Uptake on reaching a perfect credit score during tough times

A credit score is a numerical representation of creditworthiness of an individual based on past credit history and repayment of credit behaviour. In India, CIBIL is one of the primary agencies which determines the creditworthiness of an individual based on financial records of the past six months. It calculates the credit standing based on factors like repayment of credit cards and loans etc. and quantifies the credit score range  from 300 to 900. 900 is considered as the highest credit score.

Significance of credit score: A credit score assures various financial institutions that an individual has sound credibility, and thus he will repay the credits/loans on time. Every financial institution checks the credit score to prevent any default before availing a loan. Borrowers who have a good credit score have more chances of getting a loan approved at a lower rate of interest without any hassle.

How can one maintain a good credit score? Maintaining a good credit score isn’t that a daunting task. Here are some ways by which you could improve your credit score.

  1. Repaying your credits on time: To maintain a good credit score, you must always repay all your loans and credit card dues on time. Missing multiple credit card dates can significantly impact your credit score. It is advisable to pay the minimum outstanding balance of credit card dues to prevent any penalty and impact. However, if you are always doing that, it may affect your credibility. 
  2. Making credit inquiries: Don’t make multiple hard enquiries as it can impact your credit score. A hard enquiry means enquiring about credit from various financial institutions. If you are making multiple inquiries from banks, it would indicate that you are hungry for credit.
  3. Debt-credit utilisation ratio: A credit card holder must carefully make use of the credit cards. He should make sure that he does not over utilise the credit limit of their cards. It would be best if you at least a 30 per cent credit utilisation ratio.
  4. Debt-income ratio: If the expenses on credit exceed the income sources, then it may affect your credit score severely. Thus, you must not take multiple loans at a single time as it can change the debt-income ratio. Also, if you have taken various loans, have a mix of secured and unsecured loans as it can help you to improve your credit score.

Credit Score during tough times: It is usually seen that a lot of individuals have a perfect credit score during tough times; it is primarily due to these reasons.

  • In an economic recession or tough times like COVID, people would restrict themselves from overspending with their credit cards and also they would not spend unnecessary money as they are aware of their financial conditions. Thus, it would not affect their credit utilisation ratio or debt-income ratio negatively.
  • Also, in tough times people usually postpone their big purchases; therefore, it will help to improve their credit score.
  • Apart from that, people would also not make any enquiries about taking a new loan as it will increase their burden of paying interest. Also, most of the times, people usually get the benefit of government policies like EMI moratorium, which does not impact the credit score. 

Conclusion: Thus, in tough times, people limit their credit spending and don’t make unnecessary big purchases to tackle their financial distress. People try their best to save their money for emergencies and manage their daily expenses carefully. It thus helps to get a perfect credit score. However, in some instances, it is also seen that people turn bankrupt because of harsh economic conditions. Accordingly, you must carefully manage your expenses in such situations.

Summary: Uptake on reaching a perfect credit score during tough times

A credit score is a numerical representation of creditworthiness of an individual based on past credit history and repayment of credit behaviour. In India, CIBIL is one of the primary agencies which determines the creditworthiness of an individual based on financial records of the past six months. It calculates the credit standing based on factors like repayment of credit cards and loans etc. and quantifies it from 300 to 900. 900 is considered as the highest credit score.

It is usually seen that a lot of individuals have a perfect credit score during tough times; it is primarily due to these reasons.

  • In an economic recession or tough times like COVID, people would restrict themselves from overspending with their credit cards and also they would not spend unnecessary money as they are aware of their financial conditions. Thus, it would not affect their credit utilisation ratio or debt-income ratio negatively.
  • Also, in tough times people usually postpone their big purchases; therefore, it will help to improve their credit score.
  • Apart from that, people would also not make any enquiries about taking a new loan as it will increase their burden of paying interest. Also, most of the times, people usually get the benefit of government policies like EMI moratorium, which does not impact the credit score. 
Radhe Guptahttps://areyoufashion.com/
Radhe Gupta is an Indian business blogger. He believes that Content and Social Media Marketing are the strongest forms of marketing nowadays. Radhe also tries different gadgets every now and then to give their reviews online. You can connect with him...

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