28-Dec-2015 written by : FSI-Team
As the saying goes, ring out the old and ring in the new. There is probably no better way to bring in the New Year than by increasing your financial fitness. In order to do that, becoming – and subsequently remaining – credit healthy is the first step in the process. With the new year almost around the corner, let’s see what all you can do to improve your credit score.
Make timely payments – When you receive a credit card bill or an EMI is due, make sure you make the payment on or before the due date. Making a delayed payment or skipping payments has a negative impact on your score, as it could indicate possible financial distress.
If you are prone to forgetting the due dates, consider setting up a reminder on your mobile phone or tab. Banks also offer various options such as standing instructions and ECS mandates to facilitate payment.
Multiple open accounts – Applied for one credit card too many? While a wallet full of plastic may look shiny and impressive, in reality it may not be so. Remember, it may get difficult to manage all those payments when the bills come in if not used judiciously and some proper planning. Also, too much of debt can indicate credit hungry behaviour and is looked upon less than favourably by a financial institution. Hence, keep alive only those cards that you require, and consider closing other accounts.
Multiple ‘hits’ or enquiries – Every time you apply for a loan or card, an enquiry is made by the lender or the card issuer against your cibil report. Each such record can temporarily bring down your CIBIL score. As with maintaining several accounts, do not apply for many lines of credit unless absolutely necessary.
Utilisation of credit limit – A credit limit is assigned to you when you avail of a credit card, which allows you a certain amount that can be spent on the card. When you constantly max out on this limit or get close to it, the utilisation ratio goes high. This could also mean that a person who regularly uses a fair amount of credit is likely to not have the means to survive. Again, this behaviour is indicative of possible financial insolvency.
Ideally, you should not exceed 30% of the limit set on your card, and maintain a clean payment history as well.
Retain ‘good’ old credit – Is there a credit card that you’ve been using for the past few years? If your payment history thereof is good (with timely settlement of bills), do not close that card. The same applies to a loan as well. An old account if serviced well is a prime example of good credit behaviour. If you can make regular payments, it is more likely that you are financially sorted and if you do avail of fresh credit the possibility of default is much lower (or even unlikely) in comparison to someone whose credit history is dicey. Hence, length of credit history is a critical measure of your worth.
Too many unsecured loans - If your credit mix consists mainly of unsecured loan products such as personal loans or credit cards, it can impact your score negatively. This is because to a lender, it may look like a case wherein a customer is unable to sustain without credit and is likely to fall into a debt trap.
No debt at all – While this may seem to be the ideal scenario that is not the case! With no previous credit history to bank upon, a lender is unable to gauge your creditworthiness. Hence for a first-time borrower, opening and maintaining a healthy line of credit can actually work in your favour.
Maintain financial discipline – Pay all bills in time, and spend only what you can comfortably pay off. Factor in other regular monthly spends such as your child’s education, household expenses etc. before overcommitting yourself.
Healthy product mix – Maintain both secured and unsecured loans in your portfolio, and service them well. This will buoy your CIBIL rating.
Track your credit score – Call for a copy of your credit report from any of the four credit bureaus (namely CIBIL, Equifax, Experian and CRIF High Mark) operating in India today. You can even obtain your free credit score from www.freescoreindia.com Make sure your score is up to scratch. If you believe there is room for improvement, consider availing the services of a credit health management company to improve your credit score and enhance it over a period of time.