Credit Bureaus

In one of my earlier blogs I mentioned about 'Credit Score'. The next question which comes up is who gives a 'Credit Score'.

Credit Score is given by Credit Bureaus who collect data from multiple institutions. Most of the time it is the data shared by financial institutions (banks, insurance companies, credit card companies) to these bureaus. In return the same institutions and others (landlords, utility companies, employers) ask for this information.

Every financial transaction regardless of its complexity (a simple application for a new credit card has an impact on the credit score) is reported by the participating financial institutions.
If you apply for too many loans or if you are not prompt in your loan repayments, your credit score reduces.

The most well-known credit bureaus are Equifax, Experian and TransUnion.

In India, CIBIL (Credit Bureau of India) was incorporated (in 2000) through the efforts of the Government of India and Reserve Bank of India (RBI). It took CIBIL sometime to setup the necessary infrastructure in place.
Financial Institutions in India have been using credit scores as one of the key inputs during the loan sanctioning process. As of now, only institutions have access to an individuals credit report. Starting December 2009, individuals are be able to get their credit scores from CIBIL directly on a payment of a service charge. A credit bureau only provides a score, it is the financial institution which decides how to differentiate customers based on the score. Credit Score only indicates the 'credit worthiness' of the individual. It serves as a predictor of consumer's future loan servicing ability. Lower the score, higher the risk.

Now you can access your CIBIL credit score by accessing the link at https://www.cibil.com/d2c/accesscredit.htm

So watch your credit score (even if you are in India).

Loans and Credit Score

A lot of us possibly (through our onsite stints) have already heard about credit scores and credit rating and how important and critical it is in the developed countries (like US and the UK) to have a 'Good Credit Score'. For the uninitiated, here's the lowdown.

Whenever one takes a loan (car, home, personal, credit card), the person is using the simplest of monetary transactions called 'credit '. The credit can be from any lender (any financial institution) who charges a fee (interest rate) on a loan.

The ability to re-pay (your income) gets you a loan from the financial institution (bank). The interest rate is dependent on your credit score, the tenure of the loan and the type of loan. Loans can be secured (backed or collateralized by an asset) or unsecured.

A home loan is a secured loan as the asset is the property for which the loan is taken. Any purchase on a credit card is an unsecured loan.

A credit score has many inputs:

• amount of credit (loans / credit cards) you take and existing debt
• your repayment track record
• type of loans taken
• number of times you inquire for a loan / credit card
• length of credit history

Typically credit scores are in the range of 300 to 850. Higher the score better is your credit score or rating.

Types of Taxes

"Of two thing in Life certain - Death and Taxes" - Benjamin Franklin
"God made Man, Man made Money" - Unknown
The second quote gave life to the first. Man made money and in turn taxes. The world of taxes touches our lives everyday. Governments (read Man) has found ingenious ways to tax the money man makes.
Taxes fall into major categories - Direct Taxes and Indirect Taxes
Direct Taxes

• Income Tax
• Wealth Tax

Indirect Taxes

• Excise Duty
• Customs Duty
• Sales Tax
• Octroi
• Service Tax
• GST
• Entertainment Tax
• Value Added Tax (VAT)

The above lists are not complete

Income Tax Act

The Income Tax (IT) Act of 1961, is the largest act in the Constitution of India. The Direct Tax Code 2009 (the draft of which is currently being available for public debate) will replace the Income Tax Act of 1961.
This change is from the old to the new is perhaps quite overdue. With the huge amount of amendments made to IT Act through yearly exercise of the Finance Bill (aka The Union Budget), the sheer effort it takes the common man to understand the complex jargon and the multiple interpretations have made the IT Act extremely complex.
The Direct Tax Code aims at simplifying the entire world of defining direct taxes in a language which is jargon free, simple to understand by the common man and possibly simpler to implement.

For a country the size of India, the growing tax payer base a majority of which is ignorant of the impact of the direct taxes (Income Tax, Wealth Tax, etc), the Direct Tax code will hopefully be a welcome change. Despite the advent of the Internet and the speed at which information is disseminated, our understanding of taxation is limited to:

• the textbooks in school where we get a primer on taxation
• coffee table analysis of the annual budget
• taxation advice from friends and family
• tax computation by the employer or chartered accountant
• and in very rare cases, a personal intent to understand taxation (at least income tax)