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.
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| 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.
Email : contactus@righthorizons.com
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.
Email : contactus@righthorizons.com
Phone: +91 080-65687521 TO 65687526
Bangalore - North Branch
Right Horizons,
79, MM Road, Frazer Town,
Bangalore - 560 005.
Email : contactus@righthorizons.com
Phone: +91 080-41252179
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