To many, a Credit Score may seem like a simple, inconsequential three-digit number. However, for a lender, it gives deeper insight into a borrower’s financial behaviour and patterns. They look at the credit reports to understand the borrower’s ability and willingness to pay off debt.
You can imagine how crucial that is because, at some point in life, the need to get a Credit Card or a Personal Loan may arise. That list includes a Home Loan too. If your score is low, you may have to pay higher interest rates or not be able to access any financial products at all.
Unless your Credit Score is low, there is no reason be alarmed right now. This article’s objective is to make you aware of how your financial wellness is very closely related to that simple three-digit number.
And finally, in case this piece is a wake-up call for you, I hope you get your finances on track because that would be a win all round.
Additional Reading: Home Truths: Important Tips To Help Home Loan Borrowers!
The Simple Three-Digit Number: What is That?
It’s your Credit Score; the higher the number, the better it is for you. A credit report contains in-depth information about your credit and loan history, including identity information, the number of credit cards and loans, your payment history and recent applications for financial products. The numeric summary is derived from your repayment history and the hard inquiries performed by banks and financial institutions based on your credit applications.
Your Credit Score would typically fall into any of the below categories:
| Score | Category |
|---|---|
| 300 – 549 | Poor |
| 550 – 649 | Fair |
| 650 – 749 | Good |
| 750 – 799 | Very Good |
| 800 – 850 | Excellent |
There are four major bureaus in India that determine your creditworthiness. They are Experian, CIBIL, CRIF High Mark and Equifax. Now if you’re wondering which bureau’s credit report you should check, let us tell you that it doesn’t matter. What matters is that you check your credit report every month. While there may be some variation in the score shown in the report from each bureau, the difference will be minimal. You can start right now by checking your Credit Score here.
Additional Reading: 7-Step Guide To Becoming Financially Strong In FY2023-24
Monetary Discipline for Peace of Mind
Let’s face it: without exercise, there is no fitness; without self-control, there is no freedom; and without monetary discipline, there is no financial well-being. While you can get away with the first two for a few years, a life without monetary discipline will catch up with you fast.
If you are being irresponsible with your Credit Cards or Loans, the credit bureaus will make a note of it, and you will know. Not just that, how can you even be at peace knowing that you owe money to lenders or that you are missing repayment dates? It is just not practical.
On the other hand, if you are responsible with your money, you are already at peace because there is nothing to worry about.
Now that you know how important financial well-being is, here’s how you can maintain a healthy Credit Score:
- Avoid Late Payments and Paying Only Minimum Due
This is the most important factor because this is where most people default. Avoid borrowing if you don’t have the bandwidth to meet the repayment dates. A missed or late payment may reflect in your credit report for seven years, typically. Late or missed payments have a heavy impact on your Credit Score. Further, avoid paying only the minimum due but rather, pay your bills in full and on time.
- Maintain a Healthy Credit Utilisation Ratio
At all times, keep your credit utilisation ratio below 30% of the total available credit limit. Try to spread your expenditures across multiple Credit Cards to maintain a low credit utilisation ratio.
- Maintain a Credit Mix
Unsecured Loans generally come with a risk of extra scrutiny as there are no collaterals involved. So compared to secured loans, these loans pose more risk for the lender. So, maintain a mix of different credit products to reduce the negative impact on your Credit Score.
- Do Not Exhaust Your Credit Limit
Come on, this is a no-brainer, right? But still, everyone must remember this. Don’t reach a point where you end up maxing out your Credit Cards.
- Check Your Credit Score Regularly
Make it a financial hygiene practice. Every month, a new credit report is generated, and without fail, you should check what your score is. Even if you are paying back on time or are good with credit, keep checking because if there is an error, you will be able to flag it.
So, keep the above five points in check, and you will be good to go. Now that you know why checking your credit report is a must and how to maintain a healthy Credit Score, I’ll leave you with a story on why it’s important to be always aware of your Credit Score.
A friend of mine with little to no credit history had borrowed a small amount from a lender. Obviously, she paid back the loan on time. However, the lender had added an extra ₹30 later to her bill, and she was not aware of that extra amount. So, for example, if she had borrowed ₹1,000, she was supposed to pay back ₹1,030.
When her repayment date came, she paid ₹1,000 and continued with her life until she randomly checked her credit report one day. Yes, for that arrear of ₹30, her score was negatively impacted. Obviously, she got in touch with the necessary people to get it fixed, but had she checked her Credit Score regularly, she would have gotten the error rectified well in advance.
Additional Reading: How To Get A Credit Card With A Higher Credit Limit And Attractive Reward Programs
Lastly, I’ll leave you with two points:
- If you are looking for a Credit Card that helps you maintain a healthy Credit Score, check out the YES BANK-BankBazaar FinBooster Credit Card or the RBL Bank BankBazaar SaveMax Credit Card. Both cards come with a free tailored monthly credit advisory report that helps you keep your finances and Credit Score in check.
- Finally, if you are an individual with any sort of credit history, please make sure you keep track of your Credit Score every month. The effort is minimal, the costs are zero and your data will be secure. Your win is our win!