Hyderabad : A credit score is a key metric for measuring your financial discipline. With a good score, you can get interest concessions on home and car loans. For example, a large government bank is charging an interest rate of 8.50 per cent on an individual home loan with a score of 800. The interest on a loan of Rs.50 lakh for a period of 20 years will be Rs 54.13 lakh.
The same lender charges 8.80 per cent interest on those with low credit scores. That is, the interest to be paid will be up to Rs 56.42 lakhs. At the same time, 9.65 per cent interest will be charged to those with a very low credit score. Then the interest burden will be Rs 63.03 lakhs. So, those who are financially disciplined will benefit in the long run.
Pay on time
In order to have a high credit score above 800, timely repayment of EMIs and credit card dues is mandatory. If you think that it is not possible to pay the bill payments on the due date, automate the payment directly from the bank account. A person could not pay a credit card bill by the due date to some technical difficulties. The score drops from 800 to 776. It goes on decreasing to 727 or so even if they pay regularly later. It takes several months to regain a decent score.
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Reduce consumption
Use up to the credit limit. But, the lower your credit utilization ratio, the faster your score will rise. Suppose there is a credit card limit of Rs 1 lakh. You spend Rs 10,000 per month. Then your utilization ratio is 10 per cent. Increasing your usage will have a negative impact on the score. It is always good to keep your credit utilization under 30 per cent.
With minimum amount
The minimum balance will save you from paying delinquent fees but not from the burden of interest. Most cards charge between 2.5-4 per cent per month on balances. That means 30-50 per cent annually. Use this facility only when unable to pay the bill due to unavoidable reasons. Don't apply for loans even if you don't need them. If you do so, your score will be affected. When you really need a loan, check your eligibility and prepare carefully. Apply only after that. If it is rejected, the reasons should be known. Only then apply for a new loan.
If you have an old card
If you use your credit card for many years, it becomes crucial to increase your score. So, don't cancel it in haste. If the annual fees are high, contact the bank and find out what can be done to reduce them. It's normal for your credit score to fluctuate somewhat. But, if it falls suddenly, you must be careful. Check if someone has fraudulently taken a loan in your name. Check for inquiries for loans, non-payment of EMIs, late payment of card bills etc. If there are any mistakes in the details, complain to the banks and credit bureaus. Be alert for unauthorized loan accounts. Only then will your credit score not fall below 800.
Sometimes dues cannot be paid and a settlement (payment agreement) is made with the bank. In most cases, such payments can ruin your credit score. You may not be able to take new loans. So, avoid settlements as much as possible. If you go for settlement, don't forget to get a clearance from the lender.
