Wednesday, 1 March 2017

Good CIBIL score is an outcome of good credit management

What you sow is what you reap. You learnt this idiom in school and saw its application in various aspects of your life. You got good marks if you studied hard. You landed a good job if you prepared well for the interviews. The same “Law of karma” applies to credit management as well. Good credit management habits lead to a good CIBIL score.

Your credit report is a reflection of how you handle your loan and credit card accounts. A good payment behavior builds a sound credit profile and leads to a good credit score. This helps you to easily qualify for loans at low interest rates. Cheaper loans mean that you have more money in your pocket to save and keep for emergencies.

It is very important to develop good credit habits from the start. From the time you get your first credit card you should know how to shoulder the responsibility of taking a debt. You should be well aware of the interest charges and the importance of making payments on time. It is very common for youngsters to land up in serious debt when they open several credit card accounts without fully understanding how to use them. If you do not want to make that mistake then you should follow some fundamental rules of good credit management that will help you build a good credit history.

Borrow but wisely

It is true that you need to take on a debt in order to demonstrate your repayment habits and improve your credit score. But do not borrow if you cannot afford to pay. It is good to make a budget and stick to it.  Identify an amount that you can set aside each month to repay the debts and stay within that limit. Use different types of credit instruments like credit cards and installment loans to show your ability to handle various types of credit.

Keep balances low

The ratio of the outstanding balances on the credit card to the total available credit limit determines a large part of your credit score. Keeping your balance low is a sign of good credit management. It signals that you are not overly dependent on credit. This gives a boost to your credit score.

Pay the card balances in full

Credit cards give you the option of rolling over your balances to next month by paying only the minimum amount due. But since credit card debts attract huge interest charges it is not a good habit to do so. Pay the balance in full to keep your debts under control. If you can’t pay it full at least pay a substantial amount to show your willingness and ability to repay your debts.

Pay on time

On time payments of credit card bills and EMIs help in building a solid foundation of your credit score. Late or missed payments, or any remarks of foreclosure or collections signify that you are a risky borrower. These negative remarks get reported to the bureau and have a rippling effect on the credit score. Set up a direct debit from your account to make sure that the payment is always done before the due date. You may also set up mobile or email alerts to remind you of the payment due date.

Check your credit report
It is always a good habit to check your credit report at least once a year to monitor your own credit performance and identify areas that you can work upon to improve your credit score. A careful review of the report also helps in uncovering errors. Report the errors immediately to avoid it from ruining your reputation as a trustworthy borrower.
Have an emergency fund
Put aside at least 10% of your monthly income to build up an emergency fund. Such a reserve saves you from a lot of worries when an unexpected expense comes up.
Good credit habits not only help you in maintaining a good credit score, but they also help you to take charge of your finances as well. So make these habits a part of your financial plan.


1 comment:

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