16-Feb-2019 written by : FSI-Team
In current times, considering the lifestyle we follow it is highly recommended that everyone get a health check done regularly. The same rule applies to our credit health too; as a new year begins it is important that your assess credit situation and see if you are credit healthy or not. So how do you do you this? Below we offer you a discussion that can let you judge if you are credit healthy or not.
To answer this question you should begin by getting your credit report and going through it. Understanding the credit report and the various aspects will give you an insight into your credit position.
If the answer to this question is yes then your credit health is most likely to be good. Repayment history is one of the most important aspects when it comes to credit score calculation. Paying on time regularly without missing any payments or delaying them can ensure that your score is good. Missed or delayed payments are reported in the credit report, recent defaults impact the rating more than older defaults and obviously more frequent defaults will bring down the score more than one or two missed payments occasionally.
This is not measured in absolute terms but as a proportion of the total sanctioned limit for your credit cards. Credit utilization is the next important aspect after repayment history for credit score calculation. So if the credit card bill is on an average Rs. 50,000 and your friend’s is Rs. 75,000 it does not mean that you are better off than your friend when it comes to credit robustness. Credit utilization measures the proportion of the sanctioned credit limit of the credit that is used in each cycle. This ideally should not be more than 30% for each card and also all cards put together. If you follow this then you have nothing to worry about else it is time to work on it.
When you get the credit report go through it in detail. If there are any loans that have been settled in the past or are reported as NPAs then they will feature in your credit report; this is likely to raise doubts about the creditworthiness of the individual. Other aspects that could signal poor credit health are a higher proportion of unsecured credit (credit card usage, personal loan) vis a vie secured loans, prepaid loans, missed payment as we stated above, open loans despite having paid the dues (this could be because the NOC has not been obtained), disputes regarding old credit card payments and so on.
While the above factors look at various aspects in a detailed and individual way, the credit score sums up your credit health in an objective way. Thus by looking at your score you can get a quick understanding about the credit situation. Generally a score above 700 is considered to be good and anything below 550 is a cause of concern and requires some quick remedial action. However the score just gives a number and will not reveal all the aspects about your credit health. For instance one might have cleared an old open loan, or may have changed their credit card usage pattern but this might not reflect in the score immediately. If one has started paying regularly as compared to being irregular in the past, a look at the repayment history will reveal this but it will take time before it is reflected in the score. Though the score is important it is required that you look at your report and also look at all aspects individually.
A New Year brings fresh hopes and new opportunities, so make sure you make the best of them. Focus on staying healthy credit wise, health wise and financially too.