05-Oct-2018 written by : FSI-Team
Pankaj Parmar, a midlevel manager with a MNC applied for a personal loan. He got a shock when the loan application was declined. His new application with another bank also met the same fate. This got him to find out the reasons since he had the repayment capacity. He approached Naim Khan, his friend who works with a leading bank to get some help on this.
Naim asked him to check his credit report and found out that he had low CIBIL score. As per Naim, “having a high credit score is important. Getting access to funds and credit is dependent upon the good credit score as much as it is on the repayment capacity of an individual. While people understand the importance of this three digit numeric expression of one’s credibility, why is it that some individuals slide on their scores as against others who are able to maintain a high score?” Pankaj was advised on he smart financial practices that people with good scores followed. Following is the list.
Budgeting ranks very high in terms of importance among successful people. And it not just giving the task high importance, but more importantly, having a diligent process to work it out and follow it closely is something that is going to bear the right fruit. Such people include minutest of the expense as part of their budget. This helps them keeping a track on the amounts being spent toward varied kinds of expenses and tweak it according to the need. The most important thing is that they ensure that the monthly budget is implemented without aberrations.
Any large ticket expenses are planned in advance. Spends on education, a function, a gift to a close relative or friend on account of a landmark moment like 18th birthday, marriage or another such function are planned well in advance to avoid any stress on essential monthly requirements. Planning such expenses in advance will help in smooth financial drive and bring down the probability of spending on credit cards or taking loans to fill the gap in requirement for money.
Many people fall prey to loans because of an urgent requirement. Most of the times such need arise out of some exigency like medical, job loss or any other such requirement. The smart financial practice will be to have a contingency fund. Generally the fund equals at least six months’ of one’s earning. Availability of such a fund helps one to sail through the rough time without having to rely upon additional credit facility from a lending institution.
To manage better scores it is important to keep check on them. People with good credit scores do check their reports regularly without any exception. They understand that there are gaps in the data and their reports are prone to errors. Any such error that they come across is taken up immediately with the bureau and the bank and followed through the resolution. Pankaj got to know that he can obtain a free CIBIL score once every year directly from the bureau.
This carries a high importance with these people. Not only do they apply for a loan sparingly and keep it to the amount that would fulfil the need, but are also highly prudent in utilizing the credit cards. Irrespective of the limit extended to them by card companies they use it only up to the amount that they will be able to repay at the time of due date. Never do they pay in parts and revolve the credit. Also, they keep the utilization to 30 – 40% of the total credit limit.
They also do not close the old accounts. This should not be construed as not paying the loans. The loans have a certain life cycle and get paid and closed once it is paid in full. But a credit card will continue to exist until it is closed by either parties. They undersand the importance of longevity of the account and do not close it just because they have received another card from another bank.