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Give your Cibil credit score a festive boost

Sunday, November 03, 2013 by Rajiv Raj

cs138n38v2When Sumi Ghonorkar was a child, Diwali was a magical time. Family get-togethers, new clothes, gifts, sweets and lots of crackers. Now at the age of 35, Diwali means cleaning up the house, giving bonuses, expenses for clothes, sweets and crackers and giving into the marketing blitz of offers and deals and buying an expensive consumer durable.  For Sumi it also meant a tough few months to come to balance budgets and cut corners to overcome the festival spending. Often the spending would be on credit cards and being unable to pay the amount in full interest charges would add to the burden. Many of us are in similar situation during festive times. Often, this binge of spending leads to defaults in payment bringing down your credit score.

Use the festive season to push up the credit score

Festival time can be a make or break as far as credit score can go. With some sensible planning you can actually give your credit score a boost. Credit card activity improves your credit history and builds up your credit score. Use your credit card to get great offers, add up reward points and increase your credit score

Rider: Ensure that you make all payments on time. Late payments and defaults will sharply bring down your score.

Plan in advance for large purchases

Often sales and special offers come up from retailers. The best offers may not be during festive times hence it makes sense to plan in advance and buy things you are sure you will need during the period when there are sales and offers.

Rider: In the excitement of a sale, one often tends to buy things you do not really need resulting in overspending

Use an instalment loan

An instalment loan or an EMI loan is when you buy an asset and pay back a fixed amount each month with principal and interest. The fixed amount is paid back for a specified time period which will be stated in the contract between the lender and the borrower. EMI loans have been wildly popular lately with retailers offering zero percent inter rates to lure in customers. However these loans often had hidden costs. Recently the RBI has asked banks to offer uniform interest rates and processing fee on equated monthly instalment (EMI) credit card schemes for retail products.

Paying on an instalment loan over a length of time will give you a chance to build a good payment history which accounts for around 30% of your credit score. Therefore, making consistent on time payments on your instalment loan will give your credit rating a nice lift. To add to it, it adds an unsecured instalment loan in your credit mix further enhancing your score.

Rider: An instalment that misses a payment instantly shows up negatively in your credit score. Pay on time to get the advantage in your credit score.

MadanRajiv Raj

Rajiv 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.

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