The advent of 2016 signals new hopes and aspirations along with resolutions for fulfilling these aspirations. Here are 7 resolutions you must commit to if you want to enjoy credit happiness and easy access to finance in the New Year by maintaining a healthy credit report and high credit score:
1. Pay loan EMIs/credit card bills on time each month
Always ensure that you have sufficient funds in the account through which your loan EMIs get debited. In case you are making payments through cheque each month ensure that the check is deposited in advance before the due date of the EMI payment. Similarly also make sure that you pay credit card bills on time each month.
Try to make the credit card bill payments in full each month to avoid accumulation of debt and interest charges. If not possible then make sure to pay at least the minimum amount due on the credit card for that month. Missing any EMI or credit card bill payment will impact your credit report and lower your credit score.
2. Keep a control on your credit card limits
While increased spending on your credit cards may not necessarily negatively affect your CIBIL TransUnion Score, an increase in the current balance on the card over time is an indication of an increased repayment burden and may negatively impact your score. It’s always prudent to not use too much credit.
3. Limit credit exposure
The total size of your debt reflects on your credit report and has an impact on your CIBIL TransUnion Score. Having many loans or credit cards increases the total amount of debt you owe and increases your credit exposure. High credit exposure may impact your CIBIL TransUnion Score. If you have many loans running ensure that you close some of them so that your total credit exposure is reduced, before you apply for new loans.
4. Maintain a healthy mix of credit
A higher concentration of home loans or auto loans (commonly known as secured loans) is likely to be more favourable for your credit score than a large number of unsecured loans. Although unsecured loans offer easy access to finance, it’s also by far the most expensive form of credit. More the number of unsecured loans with high utilisation, larger are the payments resulting from its high rate of interest.
5. Monitor your co-signed, joint accounts
Do this every month as these also form a part of your credit history and impact your credit score.
6. Monitor the loan accounts for which you have stood as a ‘guarantor’
It is important to understand that by pledging as a guarantor on the loan, you are also legally responsible towards the timely repayment of the loan. In case of defaults and delinquencies by the principal borrower, the CIBIL TransUnion Score of the guarantor will also get negatively impacted. Hence, it’s imperative that the guarantor on the loan should ensure that the borrower pays the EMIs regularly on the due date, month on month.
7. Review your CIBIL TransUnion Score and credit history regularly
This helps you to track your financial standing and be “loan ready” always.
Remember responsible credit behaviour is the cornerstone of financial independence. In order to enjoy financial freedom and access to credit you must ensure responsible credit behaviour and due diligence.
Photograph: Richard foster/Creative Commons
Harshala Chandorkar is Chief Operating Officer, CIBIL