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Debt-Free? Don't "Lose" Your Credit Score Being Reckless

27-Sep-2017 written by : FSI-Team

Your Credit Score Being Reckless

There are few feelings that come close to the one when you are completely-debt free. After repaying a loan little by little every month for many years, when you finally pay the last instalment, it's true something exhilarating.

If you recently became entirely free of debt, then first of all- kudos! It's not easy to successfully repay a loan. So, be sure to give yourself a pat on your back. However, before you embark on your new life of financial freedom, it's important to learn about a few things first lest you should make your life difficult once again.

Becoming debt-free doesn't mean your responsibility towards personal finance is over. That responsibility stays with you your entire life. So, you must use your money and credit responsibly irrespective of your current status of debt if you don't want to end up with a bad CIBIL score.

Placing a Full Stop on your Credit History

Always remember- credit history is what makes credit score. So, if you are debt-free and there is no credit to be taken care of, it means that your CIBIL score i.e. the credit score could gradually degrade.

If you don't resume your credit experience after repaying a debt, then it's possible that after a few years when you need another loan you meet with a disappointment because of a low CIBIL score.

If your existing credit report looks decent, then you don't have to improve CIBIL score. However, to ensure that it stays that way, you must keep at least one credit account open. It could be a credit card, or even a small personal loan, but there has to be something that updates your CIBIL or credit report every once in a while.

The following are a few ways you can keep your credit history active:

1. Credit Cards

A credit card can help you in keeping your credit score intact. Plus, it's quite convenient and you can earn reward points for shopping too which saves money. So, there is much to gain and almost nothing to lose with keeping a credit card active. Just keep the following things in mind when you use one:

  • Try to use the credit card for small purchases. It's in fact better to use your card for recurring payments such as internet bills, EMI purchases, mobile bills, etc. This is because this arrangement is perfect for your purpose- which is to use your credit card on a regular basis and in a moderate manner.
  • Keep a close eye on the credit card bills. By paying your credit card bills on time you can easily improve CIBIL score. Similarly, paying the bills late can have an adverse effect on the score too.
  • Don't fall for the "minimum payments" gimmick. Banks popularize this option to lure more customers into using credit cards even though it leads to debt accumulation and harms the credit score. So, you must pay your bills in full at all times.

2. Personal Loan

If you don't want to use a credit card, then you can also take a small personal loan that you can repay easily. If you already have a good credit score then you can get a loan at an attractive interest rate.

One thing to know about a personal loan is that the reason you use it for can affect your credit rating. This is because debt can be of two types:

  • Good Debt
  • Bad Debt

An example of a good debt is an education loan. This is because an education loan increase your value as it leads to better earning opportunities. Similarly, an example of a bad debt is a card loan. This is because a car is a depreciating asset and loses value over time as it gets older.

So, ideally you would want to use a personal loan for an appreciating asset, such as a house. You can also use it for higher education or a certification course that is helpful for your career.

In conclusion, don't become completely care-free after you have become debt-free. You still need to care for your credit report. Otherwise, in the future when you need a loan, you can have a hard time.


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