Whether or not one likes it or it is difficult not to have some kind of credit especially in current times. So you could have rolling credit in the form of credit card dues or it could be one of the many types of loans. However whatever the form of credit, right from day one each credit transaction, right from inception, to paying the dues and closing the account (whether on time or before hand) makes it way to your credit report and ultimately contributes to the credit scoring. So what can you do to stay credit healthy and avoid bad credit? Here are a few ways to do it:
This is something which is often repeated but cannot be emphasized enough. Paying on time is one of the simplest yet the most important thing anyone can do to avid bad credit. Repayment history is the biggest contributor to your score and paying your EMIs and credit card dues on time can not only keep you off any loan defaulter list but it will also help you maintain a healthy credit score and also help you safe large amounts that you would have to pay due to late fee charges and interests. Paying on time month after month without fail is a rule that should follow without any exception.
All credit cards are issued with a credit limit which is the upper limit for using your credit card each billing cycle. One might assume that as long as you stay within the limit and pay your dues on time all would be well with your credit score. However this is not the case! When you utilize more than 40% of your credit limit, it signifies over dependence on credit and also credit hungry behavior which will not bode well for the credit rating. So be wise and make sure that your credit card spending remains 40% below the sanctioned limit.
Whenever you apply for credit, the prospective lender seeks your credit report and this is termed as a hard enquiry and is recorded in your credit report in the enquiries section. This is one of the five factors that impact the CIBIL Score. So what does this mean that you should not apply for any credit for the fear of lowering the credit score? No, this means that you need to apply appropriate caution when applying for any new credit which means apply for it only when you really need it and after you have made sure you comply with the eligibility criteria and have the required documents. This will ensure that you do not have to reapply for a loan and thereby eliminate the need for a fresh hard enquiry.
This is something that does not impact the credit score directly but does impact the overall credit health. If you already have some debt and are planning to apply for a fresh loan, do assess your financial positions, your liabilities in the future, expected cash inflows and outflows before you decide to get any new loan. Being overburdened due to debt compromises your ability to pay your monthly dues and also pushes you towards a debt trap; both these situations are extremely detrimental for anyone’s credit health.
We have all heard about how a stitch in time saves nine. So it is important that you recognize signs of trouble and take action before things go out of hand. If you find yourself missing payments frequently or you see that major part of your monthly income goes into paying dues or your loan applications get rejected then these are signs that something is not right. So before things go from bad to worse recognize early signs and act on them.
So follow these simple steps and stay away from bad credit.