18-Apr-2019 written by : FSI-Team
Mistakes are said to be the best teachers. One does learn from the mistakes but in some cases the mistakes can turn out to be quite expensive. No one would disagree to the fact that avoiding mistakes and taking proactive steps that lead to avoiding difficult situations is the best policy. But agreement and implementation are two different things.
All of know that our credit score is an important part of our financial life and is a definite key to achievement of financial goals. But still there is little that most people will do to understand how to avoid the mistakes that can lead to moving their scores southwards.
Following is the list of common mistakes that if avoided can help a sustained flow of credit at better terms.
Let us first understand it very clearly that delay by even a day is not correct in the first place itself. Taking things for granted, especially the repayment of obligations can have detrimental impact on the credit profile and lead to running the credit score. Repayment pattern carries 35% of weightage in score calculation. You can very well imagine the impact delayed payment will have with such high influence.
Have seen a lot of borrowers who feel that it may not matter till the time one’s intentions are clear and payment is happening though with a delay. The bureau is not a person and it works only on the data. When data shows continued negative trends, it will deem it to be a problem and calculate scores accordingly. If not taken care of one can find himself for a loan for low CIBIL score.
Again, this is another common mistake that needs to be addressed. High level of debts are not only bad for financial health but even for one’s credit health. Importantly, it is more about the exposure that one would have on the credit cards. Inching closer to the prescribed credit limit again will impact the scores negatively. One may argue that why should he not use the limit extended to him by the bank? The answer to this is that a high outstanding is deemed to be financial stress by the algorithms. And more importantly, why would one want to utilize the most expensive debt instrument unless there is a dire need. Please be advised that the debt exposure has 30% of weightage in the scheme of things and thus must be kept under check.
Card companies will try to woo the individuals and dole out variety of offers to entice consumers take their cards. However, too many cards are not advisable at all. More cards do have the potential to expose you to higher spends and in turn increasing your outstanding. As per the credit experts 3 cards is the optimal figure for one to be holding at any point of time and keep the usage limited to 30% of the overall limits.
All of us know the importance of well-being; physical, mental, spiritual or financial. Then how can one miss out on the importance of credit well-being. Most Indians are not inclined to check their credit reports despite the fact that as per RBI they are entitled to get a free credit score and report every year from each of the bureaus in India. One must exercise the right and take corrective action where ever required.
The fact is that the error rate is quite steep on the bureau data. As per a study 25% of reports have errors. Missing out to work on these and getting them corrected is a definite issue that will lead to spoiling all the efforts to maintain good credit profile.
This is yet another reason that leads to a large number of people to spoil their credit score, despite not having any repayment issues on their own trade lines and managing other facets of score pretty well. One must not become a guarantor to anyone till the time it is a must. Any default on the loan where one stands a guarantor is as bad as default on a loan taken by self.
Being cognizant of the above common mistakes will only help in managing the credit profile in a better way.