You Have Big Dreams, Don’t Let Your Credit Get Derailed Before You Even Start
With an online placement offer with a multinational software firm in hand, Rakesh knew he was entering the young Indian professional’s dream: a six-figure salary, a fully-furnished apartment on rent, a hunchback, and a wallet full of credit cards.
The last item, however, also proved the undoing of his dream. Or rather the cards were an accomplice—the main culprit was his lack of financial discipline. If anyone needed credit tips, it’s Rakesh.
Swept by his new-found financial power and the glamour of a metropolitan, Rakesh was soon buying things he didn’t need, causally gifting items that others didn’t really want and spending weekends in expensive pubs and restaurants.
The end result: The end of the third working year found him reeling under heavy debt, and the lowest point came when he had to default on one of his card. This caused his CIBIL score to free fall, and as a result his home loan application was rejected.
Road to Recovery
A hard look at his finances, some lakhs of rupees’ loan from his family, and a few months later, Rakesh managed to pay off the defaulted amount and bring his credit card bills current.
Since then, he has made a point to spend within his means and use credit card wisely. His CIBIL score is still below par, because of earlier history, but if he maintains financial discipline, he will surely be able to up it to a respectable 700-mark in some time.
Rakesh’s Story is not Atypical
Reckless spending often leads many young professionals to financial mess. Some, like Rakesh, are able to get out of it soon while others mire in it for a very, very long time.
If you are a student on the cusp of an impressive future, a young professional who has made a smart entry into the corporate world, or a parent of a child who is in either of the two situations, you will benefit a great deal from the following smart credit card usage tips.
6 Smart Credit Tips
- More is not better – There is no shortage of free credit cards, but you don’t have to each one in your wallet, do you? Keep no more than 2-3 credit cards. Owning too many credit cards is seen as credit-hungry behavior and has a negative effect on your CIBIL score.
- High usage, even if you pay bills on time, is not recommended – Don’t use more than 40% of your total credit limit, because if you do, lenders get the impression that you cannot get meet your financial responsibilities without credit. High credit usage also puts you at a greater risk of being late in payment.
- Don’t carry over your balance to another cycle – If you are missing payments frequently, it is a sign of a bad financial situation. Take a hard look at your finances—and make changes. Further, until you get your finances back on track, refrain from using your credit cards.
- Don’t take a cash advance – Cash advance is perhaps the costliest way of getting some cash. Always keep some balance in your salary or savings account to ensure you have something to fall back upon in case you find yourself in an emergency situation where plastic money is no good, like an emergency taxi drive or a hotel in an off-road location.
- Don’t default – The only thing worse than taking more credit than you can pay is to not pay it. You become an outcast for banks the moment you default a loan for no less than 7 years.
- Don’t pick just any card; pick one that’s right for you – Read the terms of various cards before picking a couple. Today banks and credit card companies offer usage-centric credit cards, like travel-centric and shopping-centric credit cards. Picking the right ones can mean a lot of added bonuses and benefits.
Financial discipline is an acquired skill. And like all acquired skills, the earlier you develop them, the better it is.