Do not be surprised if your loan application is rejected even after you have paid off your much due credit card outstanding balance. The bank might have called you and given you an option where you could just pay a specified sum, in return for a settlement letter. Once you do that and get the settlement letter, it doesn’t for a moment mean that the slate has been wiped clean. You apply for a personal loan or a home loan and the lender will simply let you know that it isn’t interested in lending to you because your name comes up in the Defaulters list on the Satyam or CIBIL list.

When you go in for a settlement, banks can and will legally report you as a defaulter - to the extent of the dues foregone by them - at the credit bureau. All details concerning your default stay at the credit bureau for 7 years. You must understand that you CANNOT remove your name from this defaulters’ list. It will be removed from the list only after seven years, provided you do not default on any subsequent loans (if you manage to get it, that is). What you COULD do is to try applying for a secured credit card - a card that is offered against your term deposits at the bank. This type of card is available at many banks. Build a good credit record with it. This will not remove your name from CIBIL defaulter list but it will improve your credibility in your credit report. This would also increase your chances of getting credit facility from various banks at decent terms in future.

Is the person who has overextended credit a candidate for sympathy if he means well? He wants to pay back the outstanding amounts against his multiple credit cards, but what if he has just been fired from his job and cannot make his multiple credit card payments? Do you castigate him, telling him that he made the bed, he must lie in it? If that is so, does your lack of sympathy extend beyond the fact that recovery agents came to his house when he wasn’t at home and threatened his wife and child?

If you are the sympathetic kind (especially if you also have been in a similar jam) would you:

1. Tell the man that recovery agents are not allowed use force on borrowers or speak indecently to him or his family?
2. Tell the man that if he doesn’t want to speak to the recovery agent, the agent has to respect his wishes and withdraw?
3. Point out to him the RBI stipulation that “The bank and their agents should not resort to intimidation or harassment of any kind, either verbal or physical, against any person in their debt collection efforts, including acts intended to humiliate publicly or intrude the privacy of the debtors’ family members, referees, and friends, making threatening and anonymous calls or making false and misleading representations.“?
4. Point him to the Banking Ombudsman site www.bankingombudsman.rbi.org.in where he can lodge a complaint?
5. Point out to him that his best option would be pay off the entire amount. And then give him tips on how to do it - apply for a loan against property, stocks, insurance policy, or jewelry? But that he should try his best not to go for a settlement?
6. That there are credit counseling agencies, such as ICICI bank’s Disha, that exist for the very purpose of helping people like him?
7. All of the above
8. None of the above

Here are some credit counseling agencies:

• Abhay (Bank of India), 61 A, Sadanand, 1st Floor, Above Bank of India Branch, Gokhale Road (north), Dadar (West), Mumbai- 4000 028. Call 022-24221843.
• Disha (ICICI Bank), Prince Apartments, Ground Floor, Karani Lane, Ghatkopar (West), Mumbai 4000 028. Call 65971815/86/87. Visit www.dishfc.org
• Union Mitra (Union Bank of India), Union Bank Bhavan, 239, Vidhan Bhavan Marg, Nariman Point, Mumbai- 400021. Call 022-22896502.

Answers:
Correct answer - Option 7
Incorrect answer - Any other option or combination of options
So incorrect that it scares me! - Option 8

Know your rights as a credit card customer. Because, it is not just that your payment record is independent of anything else. Your payment record can affect your financial planning, such as loan applications.

Consider the consumer who has been pristine in keeping up card payments, without defaults and on time. This person has a personal loan as well which he has been exemplary in keeping up with EMI payments. Now, if this person were to default on just one payment, his credit rating goes for a toss. The next credit card he applies for, nine out of ten times he would be rejected as being a defaulter.

Credit rating agencies do not capture the accent of defaults. One-off defaults are given the same weightage as serial defaults. Which means, in the above-mentioned example, the guy is on par with the slacker who has taken a personal loan, defaulted multiple times on his repayments and is waiting for divine intervention or daddy to get him through to safe ground.

The sad part is we cannot do anything about this. But there is an indirect way of dealing with this. Always be aware that you are well within your rights to know the reason why your credit card application was rejected. The RBI, on 24 July 2008, has issued fresh guidelines for the credit card issuers that the issuers should not reject a credit card application without assigning reasons in writing. So if the bank refuses to give a reason for the rejection, you can and should approach the Banking Ombudsman (www.bankingombudsman.rbi.org.in)

“An EMI credit card? Wow! I use the credit card but I pay it off via EMIs. This has to be the best scenario ever!”

* * * *

Two months later: “I was given an ICICI EMI card with the promise that Rs. 2000 will be automatically deducted from my bank account every month. Firstly, this never happened, including no statement. And secondly, I was slapped with a Rs. 600 penalty on a total expense of Rs. 5500 on my credit card. On calling the helpline, the “service officer” told me to pay Rs. 4000 cash; and the Rs. 600 debit would be adjusted. Which means I would have already paid Rs. 6100….”

Aah! What’s the use?

* * * *

People, please! DO NOT take verbal promises from telemarketers as gospel, please, please, please!!!! You have no way of proving anything. The best solution for the above mentioned sad experience would be to settle all outstanding dues immediately so that it doesn’t affect your credit rating. And, anything such as this occurs in the future, make sure to send in a complaint in writing and get an acknowledgement. In addition, enter a complaint on the bank’s website. The point here is to ensure that you do everything as per procedure, especially complaints. This will ensure the bank cannot accuse you of not following procedure as an excuse for not rectifying your issue/complaint.

Consider this scenario where you need to discharge certain payments immediately, but are faced with a liquidity crunch. You think of taking a personal loan which is the most convenient method through which you can easily meet all your expenses easily. Or swipe a credit card.

While swiping a credit card in a situation like this may seem to be the simplest solution, it would be wise to avoid giving in to the temptation. It is undoubtedly the most convenient option, but not necessarily a smart one, considering the rate of interest charged is around 35-44 per cent.

Similarly, it is very important to search out the best options that can avail you money according to your requirements and terms. The rates for personal loans range from 12-25 per cent. Now, what are the options available if you want to cushion the impact of interest outgo?

For one, you could try secured loans.

At a time when personal loans have become a norm, most consumers remain unaware of loans against securities including fixed deposits (FDs), national savings certificate (NSC) and jewelry.

In contrast with personal loans and credit cards, secured credit options such as overdraft against FDs attract an interest of 9-10%. This is the prime reason why more prudence needs to be exercised while choosing the mode of credit.
Apart from rate of interest and repayment period, the key determinants to your decision should be the speed of disbursal and of course, urgency of your need. The minimum tenure for a personal loan is 12 months, which means that this option is effectively ruled out if you require a loan for just a couple of months.

Loan against gold jewelry is another viable option. It can be used to fund your short-term needs and is one of the cheapest borrowing avenues available today. Most banks promise hassle-free documentation and quick approval. You can borrow up to Rs 10 lakh and 80% of your ornaments value, and need not specify the purpose. Repayment period usually ranges from 3 to 12 months; some banks also allow you to choose between repaying the loan at maturity or through the EMI route.

Unsecured loans are a very good option for people who do not want to pledge any asset for the security of the loan. Here you are completely free from the collateral matters. Involvement of property in the loan consumes a lot of time. This is due to the property check required to be observed for the placed collateral. So, unsecured loans save your time and provide funds without any complication.
The repayment period of the loan may vary from 1-5 years. These loans are relatively high on cost due to the higher rate of interest.

In unsecured loans lenders observe the repayment capacity and credit record of the borrower. Borrower owning a good credit history is always preferred by the lenders as they provide an assurance to the lender.

The Flipside

If there were no chinks in the armour of secured loans, personal loans and credit cards wouldn’t have been so popular. The first obvious limitation of secured loans is that they demand collateral.
If you do not have any assets to pledge, or are not comfortable mortgaging your prized collection of jewelry, you have no option but to turn to unsecured loans.

Finally, loan-seekers would do well to remember the golden rule that almost everyone is aware of, but few follow: “Borrow if you think you can repay the money comfortably shortly, and always borrow within your means. Never fall into a debt trap.” Secured loans constitute one method of reducing the interest burden and helping you avoid getting ensnared by the debt net.

The author is Research Executive at Apnaloan.com Services (P) Limited.

Are you aware that if you have a credit card from the bank that you have an account with, the bank is under no legal obligation to inform you before debiting your account towards your credit card outstanding?

For instance, let’s assume you have a credit card from the bank where you also have a savings account. You swiped your card towards a few purchases and ran up a hefty bill. Your credit card bill has come in. And the next one. And the next one. You have not paid off the dues despite repeated instructions from the bank.

The bank is now well within its right to freeze your account and debit a portion of the outstanding. These debits will continue until the outstanding is fully paid off. Meanwhile, you will not be able to operate your account (except perhaps to deposit money into it!). Once your dues are cleared, you will retrieve operating rights on your account.

Banks usually resort to this extreme after repeated letters and warnings. Note that the letters and warnings DO NOT warn you that they are going to dip into your savings account. That’s a surprise that will come completely undiluted once you line up at the bank ATM to withdraw much needed cash. Therefore, make sure that you pay at least the minimum required payment towards your credit card outstanding. Banks love customers who keep paying minimum payments. It means that the outstanding balance keeps collecting interest and let’s face it, banks love interest payments.