I am 30 years and working with an advertising firm. I have six credit cards, of which I use only two regularly. I pay off my credit card dues on time. Yet, for consolidating my finances, I wish to surrender the four cards that I don’t use much. However, I plan to apply for a home loan in a few months. And, I recently learnt that unutilised credit cards reflect well on your credit history. Is that true? How does it increase my chances of getting a better deal on the loan?
Creditworthiness of an individual generally depends on the credit criteria employed by individual lenders and there is no one rule followed by all. Credit bureau score is one of the factors that play a role in it. Having said that, multiple credit cards — some of which are unused — signify you are comfortable in not utilising the entire credit limit available to you. Also, it may mean that you are not using balance transfer facility regularly, which again is a positive sign, indicating you are financially sound. Therefore, unused credit cards may enhance your creditworthiness and bureau credit score and make some lenders view your application favourably.
At present, risk-based pricing is not in vogue in India. It means based on the risk profile of different products — home loans, personal loans and credit card loans — each product may have different pricing applicable to borrowers. But individual borrowers are unlikely to get differential pricing for a specific product based on their own credit history. Therefore, while with a favourable credit history you may not get a better deal on the pricing front, you may be able to get quick approval and a slightly higher loan amount than others.
My friend took a home loan two years before and I stepped in as a guarantor. He is now married and plans to switch the loan to a joint loan — between his wife and himself. Since they have sufficient income, does he still need me as a guarantor? I am planning to apply for a home loan myself. My income (at the current level) is sufficient for servicing the loan amount I am looking for. But, if I am a guarantor for my friend’s loan and he defaults, I may not be able to help out. Can my loan application get rejected on these grounds?
Banks generally do not change terms and conditions of a retail loan once it is disbursed. So, neither will it be possible for your friend to add his wife as a co-borrower, nor for you to cease being a guarantor for the same loan. To be able to do this, he will have to apply for a fresh loan with these conditions from the same or a different bank and close the current loan. For your own fresh loan, merely being a guarantor to another loan will not affect the approval of your loan application, as long it has regular repayments.
However, being a guarantor is an act of responsibility, being a liability to pay in case of non-payment by the borrower. Any delay or non-payment of dues is noted by credit bureaus and will have an impact on future loan applications of both the borrower and the guarantor individually.
The writer is senior vice-president and group head-retail strategy and branding at Arcil. The counselor’s views expressed here are his own. Send your queries to yourmoney@bsmail.in