6 steps to protect your credit score after financial stress from Covid-19
From simple actions like reviewing your credit report, to making crucial lifestyle changes, here are six steps to obtain or maintain a good credit score
With a gradual restoration of business activities after the double-barrelled lockdowns, it’s time to assess your financial health with an eye on a much better future. Any household that opted for Covid-19 relief scheme(s) in FY 2020 and 2021—such as RBI’s EMI/credit card moratorium relief package, loan restructuring, emergency Covid-19 loan, or similar—needs to now rationalise its finances. The credit bureaus have been mandated to not explicitly record moratorium relief; lending institutions, however, will enquire if the applicant has availed any such reprieve. If yes, then there is the inevitable impact on creditworthiness to worry about now.
For a variety of some very good reasons, remedial action on shoring up the credit score is strongly recommended.
The advantages of a good credit score are a universal truism: you enjoy several pre-approved bank offers and also favourable rates of interest. Six fundamentals steps for maintaining and improving your credit rating are explained below:
Ideally, you should check your credit report two-three times a year. It helps you review all of your credit accounts in one place. By keeping a check, you could be rest assured that there is no error, misreporting or suspicious activity on your credit report. You can always take timely action, dispute the error, and therefore protect yourself.
As a rule of thumb, never roll over credit card balances. It entails a usurious interest cost and also late payment penalties. It is always advisable to convert card outstandings into loan EMIs which are priced at a much lower rate of interest. Credit cards usage should be optimised for the free credit period. Multiple credit cards with varying settlement dates will maximise free credit.
Difficult times often lead to difficult decisions. Covid-19 pandemic took a toll on the financial health of even the most disciplined folks. Going forward, you should try and maintain a 30 percent credit usage. This will eventually help restore your credit rating from bad or fair to a good score.
Credit history is one of the important indicators of financial wellness. Accordingly, older credit accounts with flawless repayment records will be a confidence booster for any lender. So, even if you have ceased to swipe your very first credit card, you should never surrender it. It is long-standing proof of a decent credit record.
Frugality doesn’t connote missing out on life, but making some conscious decisions to manage your current cash flows. Simple steps like outlining the budget, journaling inflows and outflows, avoiding impulsive purchases, sticking to buying lists, eliminating fresh credit card bills, delaying unimportant or big-ticket purchases can verily support your cause. A penny saved will become a penny earned, especially in times of crisis.
Constantly envision plans for incremental income streams, devise an inflation-proof and shock-resistant savings strategy, and observe strict timeliness in honouring financial commitments. The above-mentioned cumulative efforts will gradually mitigate financial stress and you will naturally develop an enviable credit history.