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Here’s How You Can Smarten Up About Handling Personal Credit

Adhil Shetty

Having a healthy relationship with credit not only results in a strong credit score, but also stronger finances that you can lean on in times of need. It’s now easier than ever to access instant credit, thanks to credit cards, online loans and No Cost EMI. Facilitating all this is the robust mobile banking system, mobile wallets and payments banks apart from traditional financial institutions.

However, this is also the right time to be more alert about personal finances, lest they spiral out of control, landing you in a soup of debt. So, be it the purchase of a new home or a new LED TV, organise your use of personal credit by employing wise money management techniques. Here’s a simple way to start being smart about credit.

Know What Your Credit Score Is And How To Improve It

In your many encounters with credit, you are sure to come across the words, credit score, the big guns of the credit world. Denoted as a 3-digit number, this score reveals your creditworthiness to lenders, based on your past behaviour with credit. When you build a credit history with secured and unsecured loans, repay credit on time, keep your credit utilisation ration low, and don’t have too many loan inquiries, your credit score is high.

This makes you look more reliable as a borrower to prospective lenders, which earns you a high loan amount at a more competitive interest. Thus, it is imperative that you check your score from time and time. Checking your credit report, on which this score is based, is also important once a year, as you may be able to point out any mistakes such as an open loan account that you have actually paid off. This can immediately boost your score so you can get a personal loan to travel or to do up your home for the festive season more affordably.

Learn About Loans And How To Use Credit Cards Effectively

Loans are no longer considered taboo, and allow you to meet unexpected expenses such as hospitalisation costs or substantial expenses such as buying a home with ease. In fact, online loans are becoming more and more common today that include a simple online application and offer instant funds. While you can fuel your work or personal life with loans, take care of use EMI calculators and plan repayment in advance.

Work on building your credit score with timely payments so that you can borrow more when you really need to. Abstain from making multiple credit inquiries without checking if you qualify for a loan, and start maintaining just 2-3 useful credit cards instead of having a bouquet in your wallet. Check the rewards and pick credit cards that really offer you benefits that keep pace with your lifestyle. Also, ensure that you don’t exhaust your credit limit every month, but use it prudently. This will you will also see a surge in your credit score.

Analyse Your Spending Patterns And Save More

It is imperative that you do not exceed your monthly budget when you decide to get your finances in order. By setting a limit on your expenditure, you won’t eat into your savings and even manage to find a healthy way to entertain yourself without overspending. Spending a few hours each month and reviewing your budget will help stay on track. Update it regularly with bills and other expenses so that you leave nothing unaccounted for and know how much money you are able to spend to clear pending expenses.

When you are looking to reach a goal, whether it’s a holiday or the purchase of a new car, it is wise to not incur any unnecessary expense along the way. This means you should consider holding off a new loan or using your credit card extravagantly. Limiting your credit card usage also significantly reduces your chances of impulse spending. You must able to accurately gauge if you can afford an added expense based on your current income levels and existing obligations.

Pay In EMIs Rather Than In Lump Sum

Whether its e-commerce websites, retail outlets or via credit cards, today you can buy almost everything on EMIs. Not only does this along with regular repayment, help you build your credit score, but it also helps you keep your budget on track. So, for every big-ticket purchase, whether it’s an annual gym membership, gold jewellery or travel tickets, pay with ease in EMIs.

Contribute To Your Savings And Investments Regularly To Enjoy The Benefits Of Compounding

You must cultivate a habit of depositing money each month into your savings account. You can request your banker to automate the process of transferring a specific amount from your checking account each month. The out-of-sight, out-of-mind rule works in your favour here. With these savings, you can start making informed investments that leverage the power of compounding such as FDs. You can also analyse your risk appetite to invest in SIPs, equity and other instruments to build a corpus for the future.

Planning ahead for your daily expenses and big goals makes managing your money easier. With these steps, you can take charge of your finances, cultivate good credit habits and reach every milestone you want, whether it is seeing Rs. 1 crore in your bank account or diving in the Great Barrier Reef.

The writer is CEO, BankBazaar.com