Why maintain a good credit rating and how? An expert weighs
Credit scores are like report cards for adults for their financial habits. Your credit score is a 3-digit number ranging from 300 to 900 and represents your creditworthiness. A higher score means that you are more likely to be a responsible and trustworthy borrower. Generally, a score above 700 is considered good, says Hena Mehta, co-founder and CEO of Basis, India’s financial services destination for women, powered by communities and financial education. It explains why and how we need to maintain a good credit rating.
Women are increasingly aware and aware of building and maintaining their credit scores. The average credit score of millennial borrowers in India is 734 – a significantly higher number than our male counterparts with an average rating of 726. Here are some dos and don’ts when building and maintaining your credit score. credit.
Why do you need to maintain a good credit rating?
It all comes down to access to credit. By maintaining a good credit rating, you have access to better loan terms. This includes better interest rates, favorable loan repayment terms, higher credit limits, faster approval, and even bargaining power with loan providers.
How do you start to build your credit score?
It’s a chicken-and-egg situation. You need to start proving your creditworthiness in order to get a score that reflects your creditworthiness. If you’ve never taken credit before, you won’t have a credit score. So how can you start to build it? One popular way is to get a credit card. Ask your relationship manager how you can apply, even with a low limit. In the worst case, you can get a credit card backed by a fixed deposit, which can help you build your credit history when paying off your bills. Note that getting an extra card on your father or husband’s credit card does nothing for your personal credit score. Debit cards also do not affect your credit score.
How to maintain a good credit rating?
- There are a few things you can follow in order to maintain that 700+ credit score.
Maintain a healthy debt-to-income ratio of 40% or less. This means that the total you pay in IMEs each month should not exceed 40 percent of your monthly income, after tax.
- Don’t default on your EMI payments, including credit card bills. Pay them back in full, on time. All. Alone. Time! Set up monthly reminders or direct debits to make sure you don’t miss any payments.
- If you have a credit card, do not use more than 30 percent of the credit limit in each cycle. So, for example, if your credit limit is Rs. 1 lakh, then don’t spend more than Rs. 30,000 on that credit card in any given month.
- Don’t apply for too many loans at once. Every time you apply for a loan, the loan provider does a âdeep investigationâ of your credit score, and too many in-depth investigations that happen around the same time can lower your score.
How do you keep track of your score?
You don’t need to monitor your score every day. I would recommend keeping an eye on it every six months to a year. You can get your credit report and credit score from any of the four licensed credit bureaus. CIBIL is the most popular. The bureaus provide one free credit report and credit score per year. There are also a few fintech apps that let you check your credit score for free.
One of the main benefits of tracking your score and report – other than knowing where you are at – is identifying errors or issues. If there is an error in the report, you can have it corrected – otherwise, your credit scores may be negatively affected.
Also read: Start young to build a good credit score