Top Money Questions to Ask Yourself if You Have a Low Credit Score

Loans and credit cards play a crucial role in the sphere of personal finance as well as in the overall economy. These help us to meet crucial financial goals, deal with financial exigencies, maintain liquidity and raise resources for business expansion. However, mismanagement of availed credit facilities can harm your financial health as well as credit score. And to check the status of your credit score, whether it has gone up or down, you can check your cibil score by pan card. 

Here we suggest top questions to ask yourself regarding various credit-related habits of yours which can unknowingly harm your credit score:

Do I often tend to end up spending more than what I can repay on my credit card, which leads to resorting to the easy way out through payment of the minimum amount dues repeatedly? 

When consumers or customers spend more than what they can repay timely and in full as per the bill due to date,  they do tend to opt for the easy way out by repaying just the minimum amount due, which is usually 5% of the total outstanding amount. Although this practice of repaying the minimum amount due by the due date can save you from incurring late payment charges, the hefty finance charges would still be levied on the unpaid dues. At the same time, failure to even repay the minimum dues will additionally incur late payment charges and would also harm one’s credit score. You can even do a credit score check from time to time to know the ups and downs in it that reflect your credit repayment behaviour.

What actions should I take when facing difficulty in making timely and full payments of credit cards?

If you are facing any kind of difficulty in repaying the credit card dues timely and in full,  consider converting the entire bill or a part of it into EMIs, as interest costs of such loan EMI conversions are much lower than the hefty finance charges and also come with repayment tenures of up to 5 years. When you convert your outstanding credit card bill into EMIs, either in full or in part, you get enabled to make repayments at much lower interest cost and in smaller tranches as per your repayment capacity, apart from continuing to benefit from an interest-free period on fresh card transactions. Remember that, to see a reflection of positive efforts towards credit score improvement, you can check cibil score by pan card on Cibil’s website itself and/or on various financial portals offering such facility.

What can be the financial pitfalls if I commit irregularities in credit card payments?

Irregularity in repayment of your credit card dues involves not one but multiple damages to your financial health. Some of the major pitfalls include levy of late payment fees and hefty finance charges, withdrawal of interest-free grace period, witness the adverse impact on credit score upon doing credit score check, and withdrawal of pre-approved offers by card issuers. Credit card users should also keep in mind that erratic repayment behaviour and committing irregularities on your credit card payments can, at worst, even land you into a credit card debt trap.

Have I made cash withdrawals through credit cards? Is that advisable?

Withdrawing cash through your credit card should always be your last resort, as doing so involves not one but twin charges in the form of a cash advance fee of up to 3.5% of the withdrawn amount, as well as finance charges right from the day of such withdrawal till the date of repayment. Only and only if withdrawing cash through your credit card is unavoidable, always make sure to repay the entire withdrawn amount at the soonest. Also, remember to maintain the habit to check the cibil score by pan card every month to know the status of your credit repayment history and ensure that no error manages to get away and damage your credit health.

When it comes to submitting loan applications, is any special preparation required from the borrower?

Lenders take into consideration several factors while evaluating loan applications, chief amongst which are credit score, income, existing EMI to income ratio, job and employer profile, LTV ratio, age of the borrower. Those applicants who fail to match the eligibility criteria set by the lenders can face rejection of their loan application.  

Borrowers should remember to take steps such as doing a credit score check, checking EMI affordability and comparing amongst various lenders before submitting their loan application to avoid rejection of loan application.

Does credit score or history play a role in the credit approval process of loans and credit cards?

During the quick business loans and credit card approval process, the applicant’s credit score check is one of the first and crucial steps taken by lenders to check their credibility and past repayment history. Applicants with a good credit score, which is usually considered as 750 and above, tend to have higher chances of credit approval vis-a-vis those with a poor credit profile. Apart from being a crucial loan and credit card eligibility parameter, a credit score is also increasingly becoming the basis for setting lending rates, as lenders have been resorting to risk-based pricing, wherein applicants with higher credit scores are offered preferential interest rates. Having a good credit score hence, not only spikes up the chances of availing of credit facilities but also help in reducing your credit cost. 

How can I work my way towards a good credit score?

Those with low credit scores can improve it by adopting healthy financial habits such as timely repayment of your credit card bills and EMIs, containing your credit utilization ratio within 30%, monitoring co-signed/guaranteed loan accounts and maintaining a healthy credit mix. Upon taking these steps, they can gradually see a rise in their score upon doing a credit score check from time to time, like once every month.

Whereas new to credit individuals, i.e. without any prior credit score or history, you can build a strong credit score or history by using credit cards and ensuring disciplined usage and timely bills repayments. Those individuals who fail to obtain regular credit cards due to reasons like low or no credit score or history, risky job profile, insufficient income, unserviceable location, etc., can opt for secured credit cards to build their credit history.

Do I need to periodically review your credit report? What if I don’t? What can be the possible adverse implications of failing to do so?

Credit bureaus compile various data and compute your credit score or history primarily on the basis of information provided in the credit report by the lenders & credit card issuers. Incorrect information present in your credit report can be harmful to your credit score. Especially when you see a sudden or unexpected fall in your score when you perform a credit score check, it is likely to be due to these errors. Such inaccuracies – be it clerical errors on the part of the bureau or lender/card issuer or a possible fraudulent credit transaction – can only be identified if you review your credit report at regular intervals. Consumers can fetch one free credit report every year from each of the four credit bureaus in India. 

Why is it important to compare amongst various lenders before submitting a loan application? What parameters should borrowers factor in while zeroing in on any lender?

The chances of loan & credit card approval can vary widely across the lenders due to their differing credit risk assessments. Some lenders can also have more relaxed loan eligibility parameters while evaluating loan applications than others. Similarly, the interest rates and other fees and charges charged by lenders too can vary widely due to different costs of funds.  All this makes it imperative for loan applicants to compare the loan offers of as many lenders as possible before submitting the final loan application. They should start their search by enquiring about loan offers available from the banks and NBFCs with whom they have existing consumer relationships. And then, taking that as a benchmark, compare the rates and deals of other prospective lenders. But before you submit an application to any lender, remember to always check your cibil score by pan card in order to be assured that at least your credit score is not likely to be a reason for rejection or difficulty in loan approval.