principal amount will fall and therefore the interest calculated on the balance amount will change too. This will bring the EMI down.
  2. Interest rate change – If your loan is based on flexible rate of interest then the EMI will be adjusted to account for the change in interest rate.
  3. Borrower requests for restructuring of loan and an increase in loan tenure. This is will mean a lower EMI.

 

Summing-Up

Since computation of EMI is made easy with the help of online EMI Calculator, every person hoping to take an advance must make use of it. It helps in calculating your affordability by helping you understand on what will your left over disposable income ultimately. This in turn helps you to avoid poor credit.

 

EMI varies with loan tenure and interest rate. Amortization schedule helps the borrower see how much outstanding balance is left. It is especially helpful when the loaned wants to foreclose or prepay the loan. The bottom line of any loan is the EMI. Knowing the EMI keeps the borrower from hitting the bottom.

 

{Source: https://www.creditsudhaar.com/blog/2016/09/26/why-should-you-use-emi-calculator-before-applying-for-a-loan/}

How EMI Calculators give insight on home loans?

There has been a lot of change in the real estate sector in the recent past.  The houses are packed with amenities and the prices of these houses have been rising continuously since the recent past.  Every individual wants to own a house which is near to the prime location.

 

Whenever you take a home loan it is necessary to take into consideration the certain factors that are related with it.  The tenure of the repayment, the home loan interest rate, the principal loan amount is the key factors that need to be studied at that time. Home loans are given by various lending institutions and banks.  The home loan interest rates range between 9-10% with a mere processing fee of 1-2 % if the loan amount.  Hence, the easy and affordable housing loans have been catering to millions of people to buy their dream home.

 

Just, like the bigger investments you have done while buying a house you need to be clearly aware of the EMIs you are paying. Because it is the certain amount that you are going to pay to the lending institutions for the next 15-20 years. Home loan EMI Calculator that is available on the website of the lending institutions will help you in calculating the monthly installment that you have to pay. They will help you in computing the EMIs beforehand so that it doesn’t strain you financially in the future.

 

Home loan EMI calculator takes you a step closer to your housing loan in this way:

Get instant results: The home loan EMI Calculator will help you cut short the lengthy and tiresome process of the arithmetic calculations. You will get the results in just few seconds. You get the amount which you are going to pay instantly at the click of your mouse without hiring a financial advisor or expert for the same.

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Easy to use: The EMI calculators are easy to use and are designed in such a way that anybody can use it without any training. You simply need to enter the details of expected home loan amount in the space that is assigned or else there are sliders too. Adjust the sliders as per your needs and you will get results.

 

Enables to try different combinations: You can experiment with the home loan EMI calculator by inserting different values or adjusting the sliders. You can try variations in the costs of the loan, the interest rate, and emis to be paid, etc. You can also recalculate your home loan a number of times you want to.

 

It is free of cost: You can use this home loan EMI Calculator a number of times without any cost. This online tool is available 24*7. So you can save the money which you used to pay to the financial advisor.

 

The home loan emi calculator works on two different arithmetic formulas and includes two different calculators, the home loan interest rate calculators and the home loan emi calculator. The first calculator computes the monthly interest on your home loan and works on a very simple formula.

 

While home loan EMI Calculator helps you understand home loan, the interest rate at which the loan is availed, processing fee applicable, tenure of the loan repayment and the exact monthly installments on your housing finance.

Understanding Home Loan Eligibility.

Building a home incurs significant costs, and for banks to be able to lend to you the required amount for taking house loans, they have to be convinced that you have the capacity to repay what you’ve borrowed with interest within the stipulated time period. A measure of this ability is known as Home Loan Eligibility.

 

People from different levels of income are eligible for different amounts of loans based on their salaries and expenses. It is calculated on the basis of multiple factors including monthly income, fixed monthly obligation, current age, retirement age etc. Basically your home loan eligibility can also be considered an indicator of your home loan affordability.

 

You can get a rough idea of your Home Loan eligibility through a home loan eligibility calculator that is available online. By entering the required details, you can find out the amount of loan you are eligible for, the interest that will have to be paid, and the tenure of loan.

 

These calculators can also be used as a housing loan EMI calculator, as most Home Loan Eligibility Calculators today will tell you the amount of payable EMI as well. Your home loan eligibility can also be helped by having a good CIBIL score. A CIBIL score is a three-digit numeric summary of your credit history derived using the credit history found in the CIR. A CIR is an individual’s credit payment history across loan types and credit institutions over a period of time.

 

Home Loan Eligibility Criteria:

Different banks have different criteria for deciding an individual’s eligibility for a home loan of a certain value. Hence there is no standard calculator that can give you an all-round eligibility, across all banks or the economy. However, there are certain common factors that decide your eligibility that are common all across.  These include:

home-loans

 

  1. Deposit amount
  2. Credit history- This is where your CIBIL score that was mentioned previously comes into play. The more regular you were, in paying off mortgage of previous loans, the better your loan history is going to look and hence the better your chances will get in getting your new loan approved.
  3. Income- The amount of loan you can get from a bank is directly proportional to the amount of monthly or annual income you have, as this directly affects your loan affordability and your ability to repay said amount.
  4. Financial stability- The type of employment also plays a factor here. A self-employed individual who would have different earnings in different months would find it more difficult to get a loan. However, this again is dependent on the amount of average monthly income that the borrower earns.
  5. Debts- The amount of debts that one has racked up and is pending to be paid off will have a great impact on his/her home loan eligibility. The more the amount of pending debt, the lower the eligibility for another loan.
  6. Value of your home (if any)- Every loan requires the borrower to mortgage an asset as collateral, in case he/she is not able to pay back the loan amount with interest. An already existing home can act as a great collateral for a home loan. Hence, the higher the value of said home, the better your eligibility for a home loan.

 

Getting a house loan requires you to convince your bank that you can afford to repay the amount with interest. If the said parameters work in your favour, getting a home loan is just a matter of paperwork and approval.

 

{Source: https://www.indiabullshomeloans.com/blog/understanding-home-loan-eligibility/}