Repair your damaged credit score while you #StayHome

Deep cleaning of the house- check. Stock up on groceries- check. Learn a new skill- check. Evaluate credit score. Doesn’t that too need a check? The COVID-19 pandemic has given us a lot more time on hand to complete tasks that were usually pushed under the rug. Besides several to-do tasks, checking your credit report should make your list too.

Here is where you can get your free credit score.

The three digit number not just details your credit history from loans you have taken, to lenders you have paid responsibly etc. but most importantly determines your credit-taking ability in the future. Ideally, a score of 700-900 is considered good and maintaining it above the average will just broaden your future financial prospects.

Related Reads: Be aware of these errors in your credit report

Moratorium: To take or not to take?

RBI has loosened debt collection by offering a 3 period waiver for loan EMI’s and credit card dues. This came in effect after there were pay-cuts, lay-offs and fall in consumer goods demands. Although, there is no penalty charged if you avail it, there is no escape from the interest you may have on them. Hence, the wise question is- how much do you need it? If you have good savings and a steady income, availing the moratorium will not reduce your debt, rather set you back by 90 days. So, it is recommended that you keep paying to reduce the interest liability. Continuing timely payments will boost your credit standing, especially when lenders review it. Though a pandemic can be blamed for delays, a credit bureau in India may look at it as payments that have been skipped.

Credit Standing: Cards, Loans and Business?

While economic factors are not under your control, paying off debt is. If you do need a loan or a line of credit in future, lenders will look at this period as your economic stability and ability to overcome crises. So, it is best that you evaluate your finances before maxing out your credit card on emergency supplies. Your credit-utilization ratio should be about 30-40% of your actual credit limit. Unless, you can pay off that amount in full in the next billing cycle, it is best that you manage cash at hand and keep credit minimal to maintain a good score.

When it comes to home loan, car loan or a business loan EMI, they account for a larger chunk of your debt and have a longer tenure. RBI has also issued tax leeway and GST refunds for small businesses to cope up with the cash crunch. Make sure you check that with your bank to ensure you know how it will impact your credit profile. As mentioned earlier, continue to make repayments to build a good credit history. It will eventually help you in the future, when you have a longer & healthier credit account to look at.

If you are one of the lucky few and don’t have any outstanding credit, it might be time to consider getting a new credit card to build that credit history right! Not having any history also gives a low score as lenders can determine your risk to default on loans. So, if you plan to take a car/home/business loan in the future, take this time to evaluate your current finances, i.e income in hand vs gross expenditures, so that you are prepared when the time comes to avail a great interest rate or an effortless loan!

Credit Check: Repair or dispute?

Minor errors like incorrect KYC details or wrong lender/credit account information can pull points off your credit score. Does any of your credit accounts show a ‘settled’ status? You can get it to ‘closed’ by speaking to your old lender and understanding the steps. Settled accounts are a red sign for banks, closed however can bring a gleam of hope. If you have disputed any incorrect entries in the past, like a stolen/lost credit card, or a loan default that wasn’t recorded right- make relevant points to speak to the credit bureau and your lender post the lockdown. Also, if you have to make any fresh disputes, you can look them up on the RBI approved credit bureaus like CRIF’s website and take the digital route while you are home.

As you can see, your credit repayment and the total outstanding debt plays a large role in calculating your credit score. After all, it is an automated report that reflects on the data collected from your lenders. Hence, put your savings to use and repay debt as you can to maintain your credit health. You can cut down on extra expenses and market-related savings schemes to make those timely repayments. A higher credit score will directly impact your financial decisions in future, be it getting a credit card upgrade or an equipment loan for your business.

Check your credit score regularly, stay vigilant about your credit activities and continue a responsible repayment behavior regardless of the situation.

Get more credit related information with CRIF High mark.