Follow these 7 good habits for a healthy credit score

Financial Consultant Aparna Ramachandra asks women to be aware of their creditworthiness

By: Aparna Ramachandra


How many working women know their creditworthiness or rather the importance of having a good credit score? It is very important to have a healthy credit score as it determines a person’s capability to repay the money he or she has borrowed.

This credit score is obtained by studying a person’s credit history which shows how responsibly he or she has repaid the money borrowed from various sources, including banks, credit card companies, collection agencies and governments. If your credit score is bad, the system allows you to rectify and move up the credit ladder. But if you are not diligent, it also penalises you with low scores. Remember “ what goes up can come down too.”

Pay your bills on time
This is the golden rule of a good credit history. Paying back on time proves your credibility as a good borrower will also save you the expense of late-fees and other unnecessary charges. If you are someone who doesn’t remember the due dates, may be it’s a good idea to set up the ECS facility. It will ensure timely payments and bring in fiscal discipline. You will be forced to keep the amounts aside in the bank account, unspent. Talking to the bank and rearranging all the due dates to one date is a good idea.

Here are 7 good habits to maintain a healthy credit score:

1. Maintain low or no balances. It is good to use your credit card. But repaying the dues after the 45 wait-in period is equally important. Paying at least the minimum payment requirement due on all credit will show other lenders that you are a responsible borrower. Be aware of the amount of all your debts and set a repayment timeline and schedule. Seek professional assistance if need be to plan your repayments smartly. Banks can charge as high as 42% compounded rates of interest on the credit card overdues. It's smarter to wait and buy later rather than regret impulsive buying.

2. Always have a credit card in use: It is one of the best kept secrets in the world of credit repair and credit builder arena. A live credit card boosts your credit score. So go ahead and apply for a credit card if you don’t have any yet. But with the perks comes responsibilities. Always remember to use it prudently and repay the entire dues on time.

3. Only apply for credit when necessary: It’s important to have a healthy mix of lines of credit, including credit cards, auto loans, home loans and even personal loans if needed. I believe a healthy robust well diversified credit portfolio goes a long way in proving your credit worthiness. It shows that lenders are willing to trust you with their loans. And the more available credit you have, the lower your credit utilization ratio will be.

Please don’t say yes to every offer like Kiran, who kept saying yes to every new card/loan offer that was made to him. Some were approved, some were not, but he never bothered to check why there were rejections until he applied for a 70 lakh home loan. Repeat rejections from multiple lenders more than pulling down your scores, dents your credibility.

4. Choose credit cards carefully: People with excellent credit usually get the best credit card offers. But be smart about the cards you choose. For example retailers often offer discounts on purchases when you sign up for their credit cards. These cards often have low credit limits, which can hurt your credit utilization ratio if you carry a balance on those cards.

Cards with annual fees also should be avoided at all costs. Always insist on a no-fee card. It’s also smart to look for cards that offer a 0% interest rate for the first year. However, if you are not one of those to read the fine print, and don’t have the time to understand whats in-between the lines remember to just opt for a no-fee card.

5. Always close your loans: It is important to repay on time, ask for return of the hypothecated documents ( if any) and seal the closure. Ensure that you collect the closure letters and verify if it has been updated with the credit bureaus.

6. Let your accounts age: The longer you've had credit, the better it is for your credit score. Leave your oldest accounts open since they help increase your credit age and build good credit. It basically works like a confidence booster to your new lender. He gets to see how responsible/irresponsible you have been in the past, whether you can be trusted with the new line of credit. So conversely for young borrowers it becomes crucial to use available credit lined and repay on time.

7. Talk to your lender:  I believe in being open about your troubles and seeking help is a sign of maturity. We all go through ups and downs in life. During rainy days, it is best to have a chat with your lender. If your intent is good and you are able to convince the genuinity of your issue the lender is willing to listen and help you out.

The author of this article, Aparna Ramachandra, is the Founder Director of India's first credit advocacy, credit advisory and credit counseling company (www.rectifycredit.com). She has written columns for various publications like Mint, Outlook Money, Femina andMoneylife etc. She also conducts workshops for women on finance.
                                                                                            

 

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