With a gradual resumption of business activities after the double-barreled bottlenecks, it’s time to assess your financial health for a much brighter future. Any household that has opted for the Covid-19 relief program (s) in fiscal 2020 and 2021, such as the RBI EMI / Credit Card Moratorium Relief Program, Loan Restructuring, Covid-19 or similar emergency loan, now needs to streamline its finances. Credit bureaus have been instructed not to explicitly record relief from the moratorium; credit institutions, however, will inquire whether the applicant has made use of such a stay. If so, then there is the inevitable impact on creditworthiness to worry about now.
For a variety of very good reasons, remedial actions to consolidate credit rating are strongly recommended.
The benefits of a good credit score are a universal truism: you benefit from several pre-approved banking offers as well as favorable interest rates. Six basic steps to maintaining and improving your credit rating are explained below:
- Examine your credit report
Your lenders and card issuing banks periodically share your account and repayment details with credit bureaus, namely CIBIL, Experian, Equifax, or CRIF Highmark. You can always access your credit information report from any of the major credit bureaus and analyze your credit score. You can even get a free credit report online.
Ideally, you should check your credit report two to three times a year. It helps you view all of your credit accounts in one place. By keeping a check, you could be assured that there is no error, misrepresentation, or suspicious activity on your credit report. You can always take timely action, dispute the error and thus protect yourself.
- Favor the repayment of expensive loans
If you have multiple loans and credit cards, try paying off the debt with the highest interest rate first. For example, the interest rates on the deferral of credit card contributions would be between 24 and 48% per annum; personal loan EMIs would be calculated at 11-18 percent per annum; while the home loan, car loan or loan against collateral will vary between 6.5% and 12% per year. Your cardinal principle should be: minimize exposure to expensive loans.
As a general rule, never renew credit card balances. It entails usurious interest charges as well as late payment penalties. It is always advisable to convert outstanding cards into loan IMEs that are priced much lower. The use of credit cards should be optimized for the free credit period. Multiple credit cards with varying settlement dates will maximize free credit.
- Take advantage of the mortgage loan overdraft
Instead of relatively expensive unsecured and / or short-term credit, existing home loan customers should opt for the Available Overdraft Facility (OD). This will be an inexpensive option to weather prevailing storms and to cover urgent and unforeseen obligations. On your current home loan, the bank will be happy to offer an OD facility (depending on eligibility) at a slightly higher interest rate (around 1 percent). With an OD facility, there is concomitant flexibility and the ability to reduce the overall interest cost of the loan. The same would be available if you go for a loan against a private car. Essentially, focus on reducing costly loans.
- Right mix of credit usage
Multiple personal loans and high credit card usage reflect the borrower’s unusual credit appetite. As a key step in backing up your credit history, you need to make sure that your existing credit facilities (cards, loans) are not always used to their fullest, thus ranking you as always greedy for credit. Maintain the margin.
Difficult times often lead to difficult decisions. The Covid-19 pandemic has taken a toll on the financial health of the most disciplined people. Going forward, you should try to maintain 30% credit usage. This will eventually help you restore your credit rating from bad or fair to good.
- Dealing with delinquency
For any delinquent or irregular loan account, take steps to mitigate the consequences of existing delinquency. Keeping the account in red can damage your credit profile. Opt for options such as debt consolidation, loan restructuring, balance transfer, or an account settlement, depending on the options available. Contact your lender and reset the loan terms to facilitate monthly cash flow. Whether it’s multiple late or missed payments, you need to develop a solid plan to make future payments on time. You can’t erase a credit history, but you can build the future by observing strict financial discipline.
One of the important indicators of financial well-being is a credit history. As a result, old credit accounts with flawless repayment records will be a confidence booster for any lender. So even if you’ve stopped swiping your very first credit card, you never have to give it back. This is long standing proof of a decent credit history.
- Frugal life
You need financial prudence and discipline to repair your credit score and successfully manage ongoing financial stress. Here, frugal living can be your best ally.
Frugality doesn’t mean missing life, but making conscious decisions to manage your current cash flow. Simple steps like setting the budget, logging in and out, avoiding impulse buying, sticking to shopping lists, eliminating new credit card bills, delaying unimportant or expensive purchases can really support your business. cause. A penny saved will become a penny earned, especially in times of crisis.
Constantly consider plans for additional income streams, design an inflation- and shock-proof savings strategy, and observe strict punctuality in meeting financial commitments. The aforementioned cumulative efforts will gradually ease financial stress and you will naturally develop an enviable credit history.
The writer is Managing Director of MyMoneyMantra.