- HOW IT WORKS?
- Credit Score & Report
- Credit Bureaus
Credit cards are one of the essential tools these days. One of the major advantages of it does not have to carry cash in your pocket every time you step out of the house. Whether it is for shopping or improving your credit history, if used responsibly it can offer a lot of benefits in the long run. They are here to stay, and using them might only become easier in the future.
A few reasons to Use Credit Card
You get rewards and offer on signing up. There are discounts on shopping, cash back on grocery purchases and much more…
- Many cards offer points on rupee spent. After you reach a certain point, it is possible to redeem those points either at your favourite store or to buy something on their online shopping portal. My husband keeps travelling for work; we were surprised when we accumulated a good number of points and could shop for INR 5000 at shoppers stop. Well, who does not like free shopping?
- Some finance experts say paying from the credit card is safer than the debit card because the money is not instantly debited from the account. Robby’s debit card was used fraudulently by spammers. Though he retrieved the amount from the bank, it took them a couple of months to investigate the matter and credit the amount back into his account. While if this happened with the credit card, he would still have the funds in his bank till the matter was investigated by his Credit Card Company.
- You get 45 days to pay the amount back. Most of us do not use our credit cards fearing delayed payments. The fact is you can always instruct the bank to activate the auto-payment option, and the money is automatically debited from the account on the due date. You get a grace period of 45 days to pay the bill, and so the money can be used elsewhere if need be.
CIBIL is India’s first credit rating company. To explain this in detail whether it is a home loan, car loan or personal loan, banks require data from the Credit Information Bureau India Ltd to judge your intention to repay the loan. While sometimes the default is due to an emergency, like sudden hospitalization in the family or such sometimes it is wilful. CIBIL lets the bank know the score and number of default or delayed payment a customer or business has made and depending on which a loan would be sanctioned or a credit card application accepted.
If you are the one who had to get the Credit card settled and want to improve your CIBIL score or Credit rating now, there are ways to do it.
1. Change your credit card status from “settled” to “closed”– If you have settled with the credit card company, make sure you pay off your bill in full to change the status from “settled” to “closed.” The settled state has a negative impact on the credit card as it shows you haven’t paid your dues it full. The remark closed will have a considerable positive impact on your credit card as it means you have paid your dues in full.
2. Repayment Record: Your repayment record plays a significant role in calculating the credit score and makes one-third of the credit history. The most apparent way to do this is to pay the loan/credit card payments in full and on time.
3. Try to pay off any outstanding on the card. It is sometimes advisable to borrow some money from family and repay them in instalments. Postponing payment will decrease the credit card score to a considerable level.
4. Do not stop using credit cards because you have gone through a settlement process. If you need to build up a good credit score, you need to use the credit card. Make sure you pay it every month to avoid delayed payments. The fact is the credit score will improve only when you show responsible credit behaviour. Lack of credit activity might put adverse impact on the credit rating and the amount of credit offered to you.
5. Keep a target score of 700-750 which the banks view as a good score. It might take anywhere between 4-12 months to reach this score.
All of us wish to have a good CIBIL score; most of us won’t have a good score due to a variety of factors. Another way to improve the credit score is showing the bank you are not hungry for credit rating. Applying for too many credit cards at a time is one such behaviour that might put you in soup. Also, avoid applying for 3-4 loans at a time. Make the payment for whatever money you borrow be it through credit card or in the form of loan responsibly. It is the consistency in creditability that builds the credit score eventually. Anything above 650 is considered good, and if you have a score of 800, you join the best credit score club.
Apart from the above factors what determines the credit score is the number of secured and unsecured loans. Any credit card/loan for which there is collateral comes under secured loans. There should be a perfect balance between these loans for your CIBIL score to improve. Secured loans are a great tool for improving CIBIL score. A ratio of 80% secured and 20% unsecured is considered fantastic by the experts.
All in all, the most important habit is responsible credit behaviour. Not only does it improve the credit rating overall but helps you develop a credit habit that might be required in the long run. It is important to inculcate this habit not just for us but for the kids who would in future take these decisions on their own. It is human to make mistakes; not working on them is what creates a problem.
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