Stop indulging in these before it derails your financial future
Before you start reading this article, please answer these questions:
- What is the three digit score which is one of the key factors that decides your access to loans or credit cards called?
- What is the range of this score?
- What is generally considered a good score by banks and credit institutions for approving loans and credit cards?
While most of you who have taken a loan or credit card in the past may be able to quickly answer this quiz, some of you may still need help. This 3-digit number is your CIBIL TransUnion Score which ranges from 300 to 900.
This score is calculated based on your credit history as reflected in your CIBIL Report.
Today an individual's CIBIL TransUnion Score is one of the important factors that banks and credit institutions review before granting a loan or a credit card.
An individual's CIBIL TransUnion Score provides a Credit Institution with an indication on the likelihood of the individual paying her/his loan or credit card dues on time. Higher the score more favourably the loan application will be viewed by lenders. Most banks and credit institutions today lend to individuals who have a credit score of 750 and above.
Therefore it is essential to maintain a healthy credit score by following disciplined credit behaviour. Here is a list of 5 harmful credit behaviours that can hamper your CIBIL TransUnion Score and derail your financial future:
1. Missing payments on loan installments
Most loan EMIs get auto debited on a set date each month from your linked bank account. Default on the monthly payment will occur if sufficient fund is unavailable in your linked account. Defaulting on loan EMIs is detrimental to your CIBIL TransUnion Score. So ensure you pay your loan EMIs month on month and have adequate funds in your bank account for the loan EMI debit.
2. Delay or default on credit card bill payment
Forgetting to pay your credit card bill on the due date or not paying your credit card bill at all can hamper your credit score drastically. Ensure you set up payment alerts on your credit card bill and make the payments before or by the due date.
3. Settlement on a loan or credit card
Making a settlement on a loan or a credit card is a harmful credit behaviour. If the customer has partly paid the dues and settled a loan or a credit card then the status will reflect as 'Settled' in the credit report. It is important to understand that though there will be no impact of the'settlement' flag on the customers CIBIL TransUnion Score, her/his credit history will show a 'Settled' status in her/his CIBIL Report and there will be Days-Past-Due reflecting on the report since the payment on the loan has not been timely.
Each bank has its own policy of viewing at a 'Settled' status and will decide on the consumer's future loan applications accordingly. Therefore it's best to not ever get into a loan settlement.
4. Exceeding or reaching the limit of your credit card
Spending more than the assigned limit on your credit card or spending close to the limit on the credit card may affect your credit score to some extent. Therefore ensure that you spend well within the limit on your credit card.
5. High 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.
Disciplined credit behaviour will automatically ensure that your financial future is safeguarded and you are'credit-ready' at any point in time.
Illustration: Uttam Ghosh/Rediff.com
Harshala Chandorkar, Sr. Vice President- Consumer Services & Communication, CIBIL