27-Jan-2018 written by : FSI-Team
Accessing credit has become easier than ever before owning to a large number of financial institutions that offer credit for various purposes in the form of credit cards or loans. So be it the dream of owning a vehicle or that of higher education or weekly shopping there is some kind of credit available for all requirements. Despite lenders advertising how easy the process of borrowing is and how easy the terms are, a borrower needs to be aware fully of what he/she is doing so that they can avoid mistakes when accessing credits which can cost them dearly.
Whenever a borrower applies for a loan, the prospective lender evaluates the applicant based on various parameters. The amount of debt that the applicant already has is one of the factors on which the decision to sanction a fresh loan or not is based. However, despite the lender assessing the debt burden you already have, it is important that you the borrower also make a self-assessment on what your liabilities are at present and also factor in the expenses that you may encounter in the future. If you know that you need to apply for your child's admission soon for which you will have to shell out a substantial amount then you should factor this when applying for a fresh loan. This will not appear in your CIR but you are aware of it so make sure you do not borrow more than you can repay.
Credit reports reflect an individual’s credit behavior in the past; thus all loans and credit card related issues from the past are included in it. Thus each month's payments, delay, card usage contributes to making the credit score good or bad, and it is a constant process. So if you are not careful about your credit behavior as a habit and tend to focus on it only when you are about to take a loan then you could be in trouble. It is important that you access your free CIBIL Report at least once a year to assess you credit health and take the remedial action if any is required.
As we said above credit reports reflect the overall credit behavior of an individual and repayment history is an important part of it. Paying on time contributes to making a good score while paying late or missing payments altogether does the opposite. So if as a borrower you tend to think that if you delay a card payment or an EMI just by a day or two then it will not impact your score as long as you pay eventually then you are mistake. Even a day’s delay is reported in the CIR and could lower the credit rating.
When you take a loan you realize that there will be monthly outflows in the form of EMIs, thus the most important aspect when taking a loan is often the interest rate especially in big ticket loans. Even a change of half a percent in the home loan interest rate could have a huge impact on the monthly installments but it is important to remember that interest rates are not the only factors that you must focus on when taken a loan. Do keep an eye on other charges whether hidden or otherwise, other terms and conditions like the loan tenure, the time taken for processing and so on.
One of the aspect that impact the credit rating of an individual is the age of credit, older the loan or a credit card the better it is for the credit score. A loan that is serviced to its full term is good for the score and the same applies to credit cards. Thus one should avoid prepaying a loan or surrendering an old card. Even if it is required surrender a more recent card or keep the old card and use it responsibly once in a while, just to keep it active.
So stay away from these credit mistakes and stay credit healthy and make the best of your credit facilities.