Credit Is Tempting, Stay Strong
Your credit history is the single most important parameter that determines your credit worthiness. When you apply for a credit card or a loan, the bank immediately pulls up your credit history that details the past and current borrowings and your repayment history. This information is then projected onto a number which reflects your credit score. Although there are multiple credit bureaus in India and their scoring pattern may differ, the premise on which these calculations are made remain the same. In short, you need to have a healthy credit score and to do that; you need to maintain credit discipline. How does one do that? Let’s find out!
Check your Credit report: The first thing you may want to do is to find out what your credit history looks like. Requesting for a credit report has multiple benefits. Apart from finding your credit score, you can also check for errors or mistakes in the data, incorrect entries etc. In some cases, these errors can pull down your score for no fault of yours.
Never miss a payment: This should perhaps be the motto of everyone who is serious about maintaining credit discipline. Even one instance of late payment can reflect poorly on your credit history. Most banks send out reminder emails and messages well in advance of the due dates. Therefore, develop a habit of going through such communication. Also, if you maintain sufficient funds in your account, you may opt for auto debit which will ensure all payments are made on time.
Keep the debt under control: Just because you have been allotted a higher credit limit or the bank has offered an attractive personal loan doesn’t mean you should opt for it. Maintain fiscal prudence when it comes to owing debt. Banks look at the percentage of credit facility that you have used up and a higher percentage indicates high spending habits which are going to reflect poorly on your score. Does that mean you should stop using your credit card altogether? That will result in you leaving no payment footprint at all and the credit bureaus are left with no parameters to analyze your credit worthiness.
Space out the applications: If you are in the habit of applying for a new credit card everytime an attract offer comes around, you will be in for a rude shock when you check your credit score. Banks look upon frequent applications as a high risk factor and often decline such requests. Therefore, it is advised not to open up too many lines of credits as this can affect the credit discipline adversely.
Consider trimming down excess credit lines: If you own multiple credit cards or owe multiple loans, it would be a good idea to consider bringing them down to one. Plan your expenditure for the next six months and figure out a way to close the excess cards or loans. This way, you can manage the credit lines easier and improve credit discipline at the same time.
Go easy on the add-ons: If gifting an add-on credit card to your wife is your way of saying how much you love her, be warned that it also impacts your credit score. It makes it all the more difficult to maintain credit discipline because now you have to monitor two different accounts. The same applies when you stand as a guarantor for a loan. Every time the primary borrower defaults on a payment, your score goes for a toss.
It is almost unavoidable for someone on a regular salary to avoid incurring extra expenditure at times and credit cards & loans are often the only way out. However, what is avoidable is taking your credit discipline lightly. The above tips can go a long way in building a health credit score and should be given due importance as poor credit discipline can result in poor scores which is going to be a costly mistake to rectify.
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