The habit of checking your credit report regularly will go a long way in these times when you might require external liquidity more than ever.
We’re going through an unusual time of uncertainties. The Covid-19 pandemic is front and centre of every issue. It has hurt livelihoods and slowed down economies. Millions are also exercising strict precautionary measures like staying indoors and practising social distancing when outside to slow down the virus’s spread. Similarly, many are also taking financial steps like boosting their emergency funds and maintaining adequate insurance coverage to be better positioned to tackle the economic fallout of the ongoing crisis. But that’s not all. Many are also keeping a strict tab on their financial health amid this crisis by checking their credit reports regularly. And for good reason.
In FY20, BankBazaar.com saw a 111% increase in consumers availing free credit scores checks.. And according to the latest data, leading global credit reporting company Experian reported a 25% jump in June 2020 over May 2020 in the number of consumer enquiries for credit reports in India. These trends make it abundantly clear that Indians want to be on top of their financial game while dealing with the pandemic. They also want to arm themselves with a good credit score as they explore contactless and digital banking solutions in the current times to secure their financial future.
Read on as I discuss why checking your credit report regularly is a good habit to have in this crisis.
1. It helps in getting the best personal loan offers
In these times of diminishing earnings, many are contemplating taking a loan to effectively manage an emergency like a medical crisis or house damage or to make an essential purchase like a laptop, air conditioner, water purifier, power backup, etc. in the absence of adequate funds. Now, many among them do not possess or want to pledge collaterals like household gold, insurance policies or investments to get a securitised loan. They, therefore, want to go for a collateral-less, no-frills, and open-ended financing facility like a personal loan. However, the best personal offers are only given to those eligible applicants who have a good credit score (usually above 750). Hence, it makes a lot of financial sense to check your credit score on a regular basis if you’re planning to take an unsecured loan like a personal loan. However, have a clear repayment plan, never over-borrow, compare your options including pre-approved ones and factor in various loan charges like processing fee, prepayment penalties, etc. before finalising your decision.
2. It helps in getting the best home loan offers and maintaining low EMIs
The Covid-19 crisis has also forced the RBI to cut the repo rate to infuse liquidity into the system resulting in home loan interest rates plummeting to sub-7% levels. Now, this has also become a blessing in disguise for aspiring homebuyers who do not want to let go of these low rates. However, the lowest possible home loan rates are offered only to those with a stellar credit score. The interest rates on repo-linked home loans are calibrated as per the borrower’s credit profile. The lower his credit score, the higher his interest rate spread. This also holds for those who are contemplating a shift from their existing Base Lending Rate (BLR) or Marginal Cost of Funds Lending Rate (MCLR) home loans to a repo-linked loan to avail of the lower interest rates. So, if you have the necessary margin money to buy a house without impacting your emergency fund, and you’re planning to take a home loan to do that, you must check your credit score in advance and improve it if it’s lower than 750 to get the best loan offers.
Also, if you’re already servicing a repo-linked loan, you’re likely to know that your loan EMIs can increase if your credit score sees a substantial dip anytime during the loan tenure. Hence, you should also check your credit report regularly to see if there are any downward trends and take corrective measures to improve it if you want to enjoy lower home loan EMIs throughout your loan tenure. A good credit score could mean lower home loan interest rates which will hold you in good stead if you want to prepay to become debt-free faster.
3. It allows you to take corrective measures to improve your credit score
Now your credit score could see a dip due to minor overlooks like missing a credit card payment deadline or overusing your credit card or applying for too many loans in quick succession or serious mistakes like defaulting or settling a loan. Regardless, the ramifications of a poor credit score could be adverse and throw unpleasant surprises at us when we’re applying for critical financing facilities like a personal loan, car loan or a home loan. These could be higher interest rates on loan or even outright rejection of our loan applications – things that could deeply hurt our financial goals.
So, it’s always advisable to check your credit score regularly to spot any downward trends caused by our mistakes or even errors. Once you know about your low credit score, you can take corrective measures like repaying all your dues in full on time, limiting your credit card spends to 30% of its credit limit, applying only for those credit cards or loans which you’re eligible for and reporting to your bank or credit reporting agency about any discrepancies in your credit report that have lowered your credit score.
In conclusion, being aware of your credit score is akin to going for your regular medical checkups to avoid bigger complications in the future. The habit of checking your credit report regularly will go a long way in these times when you might require external liquidity more than ever. And checking your credit report shouldn’t be a hassle when you can access your credit report for free in minutes on multiple platforms.
(The author is CEO, BankBazaar.com)