While women have made tremendous progress in all walks of life, one aspect that perhaps we need to do better is managing our financial lives. Too many of us still depend largely on our spouses or fathers to take care of our financial plan, despite being financially independent.One of the key aspects of their financial lives women need to personally handle is their credit score. A high credit score is critical in ensuring we get the best loan and credit card offers, which goes a long way in saving money in the long run.
Here are 5 ways you can ensure you have a strong credit score:
Whenever you delay or default your debt repayment – whether it’s credit card bill or loan EMI – the respective lender reports it to concerned credit bureaus. In turn, credit bureaus include these in your credit report and may pull down your credit score by a few points. Although the weightage given to various credit evaluating criterion isn’t usually disclosed by bureaus, debt repayment history is believed to have the maximum weightage. Therefore, if you have a low credit score, make sure you adopt a consistent and timely repayment strategy for your bills and EMIs, since this practice would gradually help in improving your credit score.
While juggling between work-life and household expenses, women often end up with a higher credit utilization ratio. Credit utilization ratio is the proportion of your outstanding credit card balance against the total credit limit available to you. For example, if your total credit card limit is Rs 2 lakh, and you have utilized Rs 50,000, then your ratio comes out to be 25%. Since lenders usually consider high credit utilization ratio as a sign of credit hungriness, credit bureaus too may pull down your score by a few points upon breaching the 30-40% mark.
For a strong credit score, it’s important to contain your credit utilization ratio up till 30-40%. In case you frequently breach this mark, consider requesting your lender to increase your credit limit, or you may opt for an additional credit card, in order to increase your total credit limit, and hence bring down the ratio.
No matter how urgently you need funds, bombarding various lenders with multiple loan or credit card enquiries is never the right course of action to take. Remember that whenever you apply for any kind of credit, the lender pulls out your credit report from the concerned credit bureaus. And, such lender-initiated credit enquiry is termed as “hard enquiry”, which shows up in your credit report and is capable of pulling down your credit score as well.
Refrain from submitting too many enquiries, especially within a short span of time, as such actions might portray you as a credit hungry person who is more likely to default in future.
Alternatively, you may visit online financial marketplace for comparing various loans and credit card options. Credit enquiries initiated through such platforms are treated as “soft enquiries”, which neither reflect nor do they affect your credit score.
Your credit report lists down your entire credit history, including your outstanding loans, past credit accounts and existing credit card balances. While calculating your credit score, all such information is factored in, and any incorrect or incomplete information – whether it’s due to a clerical error or a fraudulent transaction- can harm your credit score. Hence, it is important to review your credit score periodically in order to detect errors or frauds, and prevent them from getting bypassed.
You can obtain free credit score and credit report, along with monthly updates, from online financial marketplaces, along with personalized credit advisory services.
Whenever you co-sign, co-borrow or become a guarantor for a loan, you become equally liable for any missed payments or defaults in those credit accounts. Along with primary applicant, your credit report will also be adversely affected upon such negative instances. Hence, it’s prudent to keep an eye on the repayments of such accounts, to ensure your credit score doesn’t take a hit.
(By Radhika Binani, Chief Product Officer, Paisabazaar.com)