Spend, Save and Invest Smartly
Banks set your credit limit (basically the amount you can borrow on the card) based on your salary, how you spend your money and your repayment history. You can avail more than your credit limit but you have to pay a hefty fee.
Solution: Do not make use of your entire credit limit. Use only 30-40% of your credit limit. If your credit limit is a lakh use only INR 50000.Banks prefer you to utilize as low credit as possible as this shows that you are in control of your finances.
A late payment or a default on your car loan, personal loan and your home loan EMI means your credit score goes low. Credit cards allow you to escape a late penalty fee by paying a minimum amount on your credit card. In spite of paying the minimum amount interest on your credit card accumulates and soon it goes so high that you default on your payments. Your credit score automatically goes low.
Solution : Never be late or default on the payments of your car, personal or home loan EMI’s. A billing cycle of a credit card consists of 30 days within which all purchases and repayments are accounted for and billed. An additional 25 days may be added to the billing cycle which constitutes the grace period. If you repay the amount due on the credit card within this time period (billing cycle) no interest is charged on the borrowed amounts. This helps maintain your credit score.
Loans such as car or a home loan are secured against collateral. If you do not repay the loan the car or the house is seized and auctioned by the bank. You get a higher credit score if you avail a secured loan as the bank has collateral (security) as a guarantee. If you take an unsecured loan (not secured by a collateral) such as a personal loan or a credit card, it is bad for your credit score as banks believe you do not manage your finances well and need additional money to meet your needs. As there is no collateral in case of a default, banks face a difficulty in recovering the loans and if you avail many personal loans or too many credit cards you get a bad credit score.
Solution : Always avail more of secured loans such as a car or a home loan rather than an unsecured loan such as a personal loan.
You make enquiries for a car loan, personal loan and a credit card all in a short space of a month. Your CIR (Credit Information Report) keeps a record of all enquiries you have made at all banks to avail a loan.
Too many enquires show you are desperate for a loan and are unable to handle your finances. This results in a bad credit score.
Solution : You need to make minimum number of enquiries for a loan and apply for one loan at a time say a car loan and a few months later a home loan. A gap of 4-5 months is good before making enquiries for the next loan.
After you pay back all the dues on your loan make sure the loan account is closed. Always collect the loan closure letter from the bank loan officer. Sometimes even after paying back the loan, bank records would not be updated and this results in a poor CIBIL score.
Many a time one avails a loan mainly an unsecured personal loan or an education loan and runs away if he is not able to make the repayments and gets a job in another city or country. Banks mark such loans as a “Write-off” and you will be blacklisted in the CIBIL records.
If you pay back a part of the amount and then default, your loan will be marked as “Settled”. For a period of 7 years you will not be able to avail a loan from any bank if your report shows settled or a written- off status. Your credit score will be very low.
Your credit information report is concerned only with your loan and credit card repayments. It is not concerned with your saving bank account, current account, mutual funds or shares.
A bounced cheque does not affect your CIBIL score. However if your cheque which is used to make an EMI payment or a credit card payment bounces then it does affect your CIBIL score.