If manners maketh a man, good habits are not far behind. All of us are creatures of habit — following our daily routines and schedules with admirable precision. And it is these very habits that have the potential to shape us into the best version of ourselves. Early in our lives, our parents urged us towards good habits that would shape different aspects of our lives such as our social skills, interpersonal relationships or financial habits.
Here’s how your good financial habits can go on to help you in the credit landscape today.
Once you start off on your credit journey by availing a card or a loan, a credit footprint is created. This footprint is instrumental in building your credit profile and CIBIL Score. Now, your CIBIL Score is a 3-digit numeric summary of your credit report, ranging from 300 to 900. In short, it is a reflection of your credit behavior (and habits) over time. It then follows that good credit habits will lead to a positive credit profile and a high CIBIL Score, while bad credit habits will lead to an unfavorable credit profile and low CIBIL Score. And this is what determines your access to credit in the future.
Lenders will check your CIBIL Score to understand your credit profile, behavior patterns and repayment habits before they approve your loan or credit card application. This is why it is important for you to showcase and leverage good credit habits. Uncertain about where to begin?
Here are a few key credit habits you should keep in mind when building and maintaining a positive credit profile:
- Plan your financial goals and priorities - We go out of our way to provide for our families and loved ones. It is our way of showing we care. However, you need to plan your financial goals cautiously and weigh your credit options carefully too.Consider your income to EMI ratio (a simple calculation of how much of your monthly income goes towards EMIs and credit card payments), and strive to keep this under 30%. And just because you have access to credit, apply for fresh credit only when you really need it. This kind of planning is critical to achieve your financial goals and maintain a positive credit profile.
- Budget and save - As kids, our parents advised us to save extensively. And that advice holds true even today. Budget your monthly expenses, your upcoming expenses, loan obligations and repayments, and save up for a rainy day. While we live in an age where we have access to credit at our fingertips, we should be prepared for an unfortunate turn of events that may land us in a financial hardship.A thumb rule is to have about three months’ of salary stashed away as an emergency fund, so that you can tide through the difficulty with a bit of ease. Start saving up slowly, but surely. Set aside a specific amount monthly towards this emergency fund.
- Track your expenses - Keeping a tab of how much you earn and how much you spend on a weekly or monthly basis (also called your income to expense ratio) can help you track your expenditure, understand what is avoidable or not, and manage your expenses better. Your EMI and loan repayments are definitely not avoidable expenses, but ordering takeaways are. You can choose to maintain a diary, meticulous excel files and programs, or just opt for a personal finance tool to help you track your expenses better.
- Use your access to credit with care - While credit can help you achieve your life goals or support you in an emergency, be cautious about how frequently you apply for credit cards or loans — even if it is for just checking your loan-eligibility.Even if you have a credit card with an extended credit limit, it is a good credit habit to maintain a low credit utilization ratio and spend well within your card limit. Stretching yourself will only increase your credit burden, and may impact your repayment capability at a later stage.
- Stay credit-conscious - Do you keep a tab on your financials by checking your bank statements and investments frequently? Similarly, responsible credit consumers stay connected to their credit profile by monitoring their CIBIL Scores and Reports regularly. This helps them stay on top of their credit profiles, card spends, loan amounts and credit behavior, while monitoring the credit information shared by their lenders and banks with CIBIL. It also helps them understand their loan eligibility better, so that they can get access to credit when they need it the most.
Remember that you may not be able to develop all these overnight. Slowly, but surely work towards good credit habits and a positive credit profile and you may notice how this brings about a positive impact on other aspects of your life too.
>> Know your CIBIL Score and Report and stay credit-conscious. Check now.
>> Have a low score? Keep calm and work towards a higher one. Here’s how.