Here’s how utility bills play an important role while applying for a loan

Krishna Kumar, a marketing executive based in Mumbai, had a harrowing time dealing with a local internet provider in 2008. He took a connection with 20 GB free usage for Rs. 650 a month. Even in the months he was out of town for work, he was charged extra. Kumar had indefinite fights with the company officials and refused pointblank to pay. Eventually he migrated to another city. A few years later, he was sent a legal notice by the company regarding the dues, summoning him to Mumbai court.

These kinds of disputes over utility bills are not unheard of. But here is a bomb-shell. Credit bureaus are planning to add utility bills to credit score determinants. This is sure to evoke mixed reactions from people. While some are sure to welcome this move, others are apprehensive about prospective false disputes.

Timely settlements of your utility bills like water bill, electricity bills etc. can soon become a deciding factor for approving your loan application because credit bureaus are planning to include this in individual credit sheets. Paying monthly utility bills for electricity, water, mobile phone, land phone and gas consumption not to mention apartment maintenance charges can be seen as a cumbersome task to many of us as it not only takes lot of time but also bites a huge chunk out of our income. Soon people will be forced to pay their utility bills on time for fear of getting poor credit scores and consequentially facing loan rejections. Many countries like the US and Canada already follow this system.

Factors that determine your CIBIL Score:

• Timely repayment of loan EMI, credit card dues and any other big purchase EMI.
• Closing payments/loans well ahead.
• Having a healthy mix of credit (secured, unsecured and credit card loans).
• Keeping a healthy debt-to-income ratio (below 40 percent).

When and how delayed utility bill payment will begin to hurt:

TransUnion CIBIL, India’s leading credit bureau is seriously considering including utility bill payments along with loan and EMI repayments as a factor to calculate CIBIL Scores. If this is put into practice, all those who are flippant about paying the bills by due-date will be forced to rethink their priorities as it can bring down the score significantly. Banks are already meticulous when it comes to giving personal loans and they will have more reasons to reject your loan applications if you give them the chance. Many lenders also ask for the latest utility bill copy as residential proof as this is impossible to duplicate or manipulate.

How to Change Bad Financial Habits Related To Utility Bill Payments:

• Set a Finance Alarm (Reminders) on your phone for various utility bills at least a week ahead.
• Form a buddy/family system. Entrust a member to remember/pay.
• Opt for ECS facility or authorize auto-debit for your monthly bills within 2-3 days of your salary date. This way, you can plan your monthly budget more easily.

(The article has been authored by Aditya Kumar, Founder & CEO, Qbera.com)