The four lifelines for a healthy credit score

Here are four ways to keep your credit score in the green

A good CIBIL score is the first stepping stone to getting any loan sanctioned. A CIBIL score could be a deal breaker or could get you concessions and privileges; this three digit number is very important! So what can you do to keep your credit score in the green; here are four lifelines that can help.

Save the date

The biggest disservice anybody could do themselves in terms of their CIBIL Score is not paying on time. Paying on time is simplest and yet the most powerful tool one has if they are looking at maintaining or improving their CIBIL score.

A recent policy change announced by the RBI gave three days extra to all the credit card holders to make their payments; however it will better to consider those three days as a safety net and stick to the due date for payments.

Setting up an auto debit mandate is the best way to ensure that there are no delays in paying the loan EMIs but one needs to ensure that the account is funded at the right time. Setting up the auto debit mandate from the salary account after the salary credit date will take care of the account being funded on the debit date.

If one is not comfortable with the idea of an auto mandate (especially for credit card payments) then set up a reminders for the payment date. Put the date on bold in your calendar, put a post it on your workstation, set up a phone reminder or devise another way that works for you but save the date for your payments and pay on time always!

Old is gold

CIBIL score is all about credit history; the past loans and credit card dues. How the borrower has treated his/her debt sets the foundation for a good or bad credit score.

A long, well-serviced loan shows good credit trail which has a positive impact on the credit score. So pre-paying a loan may not be such a good idea for your credit score.

The deeper the loan repayment history the better it is!

The same applies for the credit card; it is better to keep a card which you have held for a few years. If you have multiple cards and need to surrender a card for any reason then keep the older card and submit the newer one. Old debts are indeed gold for your credit score.

Do away with the irritants

A small irritant can cause big trouble whether its life or the CIBIL score. Those old balances, unpaid dues, open loans due to NOC not being taken are like eyesores in a CIBIL report.

Though these may appear like small issues but can pull down your CIBIL score considerably. An unpaid card due however small if left unattended accumulates into a big balance that keeps growing month on month and is reported to the credit rating agency every month.

Similarly if a loan is paid in full but the NOC is not taken reflects it as an open loan; sorting out these issues may require time and effort but they should be dealt at the earliest.

In case of old pending dues the financial institute is usually willing to meet the defaulter half way, so negotiate with them to reach a viable solution.

Keep the spending under control

We love the little plastic rectangles in our wallets; credit cards in case you hadn't guessed it. Festivals, end of season sales, partying with friends are all great excuses to go overboard on that credit card.

It's not like you have an "X" amount in your pocket, where you have to stop once you exhaust the money you are carrying. Credit cards can be like little genies which help in fulfilling every wish but if this is genie is not controlled it can turn into a monster.

So keep the urge to whip out your credit card and swipe it mindlessly under control.

Budget you monthly credit card spending and stay away from temptation. Spending more than you can pay at the end of the month can lead to unpaid dues getting accumulated which can cause multiple problems.

Unpaid dues lead to a low credit score, high financial charges/penalties and could lead to a debt trap.

Use these life lines effectively and keep your credit score healthy. Being disciplined financially is useful and is not relevant only when taking a loan; so be credit healthy and be financially responsible.

Photograph: GotCredit/Creative Commons

The author is a credit expert with 10 years of experience in personal finance and consumer banking industry and another 7 years in credit bureau sector. Rajiv was instrumental in setting up India's first credit bureau, Credit Information Bureau (India) Limited (CIBIL). He has also worked with Citibank, Canara Bank, HDFC Bank, IDBI Bank and Experian in various capacities.