08-Jun-2018 written by : FSI-Team
What is the similarity between all the above three situations? All the above impact your credit score and not in a good way. So what should you do to manage your score? Here we give you a few tips that can help you manage your credit score.
This is the most crucial tip to follow when trying to manage your score. So be it a personal loan or a credit card, borrow only what you can repay. When you apply for a loan the prospective lenders go through your financial records to assess your repayment capacity. However still as a borrower it is your responsibility to be careful when taking a loan and not overburden yourself. When using credit cards always keep in mind that the amount needs to be repaid at the end of the billing cycles and not doing so will result in penalties and fines.
Timely payments are the simplest and the most effective tool when it comes to score management. Paying on time not only saves you from paying penalties and fines due to late payment and interest on the overdue amounts but it is the most powerful tool to have a good credit rating. Repayment history is the biggest contributor when credit ratings are calculated, missing payments frequently can undo all other efforts to manage your score. While it is not advisable to miss even a single payment but if you have been overall regular then the negative impact of a single missed payment will be not be so intense on the score.
Old is gold in some instances and this is the case here too. Often it may appear that paying off a loan is a good idea but that is not the case. Older the debt the better it is for credit rating. So if you have loans then do not plan to prepay and close them, rather let them run their full course. The same applies to credit cards too; retain your old cards even if you do not use them very frequently. You can use the card for small transactions and then pay the dues regularly. Deeper credit trail is good for the credit score as it lets the lender have a better understanding of your credit behavior.
Apart from following certain basic rules related to loans and cards you can be proactive about your credit health by tracking it. Now as per the RBI guideline all credit agencies are required to provide you a free credit report annually if you ask for it. There are four rating agencies in India; this means you can get free credit report every quarter. Checking your report from time to time will let you assess your credit health and take remedial action if required.
A balanced credit mix helps is credit score management, this means you must have both secured and unsecured loans. Secured loans are those loans that are backed by collateral like an auto or home loan whiles unsecured loans have no collateral, these are personal loan or an education loan or credit card borrowings. While it is true that somebody would not get a secured loan just to get the right balance but keep in mind that if you already have some unsecured loans then do not pile on more as it could skew the balance which can hamper in getting a good credit rating.
So follow these simple tips and let us know if you have more tips or have some questions for us!