Having a good credit score goes a long way. Experts point out a good credit score is a gateway to a smooth financial life. According to industry data, when applying for credit cards, mortgages, car loans, and other financial products, almost 6 out of 10 millennials are rejected.
Subhrangshu Chattopadhyay, National Sales Head, CRIF High Mark says, “A borrower should always be mindful of his/her dues and the due date of the loan or EMI opted. In case of a slip in loan payment, the credit score of the borrower can be dampened.”
Here is how you can improve the credit score affected due to loan defaults;
• Pay your dues on time: Clear all your loans and cards outstanding dues on time. In the past, if you have missed certain payments and are in a position to repay them now, then it is better to clear the dues immediately.
• Use your Credit Card responsibly: It is a good practice to use your Credit card wisely and restrict your spending so that you don’t exceed or overutilize the credit limit. Chattopadhyay says, “When you spend from your credit card, make sure you don’t just pay the minimum amount required to continue the usage but clear the whole outstanding or the maximum amount which you can afford for that month.”
• Limit your loan applications: Experts point out one should not hasten to re-apply with another bank as doing banks would be able to see an applicant’s rejection by the previous bank. This could further hurt your credit score and make things worse. “One should avoid shopping for a credit card/loan unless you are really in need of this,” adds Chattopadhyay.
• Keep a track of your score: Checking your credit score and report regularly is a good and harmless practice. It helps you keep a check on your financial health and accordingly devise adequate measures to rectify it. Checking the scores with the bureaus helps to ensure that all the data is reported correctly by the lenders and depicted in the credit report. These enquiries are considered soft enquiries which don’t pull down your credit scores.
How to avoid loan defaults by allocating assets?
According to Chattopadhyay, one should be financially disciplined in managing and allocating assets.
• As a borrower check the credit utilisation ratio. Chattopadhyay explains, “Credit utilization is the ratio of credit card outstanding to the credit limit and it can impact 20-30 per cent of a credit score. It is advisable to not overborrow through unsecured loans. Differentiate between mandatory borrowing and discretionary borrowing.”
• Check your income, current needs and draw out a list of assets that you want to achieve independence and with your partner in the future. These can be buying a house, car, gold, etc.
• Depending on the stage of your career and current income levels, keep revisiting the spending, fine-tune expenses wherever possible, save more and allocate your income regularly.
• Over a period, Chattopadhyay says “with a good financial history, you can avail of credit easily. Do this wisely in a disciplined manner to meet your long-term goals and achieve financial stability.”