20-Apr-2019 written by : FSI-Team
The mystification around credit score is a given. Despite that fact that the bureaus have been existing for decades globally and have been in India for over 16 years now, the people still get perplexed about the CIBIL score. Various theories keep doing rounds and people today when talk about credit profile management, only limit it to repayment of dues. There is no denial that repayment of the obligations has to be timely on an ongoing basis. Repayment carries the most weightage as far the score goes. But there are other important factors as well that impact the scores grossly.
However, in this post we are not going to directly discuss about the factors that make these scores. We are looking at some perspectives that would help in improving the CIBIL score.
Correctness of data on your bureau report is critical. As per our observation in dealing with hundreds or thousands of individuals over past 7 years, one of four reports have an error. These errors could be as trivial as an erroneous email id on one hand and critical one like a trade line not even taken by you reflecting on your report, on the other end of spectrum. The data inaccuracy can be divided into two groups, first the ones that would have any bearing on the score and second, the ones that are potentially impacting the credit profile.
Thus it becomes highly important for you to keep a check on the data. And thanks to the directive from the Reserve Bank of India, all bureaus are required to extend a free report every year. And since these reports are available through a few clicks, it becomes even easier for you to keep a check. Akin your physical wellbeing, a regular checkup is needed on credit profile as well.
People create budgets. But the same are restricted to the money that is available and how it is going to be spent. Various heads are created and a part of cash flow is assigned to each of these. The budgeting exercise is highly important, but creating a budget for debt (both current and future) is equally important. These budgeting exercises will help you in better management of your current obligations and how to get these paid fully at the earliest; and more importantly, meeting the long term financial milestones through loans like buying a house, a new car, funds required for higher education of child etc.
If you are able to budget the debt, you will automatically get better at the regular budgeting exercise as well. Your repayments will be seamless and hence will aid a strong credit profile.
As the saying goes, the experience helps in life. As one ages, the experience also grows and helps in taking better decisions. Same is the case with your credit as well. An aged trade line will help in improving the scores.
It does not mean that you need to keep that loan going that you have the capacity to repay. It also does not mean that you need to take a loan even if you do not have the requirement. What you can do is that keep those old credit cards going without cancelling them. This would help in better management of the profile and keep the scores at better level.
You can use these for highly small amounts and repay them. Even if you use them only a few times in year, it should be fine.
Follow the above three rules to mange your profile better and improve your credit scores.