Hey buddies!
In the last read, we saw what a Credit Information Company is and how does it work. We also saw how the credit score could affect the sanction of your loan. A bad credit score can be a result of missed payments. Even though RBI has advised credit bureaus to overlook missed payments for six months starting March 2020, it is essential to continue making regular payments to avoid a higher interest burden later. Now, how can we maintain a decent credit score? Here we present to you 6 easy steps to maintain a decent credit score.
1. Pay your EMIs on time to create a proper track record
Treat all of your debts equally when it comes time to pay. Your credit score considers both revolving debt (credit cards) and instalment debts (mortgages). Constantly having a balance on your credit cards can lower your score.
2. Consider using credit monitoring services
Manage your credit cards carefully or, better limit your use to one credit card. Cancel dormant credit cards that is avoid having a credit card that you do not use. If you have multiple credit cards, set payment reminders for all your credit cards.
3. Do not exceed your credit limit
Live within your credit means. A 20/10 rule is a good rule of thumb for credit. The rule is: "Don't let your credit card debt exceed more than 20% of your total yearly income after taxes. And each month, don't have more than 10% of your monthly take-home pay in credit card payments".
4. Make payments in full
Try to make payments in full when possible, and otherwise pay at least the minimum. Try avoiding paying minimum because this is a terrible way to pay off debts. Paying just the minimum means even small debts could be stretched out over the years, which means very high-interest fees.
5. Review your credit score regularly
One can check their credit report for misinformation or inaccuracies shown in the credit report. If there is any discrepancy in the report, one can raise a dispute and get the issue(s) resolved. This practice helps in the improvement of your credit score.
6. Do not close old accounts
Closing your old accounts or credit cards is never wise because it depicts your long association with the banking institution. It also shows your long repayment history with the same. Closing old credit cards or account nullifies your history with the bank and thus impacts your credit score negatively.
The work does not end once you have built a good credit score. Maintaining it is a lifelong journey. It will have huge benefits, saving you money and stress during the loan application process to giving access to premium credit card rewards. Maintain good financial behaviour while building your score, and the perks will make an effort worthwhile.
Until the next read, you know the drill...
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