It impacts the “credit utilization” ratio i.e. credit used against the available limit. Credit utilization ratio is one of the factors based on which credit scores are calculated. Before closing that credit card understand if it is the correct move for you. Consider the following-

• Spendthrift

If you are a spendthrift and end up making purchases which are beyond your servicing capacity, then you should close your credit card. Although this is not the best solution to the problem, it definitely will ensure that you do not fall into a debt trap. It also reduces your options of shopping around randomly without having a genuine need.

• High fees

If your credit card has high annual fees, then you should repay your balance and close your credit card. Credit card issuing companies do offer credit cards with “zero” annual fees for the initial 1-2 years. These are steps to lure you to buy the credit card. But if you feel that the annual fee charges are high and unfair, then you should do away with the card.

• Repayment issues

If you have been only repaying the minimum amount due on your credit cards or frequently end up making late payments against your credit card then, may be time has come to close your credit card

• Balance transfer

If you have opted for a balance transfer, then it might be a good move to close that high interest credit card. The fact that you have opted for a balance transfer indicates your inability to service that card.

High fees, high interest rate, zero loyalty program or strain in repaying monthly dues….do you associate to any of these? Time to close that card then!

Marriage is a union of two souls and from a financial standpoint, it means saving for the future, buying a dream home or planning for your child’s education. Marriage can also have an impact on your credit score. Whilst, your “marital status” as such does not impact your credit score, there are certain myths that need to be demystified. 

• Merging of credit reports

Credit scores and reports is an assessment of your credit standing only. Although marriage unites two souls, it does not unite two credit histories.

• Your new last name will erase your credit history – This one is for the bride!

Ideally, after marriage you should report your new last name to all the banks from which you have borrowed till date. This will ensure that your past credit history gets linked to your future credit history. You would also not need to build your credit history all over again from scratch!

• Your spouse’s poor credit history impacts your credit score

Just like how credit reports do not merge after marriage, your credit score would also continue to remain independent of your spouse’s credit history. Unless, you have taken a “joint” loan and that loan is in default, this would not happen.

• You automatically become an “Add on card holder”

Getting married does not mean that you would be added as a add on card holder to your spouse’s credit card. Unless you apply for a add on card, this too would not happen,

Like marriage is the union of two souls, divorce is the termination of this union. A divorce can turn out to be an expensive affair to you. Here is how!

• You automatically are free from your “joint” liability if you divorce

If you have entered into a joint loan agreement, then you are both on the hook. A divorce does not dissolve the joint liability of repaying a loan. You would continue to remain as responsible for the repayments as you were when you were married. 

So go ahead; many reasons to get married….just beware of these credit myths!

Planning and prioritizing is important to ensure that the prize money is put to the best use.

Listed below are simple and easy ways in which should prioritize and use this prize money.

• Track your income and expenses

Continue to keep track of your income and expenses. Remember the money won in lottery is after all temporary. You should have a realistic approach before putting this money to use for meeting routine expenses.

• Pay off your debts first!

The next important step is to pay off your debts. Start taking small and consistent steps and gradually you would be debt free.

This would also help improve your credit report and hence your credit score.

• Create an Emergency Fund

This should be your top most priority after having cleared your debts. If you already have started maintaining an emergency fund then it is a good practice and if not then you should start immediately!

Emergency funds can be literally lifesaving as they could keep you going in case of unforseen events.

• Invest in different avenues

After setting aside funds for emergency purposes, start investing!

Understand your long term and short term goals and invest accordingly. Investments will help your money grow and facilitate you to reap benefits in future.

So plan and prioritize before you use that prize money!  And yes keep hoping that you and I both win a lottery soon….

P.S. Before you do all this, treat yourself and your family for a holiday!

In my mind I am thinking – wow, what did I help build! An organization – a concept that has replaced the proverbial hockey stick – the not so mythical recovery magic wand of days gone by.

On a more serious note, with some gentle prodding and not so subtle questioning, I discovered the following amazing facts:

• She had 5 credit cards with limits ranging from Rs 15,000 to Rs 30,000 in all aggregating to a limit of Rs 1,00,000 plus
• She had applied and got approved for these cards in the days of “indiscriminate gathering of credit card accounts” by lenders. 
• She was using them rather irresponsibly to pay for things she intuitively wanted, not thinking how she would pay back. 
• She was paying the “minimum amount due”, feeling smug about the fact she was never late on that minimum payment.
• She had now realized the very high cost of not paying the rest of the outstanding on time. 
• The dues had ballooned to a huge amount, due to the interest rate payable on the outstanding dues. 
• The aggregate outstanding was an amount she would not be able to service. 

…. And hence the calls from the recovery agents!!!

Over the next few months, we worked on a specific plan and weaned her away from this huge debt trap.

She was relieved (the calls stopped), her credit history improved and she started “hating” plastic with vengeance, having seen what it did to her financial situation and peace of mind!! And her efficiency at work improved too!!! 

For all of us, the lessons to always remember from this experience:

• Do not apply for or acquire credit cards beyond what you need.
• Cancel or close credit cards you do not use 
• Do not swipe cards beyond your capacity to pay all dues on the date the payments are due
• Remember you have to pay – swiping means delaying that – not wishing it away!
• This delayed payment comes at a huge financial cost – interest rates on outstanding credit card dues ranges between 30-38 % p.a. 
• Paying minimum balance is no answer – in fact it compounds the problem – lulls you into a false sense of complacency and belief that you are in control of your card bills. Don’t forget the huge interest on the unpaid amount. 
• Therefore, always pay on or before due date. 
• Do not put yourself in a position where the payment due hangs on you like a sword. 
• Use the credit card as a convenience – not as a tool to leverage your current income to borrow multiples of that income. 
• Before you swipe that card ask yourself – do I need to and can I pay this amount off when my next salary comes into my bank account?  If the answer to both questions is YES, then go ahead and swipe away!! 

Follow these 10 commandments and the evil plastic will not dominate your life! 

To finish on a lighter note – a bank called its credit card customer to say “your credit card payment is outstanding” and the customer grinned from ear to ear and said “thank you for the compliment”. You don’t want to be in that position!!

Step 1…Know what you OWE

To make sure that you don’t miss your payments and to maintain good credit history and a good credit score, figure out exactly how much do you owe, to whom and how much. Keep a record of all your loans and credit cards, including information such as:

Account / card number, lender/card provider, type of debt (housing loan, auto loan, credit card, etc.)  payment due, date due, interest rates, term, billing cycle and minimum payment due.

Keep these details (on your computer or in physical form) – ensure you have a copy stored elsewhere and most importantly, keep it safe and protected. And most importantly, update this information as and when required.

This will also help you grade the debt you have taken and accordingly prioritise your ability to pay off your debts. It will also help you to determine your servicing capacity, specially for new loans you are planning to take. To prioritise your debt, you should rank them in the order of preference of:

• Highest interest rate to the lowest interest rate
• Type of loan (unsecured loans, credit cards and high interest-bearing loans should be paid off first)

Step 2 – Pay off dues on time

 ‘To build a good credit score and to maintain a healthy credit history, pay back your debt on time’.

Please note that there are tax angles you should also consider whilst repaying your loans; for example, there are provisions in the Income Tax Act, for interest and principal repayments on housing loans and on education loans.

Step 3 – Prepare a Family Budget and pay your debts

Meaning of Budget:

Proper allocation and managing of funds and these funds should be bucketed in such a manner that they are used to pay your debts, maintain your lifestyle and can be used at the time of emergency (contingent funds).

The budget should stand up to a test in good and bad times. As of in this current   scenario it is important that you should allocate your funds in such a way that you are prepared for any emergency. It can be medical or any other financial crisis.  Also, reduce your debt burden by managing a proper allocation of funds in your budget.

Step 4   – Lower your BORROWING COST

Always pay back the higher interest loans first. 

There are various facilities available in the market which will help you to transfer from a higher interest rate loan to lower interest rate loan.

For example, in case of credit cards and housing loans.

For credit cards, making a minimum payment does reduce, to an extent, the repayment burden but has a ballooning effect which will ultimately have a serious impact on your cash flows. Also, the interest rate on credit card outstanding is very high. Thus, at times making minimum payment is not bad but to avoid a cascading impact, you should repay all outstanding in the next cycle.

But there are no free lunches in life; you need to understand the implications of the switch and read whether there is any catch in the “font 2 size “agreement which has all the hidden costs which may not be disclosed upfront to you.

Step 5 – Set up an EMERGENCY FUND

As we read in Step 3 about how to manage your budget, you should have some reserve funds for emergencies like the current situation that we are in. These funds will come to your rescue at the time of a medical emergency, which unfortunately can be a major cost. Not only medical these funds will prepare you for any uncertainties that might arise. Additionally, having a fund like this, will ensure you don’t have to pull out investments and other savings at such times.

Resist the temptation of dipping into this fund, either for day-to-day expenses or buying “desirables”, keep the funds away and assume you don’t have them, and hopefully you will never need them!  As a figure, you should keep and plan for around 3-6 months of your monthly expenses as the amount in the fund.

The other name for emergency funds is ‘Contingency funds.

Step 6- Live within your means

This is often hard to follow but the absolute truth always. You should spend money wisely – within your capacity. The same applies for debt, borrow only what you absolutely need and what you can certainly service. The future being uncertain you must plan your finances looking forward and spend accordingly because there could be endless possibilities of business being shut down, losing of jobs, lockdown etc. in such situations you must be ready to take care of your family along with managing your existing debts.

Banks will be prudent lenders; you have to be a prudent borrower.

Spend or expense in cash and if not in cash, then restrict yourself to use the Debit card but never a credit card, because the temptation of the using credit card starts from the day it come in your hand and if you do use a credit card then pay back the dues on time.

Don’t cut on your lifestyle, that’s tough, just be careful whilst upgrading your life style, do it in a manner that doesn’t dig a debt hole for you to fall into that cash trap.

And with the e-commerce and retail industry on the rise and the economy at large, credit cards won’t be disappearing anytime soon. The benefits of a credit card comes with the ease of carrying, better security and protection compared to cash, increasing your purchasing power, value added benefits like cash back and reward points, and emergency protection are some of the benefits that one can easily avail through credit card.

Here are 3 quick ways to maximize these benefits-

• Go for the long run– Become a long term customer with frequent use of the credit card. The longer the use of credit card showing good credit behaviour, more the positive impact it has on your credit score. Also, your chance of getting a loan, even a bigger loan, from lenders becomes brighter.

• Bridging that extra mile– It is a good practice to utilize maximum of your credit limit towards the beginning of your credit cycle. Suppose your billing cycle is from, say, 10^th of the month, then try to make maximum use of your card closer to dates in and around after the 10^th of that month. The more your usage is closer to the 10^th , the maximum free credit you get.
• Look out for the speed breakers– Try to avoid minimum payments on your outstanding amount. It is advisable to pay 100 per cent of your credit card bills as far as possible. Keep yourself disciplined to pay on time all the outstanding dues as this reflects good credit behaviour which also impacts your credit score.

Be light, be smart and carry a card.

We have come a long way since then and the day is not far when space tourism will become a reality. It has been a journey and the world has learnt along the way. 

Similarly, ways to good credit health are no longer a distant possible, – it is a distinct possibility –Let’s begin the countdown to good credit health today!

1. Be Aware:

The first step to make things right is to be aware of what is not right!  Awareness of your credit behaviour is what drives good credit health. Are you aware that you are spending beyond your means? Do you plan your monthly budgets and cash flow? Do you know your outstanding credit card amounts? Are you always “stretched “at the end of the month to pay of all bills and other expenses? All relevant questions – all answers you must have with you. 

• Credit to establish credit:

If you have taken loans or have an active credit card – make sure you pay all dues – always and on time! If you do not have any current outstanding loans or credit cards – it may be a good idea to take a secured credit card and build a good credit history! 

1.  Timely check-ups:

Just like your routine medical check-ups to ensure that “all is well”, it makes a lot of financial sense to check your credit report periodically (maybe once in 6 months) to make sure that everything there is about you, only about you and nothing else is in the report which is not pertaining to you. .

• Seek expert Credit Counselling:

With the increasing use of credit, the need for credit counselling is the increasing need of the hour. Credit counsellors help you manage your credit and advise you on ways to improve and maximise good credit health. We get busier day by day and do not have time, dedicated enough to manage our credit health, hence credit counsellors help – again like expert doctors when it comes to your health.

• Credit Cards and utilization:

It is better to distribute your credit card usage over more than one credit cards with lower utilization as against having a lesser number of cards and high utilization.   This helps avoid maximising your credit limit on one card. An interesting option would be to pay credit card outstanding – once towards the end of the calendar month (so that when the data goes to the credit bureau, your o/s balances are low) and then again when the billing cycle comes up, so that you are not delinquent. 

• Do not over shop for credit:

Each time you apply for a loan or a credit card, the lender that you apply to, will make an enquiry with a credit bureau. Too many enquiries imply that you are “credit hungry”, are shopping around, or are being rejected, resulting in you needing to apply to other lenders. Do your research before applying, select the lender that is offering you the best and most convenient option and then apply. Too many enquiries impact your score negatively and affect your credit health. 

•  Avoid minimum payments on cards:

If you only make “minimum payments due” on your credit card, be careful, you are digging yourself into a debt trap – and a very expensive one! Adhering to pay full amount due, is a good route to be credit healthy. Avoid minimum payments as they keep accumulating with interest by each passing month. If you borrow what you can repay is an excellent approach to a maximise your credit health.

•  Borrow only when it is absolutely necessary:

Only take loans when necessary. Evaluate the need in an objective manner and do not do “intuitive shopping for large ticket sizes.”. Going overboard with a number of credits to your name will lead you into a debt trap which will worsen your credit health. Limit yourself to the number of loans you need rather than what you desire!

• Plan your cash flows and monthly budgets:

It is all about cash flow management and budgeting. Prepare a 12-month budget and factor in contingency plans and servicing of current loans. Make sure that you will have surpluses to service any new loan / credit you are planning to take – does not make sense repaying loans from savings. 

And finally, the “blast off” –  

• Always pay your loans on time!! 

Make sure you pre plan your budget strategically and pay your loans on time.

Follow these simple 10 “count down” and you will take off to a great credit health!!!

As there is a difference in the interest rates offered by different lenders, an existing borrower is lured to shift to a lender who quotes a lower interest rate than what she is currently being charged. 

Home loans are long tenure loans and typically large ticket size. When a lending institution offers you an interest rate differential you would then think of shifting your loan to that lender. 

But is this the right step?? Does it always make sense to shift lenders?? 

You surely need to give a thought before you take your decision. Important points to consider are: 

• Cost  

The cost which you will incur is the processing fee charged by the new lender, which could be a flat amount or a percentage of the loan amount. Along with this, some lender could also ask you to get your property documents verified by a lawyer, at your own cost. A one time stamp duty will also be payable as a percentage of the loan amount. 

• Process 

The process includes submission of two key documents to the new lender. They are: 

• A letter which details the list of documents that are held by the existing lender and the amount that will be considered as full and final payment. 
• No-objection certificate from the builder or society. 

Only depending on the interest rate differential to shift the lender would not be wise!  

The other factors you need to consider are: 

• Calculate the fees and the charges in total which you need to pay to the new lender.  
• Check if your balance loan tenure is worth the shift. 
• Check the outstanding loan amount. If this is low, then avoid shifting your loan. 
• Read all the terms and conditions which the new lender is providing. Do not fall for the offers and frills associated with it. 

Sometimes negotiation with the existing lender can help you save a penny…sometimes it may also cost you a pound!! 

But how many credit cards should you hold? How many credit cards make you “cool”? 

“One size fits all” solution does not work here. So a working professional can hold 2 cards and a fresh MBA could hold 1 card or maybe none. 

Firstly, the optimal number of credit cards that you could hold should depend on your “needs” and not your “wants”. If you have been holding high number of credit cards to fulfil your “wants” then take this as a warning signal. Step back, understand your budgets and then do away with that greed! 

Secondly, the trick, along with holding optimal number of credit cards is also using the credit card wisely. Having 1 credit card with upto 30-40% of utilization is better than having 1 credit card maxed to its credit limit. 

Similarly having 3 credit cards with low balances and regular repayments is better than having 3 credit cards with high outstanding balances.  

The number of credit cards held is the same…but the impact is quite different. 

Thirdly, your spending habit is a factor that impacts your decision to hold more credit cards. If you are a spendthrift then you might end up holding more credit cards irrespective of what your income and real need is. 

So there is no magic number on the number of credit cards that you should hold. However, there is one way to find out if you have been holding more than what you can manage. If you associate with any of the following points then, yes, cut down on your credit cards!  

• You are unable to repay your credit card bills on time 
• You are repaying minimum amount due on your credit card and building up on the outstanding amount 
• You obtain your credit report and find open credit cards that you have forgotten about 

Sometimes less is better than more! 

A credit score has gained importance in the recent years. The lending institutions evaluate your credit worthiness based on your credit score, which helps the lending institution to estimate the likelihood of repayment of a credit facility based on your past pattern of credit usage and loan repayment behaviour. 

So higher the score, higher the confidence the lending institution would have in you and hence better the chances of your credit application getting approved.  

Generally in India, a credit score of more than 750 is considered to be good, which we all wish to have.  

You know the famous phrase – ‘Rome wasn’t built in a day!’, so the same applies here. You could gradually build your credit score. 

Here are some essential steps that would lead you to that goal:  

1. Ensure your credit report is error free  

Check your credit report periodically (at least twice a year) to ensure it does not contain any erroneous data as that can hurt your credit score.  

If you find any errors on your credit report, make sure that you contact the credit bureau or the lending institution to correct this error. Ideally, you could also check with your credit counsellor and seek expert advice. 

1. Pay off your debts 

Setting a realistic plan to repay your debts is a good step. Minimizing the outstanding debt will help to improve your credit score. 

1. Less credit cards and low usage 

Be prudent with the number of credit cards you own. Credit utilisation on each credit card should ideally be 30-40% of your credit limit. So make prudent use of your credit cards! 

1. New credit purchases 

Ensure that you apply for credit only when you require it. Your applications for a credit facility result as ‘enquiries’ on your credit report and stay there for 7 years! High number of ‘enquiries’ could have a negative impact on your credit score. 

A credit score is based on your credit history and behaviour built over the years. These 5 simple ways are your first steps to build a good credit history and improve your credit score. 

Be prudent – it’s about your financial health we are talking about!