Start The Countdown To Good Credit Health; It’s No Longer A Distant Dream

Way back in the late 1960’s, American astronaut Neil Armstrong immortalised the Moon odyssey with a phrase that effectively said, “That’s one small step for (a) man, one giant leap for mankind,” as he became the first man to walk on the Moon. We have come a long way since and the day is not far off when space tourism will become a reality. It has been a long journey and the world has learnt a few useful things along the way.

Similarly, the way to good credit health is no longer a distant hope; it is a distinct possibility. So let us begin the countdown to good credit health today.

10. Be aware of the pros and cons: The first step to make things right is to be aware of what is not right. Awareness of your credit behaviour is essential to ensure good credit health. Are you aware that you are spending beyond your means? Do you plan your monthly budget and cash flow? Do you know your outstanding credit card amounts? Are you always stretched at the end of the month to pay all the bills and meet other expenses? All these are relevant questions and you must have all the answers.

9. Credit to establish credit: If you have taken loans or have an active credit card, just make sure that you pay all the dues – always and on time. If you don’t have any current outstanding loan or credit card – it may be a good idea to take a secured credit card and build a good credit history.

8. Timely check-ups help: Just like you have routine medical check-ups to ensure that all is well, it makes a lot of financial sense to check your credit report periodically (maybe once in 6 months) to make sure that everything out there is only about you and there is nothing else in the report which is not pertaining to you.

7. Seek credit counselling from experts: With the increasing use of credit, the need for credit counselling is the need of the hour. Credit counsellors will help you manage your credit and advise you on ways to improve and maximise your credit health. We get busier day by day and don’t have much time to manage our credit health. That’s where credit counsellors can help just like expert doctors when it comes to your physical health.

6. Keep a tab on credit card utilisation: It is better to distribute your credit card usage over multiple cards and have lower utilisation for each card, instead of having fewer cards and higher utilisation. This strategy helps avoid maximising your credit limit on one card. An interesting option will be to pay the credit card outstanding twice – once towards the end of the calendar month (so that when the data goes to the credit bureau, your o/s balances are low) and then again when the billing cycle comes up, so that you are not defaulting.

5. Do not overshop for credit: Each time you apply for a loan or a credit card, the lender will make an enquiry with a credit bureau. Too many enquiries imply that you are credit hungry, you are shopping around or you are getting rejected (that’s why you could be applying to other lenders). Do your research before applying, select the lender who is offering you the best and most convenient option, and then apply. Too many enquiries impact your credit score negatively and affect your credit health.

4. Avoid minimum payments on cards: If you only make ‘minimum payments due’ on your credit card, be careful. You are landing yourself into a debt trap and a very expensive one at that. Try and pay the full amount due – that is a good route to be credit healthy. Avoid minimum payments as they keep accumulating with interest by each passing month. If you borrow what you can repay, it is going to be an excellent approach to maximise your credit health.

3. Borrow only when it is absolutely necessary: Take loans only when it is absolutely necessary. Evaluate your requirement in an objective manner and do not do ‘intuitive shopping for large ticket sizes.’ Going overboard with a number of credits to your name will lead you into a debt trap that will worsen your credit health. Limit yourself to the number of loans you need, rather than what you desire to have.

2. Plan your cash flow and monthly budgets: It is all about cash flow management and budgeting. Prepare a 12-month budget and factor in contingency plans and servicing of current loans. Make sure that you will have surpluses to service any new loan/credit you are planning to take. It does not make sense repaying loans from your savings.

And finally, the blast off...

1. Always pay your loans on time.

Follow these simple 10 ‘countdowns’ and you can be off to a trip to the Moon… sorry, to a great credit health.

About the author: Satish Mehta is the Founder and Director of Credexpert, a credit and debt counselling company in India.