Have Your Credit score got low due to covid-19? Here are ways to improve it

The global pandemic caused by COVID-19 and the subsequent national lockdown has overthrown financial plans. Add to that, the unprecedented job losses and pay cuts have stressed out Indian households.

The RBI had extended the 3-month moratorium (now extended for 3 months more) for all term loan repayments, without affecting your credit score. To maintain a good credit score, it is very important to understand the nitty-gritty of credit score details.

In this article, we will look at various ways to keep a healthy credit score, focused on the uncertainty we are facing in times of COVID-19.

Review Report

The first thing to do is to review your credit report. Look at the areas which need improvement. Mistakes in credit reports are not uncommon. They could happen when banks are reporting your data to credit bureaus. It’s also possible that you could be a victim of identity theft and someone else has used your credentials to avail loans fraudulently. Get error rectified.

Track Record

Your credit score won’t improve unless you are regular with your payments. Finish off small-term and unsecured loans first.

Lenders don’t just look at the score when taking a call on loan or credit card application, they assess multiple parameters such as credit history, current income, and outstanding credit. Work on improving these.

Make sure all loans that have been repaid are closed. If not, ask the concerned lenders to close them and provide closure letters.

Credit Utilisation

Check credit utilisation in the credit summary of your TransUnion Cibil report. Ideally, your credit utilisation should be around 30-35%. Try to bring it down to at least below 50%.

Multiple Applications

Every time you apply for a loan, the lender checks your credit score. It leaves behind what is known as a credit application search footprint on your score when it does so. Each time this happens, your credit score takes a small dip. Space out your credit applications, as this could signal to lenders that you are under financial stress.

Loan Mix

To build a healthy track record, opt for secured loans. You can even get a credit card against a fixed deposit. Avoid unsecured loans such as personal loans as much as you can. Lenders will view a borrower risky if he has more unsecured loans.

If you have defaulted on repayments and continue to face financial stress, the process could take time. But once you get regular with repayments on outstanding dues, you would see your score will start improving every quarter.

During any crisis, it is a good idea to create an emergency fund. Do the same by cutting out unnecessary purchases and spending only on essentials. Contact your lenders and financial institutions if you are facing any financial difficulties. If you follow a few hygiene rules, you will be able to maintain a good score and this increases your options for future credit needs.

Comments are closed.