Are you aware of the significance of a credit score for borrowers? The credit score is typically assigned by credit bureaus, based on data collected from lenders, and tells about the creditworthiness of a borrower. Also Read: Amazon Great Indian Festival, Flipkart’s Big Billion Day Sale: A Look At The Top 10 Deals From Premium To Budget Mobiles
It means if your credit score is higher you stand a better chance of getting a loan in the future at better rates. On the other hand, borrowers with a lower credit score are categories as the high-risk who may not be willing to pay their loans. In such a scenario, banks are likely to lend lower amounts and instead charge higher interest rates. Hence, you should remain careful about the factors affecting your credit score. Most of us are aware that a loan or credit card default can hamper your credit score.
In the times of coronavirus when there is cash crunch due to job cuts, some borrowers may be opting for the loan restructuring option that the Reserve Bank of India has asked banks to provide, with the moratorium facility coming to an end in September. Even as it will offer temporary relief, but the fact remains that such loans will be reported as “restructured” to credit bureaus and spoiling your credit score. Basically, if you have an outstanding credit card amount, a personal loan, and a car loan with the bank, and asked to recast any one of the three, then of them will be reported as restructured to credit bureaus.
Here’s how you can improve credit scores.
- Make sure that EMIs are paid on time and in full every month.
- Try to control credit utilization. It is better to ensure lower utilization than full or over-limit utilization because it can impact credit scores.
- Always try to borrow in line with your repayment capacity. You should always borrow as per need and capacity to repay because it is always better to be debt-free and problems may arise in case of non-repayment.
- It’s always advised by financial planners to close the unused accounts. Any unutilized or dormant accounts on borrowings should be closed as credit institutions report this to CIC, impacting credit scores based on the repayment history.
It is critical to remain aware of your financial health and regularly track the credit score. You can easily access credit reports from any credit bureau (such as Experian, CRIF High Mark, or CIBIL) as regulators allow one free credit report to every individual annually. Free credit reports can also be accessed via various third-party platforms such as Clix Capital, Paisa Bazaar, etc.