Timely Loan Repayments, Borrowing Discipline Key to Credit Score..

by Mr. Anil Rego, Right Horizons

Many people earn a lot but spend it all, leading to a lack of investments and savings, and heavy debt. This can create problems as the bigger the debt, the tougher the repayment.

Besides, payment defaults also affect one’s credit rating, resulting in refusal of subsequent loans.

To evaluate the creditworthiness of an individual, bankers go through his credit information report (CIR) and credit score provided by Credit Information Bureau (India), commonly called CIBIL.

CIBIL generates the CIR and credit score for individuals and entities based on their payment record and defaults on loans and credit cards. A good CIR and credit score improve one's chances of getting a loan while a poor score does the opposite. It is important to know how to have a good credit score.
 
Mr. Anil Rego, Right Horizons
One can check one’s credit score on the CIBIL website upon payment of a stipulated fee.

Avoid overdue payments...

Getting a loan is easier than repaying it. While timely repayment is based on several factors, some of them beyond our control, it is crucial to ensure that repayments are made on time - not only it reduces unnecessary friction with the lender, but it also ensures a good credit score. If one’s credit history has instances of many late payments, chances are that one’s credit score will drop.

To avoid late repayments, it is advisable to instruct the bank to pay the money directly via the ECS facility. One should ensure there is adequate money in the account.

Avoid multiple loans..

 If one has taken multiple loans and one has to repay them at around the same time, missing repayments becomes more likely.

Also, in such a case, the major part of one’s income gets used towards repayments. To avoid such issues, one should prioritise and take loans only for crucial needs. Lenders view multiple loans as risky, and it affects one’s credit rating.

Minimise unsecured loans..

Personal loans & credit card dues are examples of unsecured loans whereas housing loans & auto loans fall in the category of secured loans.

One’s credit score can drop if one holds multiple unsecured loans as these loans give the impression that one is not able to properly manage one’s finances.

Also, the borrower is seen as a credit risk - someone with limited income, but loans without any collateral.

Also, as the number of unsecured loans increases, the repayment burden rises, decreasing one's creditworthiness. To have a good credit profile and credit score, it is better to have a combination of unsecured and secured loans rather than just unsecured loans.

Reduce the debt burden...

Simply put, the bigger the loan, the heavier the debt burden. This also means reduction in one's future/retirement savings as whatever is earned would be used to repay the loans.

This is a dangerous situation as one is constantly fighting bankruptcy. It also increases credit risk and lowers one’s overall credit rating.

About the Author.

The writer is chief executive officer, Right Horizons

Bangalore - Head Office
Right Horizons,
6, Arakere Village, Begur Hobli, 
Bangalore - South Taluk, B.G. Road,
Bangalore - 560 076.
Phone: +91 080-65687503 to 65687518
Mobile: +91 98453 99780

Bangalore - HSR Branch
Right Horizons,
1213, 1st Floor, 22nd Cross, HSR Club Road, 
HSR Layout, Sector-3,
Bangalore-560 034.
Phone: +91 080-65687521 TO 65687526
   
Bangalore - North Branch
Right Horizons,
79, MM Road, Frazer Town,
Bangalore - 560 005.
Phone: +91 080-41252179

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