Have you often felt that the subjects we learn in schools and even elect in higher studies still leave us wanting some critical life skills? Well, it is a universal feeling. Credit literacy is one such skill. If you have a person in the family who has a keen eye for finances and money management, you receive tutelage through observation and advice. If you are yourself inclined to look into the ‘soul’ of debits and credits, you are perhaps equipped to make informed financial decisions. But, for the majority, it is what money can buy – the purchase value of money – that matters. The pros and consequences of running life on credit don’t hit home, unless they hit hard. As the world drives relentlessly towards more consumerism, we need to understand the advantages and pitfalls of living on debt. The freedom and illusive “unlimited opportunities” of loans and credit come with a huge financial responsibility. It is this responsibility that needs to be understood if we have to enjoy the huge benefits of a credit-driven culture.
The need for credit literacy is part of a larger movement towards being financially responsible individuals or parties. The ongoing shift in the financial landscape has seen more dependence on credit and loans to fulfil a spectrum of needs. Banking and credit institutions realize the potential of setting up a shop of diverse loan products that gives the common man or even corporate organizations financial leverage to fulfil not only needs, but bigger aspirations. Having money beyond one’s means is a huge power and not one to be taken lightly. A misstep could land you on the wrong side of creditors and future demands for credit could be thwarted substantially – because the big brothers are watching. Yes! The big brothers of the credit world – nationalized credit bureaus – will decide eventually whether you are welcome to the credit fest or whether you have overstayed your welcome.
Today, you can take out a loan for almost anything. You need to buy new gadgets for the house, you can take out private personal loans. You want to finance the vacation of a loved one, you can get easy personal loans in an instant after just a few checks. And of course, there are the traditional loans that you could always depend on – a first or second hand car loan or the good old home loan. With the changing nature of financial markets, even these good old home loans have taken on so many shapes and sizes. You could choose from variable rate home loans to fixed rate home loans that fix the interest rates for up to a certain number of years. Clearly, the choices are many and tempting. So, how do you ensure that you keep enjoying credit responsibly?
The first thing is to be aware that credit institutions submit information on your credit handling behavior to bureaus such as CIBIL. This includes information such as the number of credit accounts you have, joint or single; how regular you are with your payments, whether you have any history of defaults or late repayments, number of loan applications that you may have made. CIBIL assigns weightage to these different factors and gives you a credit score. Unlike before, when personal rapport could have got you over the loan approval line, nowadays the 3-digit CIBIL score plays a vital role in whether you would be eligible for a loan.
Almost all major credit institutions provide data on your debt handling behavior, so it makes great sense to maintain a good score, which is anything above 750. Your CIBIL report can be easily obtained from the CIBIL website. Create a CIBIL consumer login and request your score. In fact, it is a good habit to keep a tab on your score as it changes with time according to your changing credit behaviour. One of the best practices is to check your score for any anomalies, like mistaken personal or financial information. Sometimes, a simple error in name or account number could be the difference between your deserved score and someone else’s score. So, if you do come across such errors, raise a CIBIL dispute and see the change in your score.
If you have a credit card, then are a few things you need to keep in mind to ensure that you stay close to or above this limit. Ensure that you stay within a 30% credit utilization ratio, never go over the allowed credit limit and maintain a zero balance (nil dues) once you receive your monthly statement.
If you are caught in a situation where you find repayment difficult, consult your bank relationship officer and restructure your debt to terms that make it easier for you to pay.
As long as you keep a good score, your chances of applying for any form of credit will always be high.
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