PERSONAL CREDIT SCORE

With CIBIL and three other credit bureaus maintaining a repository of credit information on individual accounts, banks henceforth would be in a better position to take informed decisions on their lending. Banks would be able to access information about the credit worthiness of a borrower from these credit bureaus and decide about the disposal of a loan application. In fact differential pricing would also be introduced in case of credit cards specially. Each individual having borrowing arrangements including credit cards from banks would be rated with a credit score. This credit score would be in the range of 300-900 points, with a high credit score implying the characteristics of a better borrower as per available track record.( In case of wrong reporting by banks to the credit bureaus the concerned individual has recourse to get the defect amended by intimating the credit bureau the correct facts.) The score would determine the possibility of further loans being available from the banking sector and the cost of such funds, if sanctioned. Essentially it would mean a credit profile of an individual which would impact the availability of other services as well. Obviously individuals with high credit scores would be the focus of preferred attention.

To manage and continuously ensure a good credit score it would be necessary to have credit discipline. How does one achieve it?

Well the fundamental principle is to stay within one’s means. If this is possible then there would be no default in payments, payment of instalments on personal loans and credit cards would be on time, balances in credit card accounts would have to be kept low, building a decent credit history of managing credit cards satisfactorily and trying to manage with fewer personal loans and credit cards. Weightages are given for each of these features in a personal loan or credit card, with scores being given according to the prescribed benchmark best practices. Any negative feature in an account would adversely affect the credit score which is an aggregation of the scores for each of the above parameters. From December 2009 it is proposed to make available the personal credit score to individuals also.

It is therefore essential to judiciously manage the personal loans and credit cards by an individual to have access to bank funds in times of need.

EDUCATIONAL LOANS

With emphasis on improving the education prospects of students, educational loans are extremely handy for enabling the students to achieve their aspirations. Banks in India are providing the necessary funding for pursuing quality higher education in India and abroad. Public sector banks are particularly active in promoting educational loans on customer friendly terms.

Graduation, post graduation and professional courses offered by educational institutes approved by the state and central government are eligible for educational loans from these banks. Courses pursued abroad in Universities recognized by the local governments are also considered for funding facility. Generally for study in India, the amount of educational loan available is Rs 7.50 lakhs while for studies abroad it could be upto a maximum of Rs 20 lakhs. Collateral security is not insisted upon for loans upto Rs 4 lakhs but third party guarantee is required for loans between Rs 4 lakhs and Rs 7.50 lakhs. In case of loan amount being higher than Rs 7.50 lakhs then collateral security becomes essential. The applicable interest rate is linked to the loan amount sanctioned and repayment starts after six months to one year from completion of the course study for which loan was granted. The repayment period is usually between 5 to 7 years. Girl students get benefit in interest rate between 0.5 to 1 percent.

The eligibility is a good academic track record with proof of admission obtained from the recognized University for the approved course. One of the parents who can provide stable income proof with Income tax returns has to be the co applicant with the eligible student. Expenses allowed for loan are tuition fees, books and study material, stay etc. Certain banks fund travel cost in case of study abroad.