If you are considering taking out a loan this holiday season, or even a credit card, check your credit score. Mortgage rates may have fallen as much as 6.4% this season. But these rates are not accessible to everyone. Only those who have a credit score over 750 or even 800 and above can take advantage of it.
Whether it’s buying a home, sending your child abroad for higher education, or meeting an urgent need, you may need to take out a loan at critical times in your financial life. . If your credit rating is low, the big banks will not approve your loan application. Even if a non-bank financial corporation (NBFC) agrees to lend you, they will charge a higher interest rate.
Monitor your credit score
Get in the habit of checking your credit score once a month, or at least quarterly, and make sure it stays above 750 at all times. “Customers should regularly monitor their credit profile and not just when taking out a loan,” says Sujata Ahlawat, vice president and head of interactive DTC, TransUnion CIBIL. Regular monitoring is important because improving a low score takes time.
Credit bureaus like TransUnion CIBIL allow customers to check their credit report for free once a year. You can also check it more frequently by paying a fee. Loan aggregators also allow customers to check their credit score for free.
Improve your credit behavior
Get your credit reports from the four credit bureaus. Go through them to understand the reasons for your low score.
The key factor that affects credit score is non-payment of monthly installments (EMIs) and credit card bills on time. “If your credit rating is low because of your bad credit behavior in the past, you need to improve it by developing a good repayment history,” says Radhika Binani, Product Manager, Paisabazaar.com.
Over-indebtedness will also affect this score. “Your IME-to-income ratio should not exceed 50%,” Ahlawat explains.
Those who frequently exceed their credit card limits are also likely to see their credit rating drop. “Limit your monthly credit card spending to 30-40% of the card limit,” Binani explains.
Applying for multiple loans and credit cards in a short period of time also has a negative impact on the credit score, as this is seen by lenders as a sign that the customer is greedy for credit. Don’t apply for new loans or new credit cards until your credit score has improved significantly. Rejected applications also tend to damage your credit score.
Sometimes your credit rating can be low because of the bad credit behavior of someone you have vouched for. In the first place, avoid giving such guarantees. And if you did, push the person to improve their behavior.
Correct credit report errors
Your credit report is based on information provided by banks and lenders to the four credit bureaus. Sometimes due to misrepresentation there may be errors in the report which could affect your credit score. For example, a loan that you have not taken out may be assigned to you, or a loan that you have fully repaid may not be marked as “closed” by the lender.
To have such errors rectified, raise a “dispute” on the credit bureau’s website. “The office will verify the error. If there is a need, he will inform the lender to investigate, ”Binani explains. She adds that it usually takes a few weeks for the error to be resolved and the changes reflected in your credit report.
Remember that there are four credit bureaus in India and you need to track the credit reports of each one to make sure there are no errors.
Settled accounts make borrowing difficult
When a borrower is unable to pay their contributions for 90 days, it becomes a “written off” account. A borrower’s credit score takes a hit when this happens.
Suppose the amount owed is Rs. 100. A debt collector can approach the borrower and ask them to pay Rs. 70 for a “one-off settlement”. The bank takes a haircut of Rs. 30 and marks the account as “settled”. The bank no longer has the right to come back to the customer to collect the Rs. 30 balance, and the customer is also not obligated to pay more. “In office records, however, this will be reflected as a settled score. It’s bad from a credit score standpoint, but not as bad as a write-off. As a result of this settled account, which will be reflected in the credit report, the borrower may find that their loan applications are rejected by the banks, ”says Arun Ramamurthy, Mumbai-based author and credit score improvement expert. borrowers. He suggests that if, while monitoring your credit report, you come across a loan amount that is displayed as “settled”, it is advisable to pay the haircut amount and have it “close”.
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