02-Sep-2016 written by : FSI-Team
Credit is an important aspect of any financial plan, be it for an individual or for a commercial organization. Every individual needs to know a few basics about credit not just in the context of borrowing but about the overall relevance and use of credit in our lives. Below we talk about such six aspects.
The first thing about being credit aware is to understand that credit per se is not a bad thing. Contrary to the old times these days no credit could sometimes cause trouble. No credit means absence of any credit history which means no credit score; in a situation when you want to apply for a loan your absence of a credit score could make it difficult to get your loan application accepted. An education loan can help in fulfilling the dreams of a young student, while a responsibly used credit card offers not only great convenience but lucrative offers. So the key word is responsibility as we understand in the following paragraph.
We have a few fundamental rights and we have a few basic duties too! So credit has to go hand in hand with responsibility. Being responsible about credit can make your life better but irresponsibility can cause big trouble. Before even starting the process of borrowing, evaluate carefully if you need the loan and then go about researching about the options available carefully. Once the loan is disbursed you cannot afford to be sloppy or irresponsible about it. Installments and credit card bills have to be paid on time without default. Delays cause trouble as they not only attract fines but also dampen your chances of getting further credit.
To understand you credit situation fully one must from time to time access their Credit Information Report (CIR). You can also get a free credit report; a look at your credit report will help you in getting a comprehensive view about your loans and your open credit card. It also lets you understand if you are overleveraged or you are using too much of the available credit limit. A CIR also lets you identify if there are any areas of concern or any errors that need to be taken care of.
Awareness about all aspects related to credit is important. Right from why you need credit to what happens if you are not careful about repayments and everything in between should be carefully considered. Before taking a loan, compare deals that are available from various lenders, focus not only on interest rates but other costs too, and use a loan emi calculator to see if you can bear the loan EMI burden and so on. When using a credit card understand the terms and conditions, the various fees and fines that one is liable to pay, understand the credit cycle, implication of paying the minimum amount etc.
Sometimes the best laid plans can go awry and if you have no concrete plans then you can well imagine. Credit should be use with full responsibility if that does not happen for some reason then you should be able to spot signs of trouble. Trouble spotted in the initial stage can stop one from falling into a debt trap. So if you find that month on month you are falling behind in your EMIs, you have to rely too much on revolving credit, you have to dip into your savings to pay you credit card bills or EMIs you should stand cautioned. These are sure signs of trouble and it is time to review your credit situation.
While being aware about being a responsible borrower is important, it is also equally important o know what goes into making a credit score and how a good score benefits in an individual. Being credit healthy helps in getting a loan sanctioned, gets the borrower a good deal and may also help in certain cases to get a job. If required on must try to increase credit score so that the individual can reap the benefits of a good rating.
Hopefully the above aspects will help you in greater understanding of credit and how it works and impacts our lives.
Above aspects will help you in greater understanding of credit and how it works and impacts our lives.