27-Oct-2018 written by : FSI-Team
Many events in life can lead to an urgent requirement of funds. In such instances, what one looks towards is access to loans, advances and credit. However, the seamless access to credit is while depended upon one's repayment capacity, one’s credit health has a bigger role to play. Despite having the required income to service the loan, the applicant may not be able to get approval on loan application if the credit health is not up to the mark. This may lead one into desperate state of affairs in case the funds were needed for meet an exigency.
Just like physical health, one would need to work on the credit health on an ongoing basis.
First and foremost, what you need to understand is the current state of your credit health. This will entail obtaining your credit report and going through it. With the Reserve Bank of India mandating the credit bureaus to extend one free credit report to all individuals, you need not worry on the cost of report. Obtain it without any payment and check it out.
As a next step you need to understand what makes the credit score good or bad. Once you have understood this, it will make it easy for your to manage your credit health more effectively.
Payment History : This is the most important factor. Whenever you take any credit facility, you would need to ensure a timely repayment. None of the due dates on the EMI or on the credit card shall go without the payment being made.
Credit Utilization : The credit utilization is also termed as amounts owed. This is the total outstanding of loan and advances extended to you against the original disbursed amounts. So for example, you have a personal loan of 200,000 and a credit card with a limit of 50,000 your total exposure will be 250,000. Now owing to regular repayment of the EMIs, the actual principal outstanding has come down to 100,00 and the actual limit utilization on credit card is 10,000 your total credit utilization is 110,000 against the over all exposure of 250,000. Lower the credit utilization, better it is for your credit health. While the loans’ outstanding will keep depleting, it is the use of credit limit on cards that can be a spoil sport. The credit experts recommend keeping the card limit utilization to 30%.
Length of Credit History : The longer you would have served the loans, the better it is. Now while the loans will definitely get paid and closed over a period of time, to ensure that this factor continues to positively impact your credit profile, do not close that old credit card of yours. That old plastic will keep supporting your requirement of maintaining a good credit score.
Credit mix : This factor takes into account the variety of loans that you would have taken. Secured, unsecured and revolving credit. A person who has managed all three kinds of credit facilities will definitely have a better credit score in comparison to one who has had limited exposure.
Credit Inquiries : The number of inquiries also play an important role in credit heath management. You must not apply for multiple loans in a short period of time. Too many inquiries will not only lead to negatively impacting the credit score but will also raise a suspicion in underwriter’s mind that can lead to rejection of your loan request.
While it may surprise you but as per the survey by Credit Sudhaar, one of four reports have errors. And about seventy percent of these errors can be termed as major errors. Meaning they will impact the credit score. So when you check the credit report, you must check and weed out the possibility of a loan account reflecting in the report that has not been taken by you. That the repayment of all the accounts has been reported and captured correctly. And that there is not derogatory status on any of the trade lines. In case you find any anomaly, the same must be reported to both the bank and the credit bureau immediately. You might be required to follow up with them, but the same is something that must be done without any qualms.