Good credit scores, given all other parameters, ideal translate into competitive rates and higher sanction limits
Entrepreneurs typically have it tougher from lenders, most of which revolves around unpredictability of work, money etc. However, fundamentals to getting a good score are predictable. Good credit scores, given all other parameters, ideal translate into competitive rates and higher sanction limits. Here is a list to help steer you in the right direction.
Payments
Missed, delayed payments have a direct correlation with a negative impact on scores. Pay dues on time, every time and pay up the promised amount. This translates into racking up a good score. Set reminders for Equated Monthly Installment (EMI) payments, so you don't get mauled by late payments.
Residual credit card debt
The lure of plastic is enormous but accumulated, unpaid overextended credit is extremely detrimental to one's credit score. Hence, pay off your credit card debt, if any. Manage your finances and clear this chunk, if not all at least a sizeable amount. Planning credit card outlays in advance aids tremendously in positive reinforcement. If one has a tendency to max the credit card, adding on cards to your wallet may be unwise.
Credit portfolio
A plethora of unsecured personal loans is often viewed negatively. Diversification of credit is always a positive in the eyes of the credit scoring company. All other customer parameters being equal, it has been observed that customers with a mix of credit, such as education loan, credit card, secured loan, etc, tend to be less risky. Debt is essential but do build up your financial resilience slowly and steadily.
Credit utilisation
Restriction is the panacea. The more you are able to restrict your credit usage as per the allotted limit, the better it is for your credit score. A good math to remember is the 30% rule, try to remain within that upper limit in terms of credit utilisation.
Review, monitor your score
It is extremely easy to neglect one's score because it is not one of those "go to" numbers, like a credit card balance or bank balance. Check your score regularly to be in control. It will tell you where you stand currently in the eyes of the lender and if that upsets you, you can always initiate corrective action. It also gives you the power of knowledge when dealing with institutions; you aren't blindsided by less than favourable loan terms.
Joint applicants, co-signed, guaranteed and joint accounts
Missed payments in joint applicants, co-signed, guaranteed accounts are held equally liable for missed payments. Your joint holder's (or the guaranteed individual) negligence could affect your ability to access credit when you need it. Be alert who you guarantee and or co-pilot with, this is a situation where you could suffer for no fault of your own
Restrain credit hoarding behaviour
Sustained hankering for credit concerns lenders who then may see you as reckless. Multiple loans also can trap one into a vicious unforgiving cycle of late and or non-payment of dues. Be prudent about the loans you want to avail, ensure a judicious mix of secured and unsecured debt. Repay a loan and then move on to the other, this will prevent your score from plummeting.
A poor or average credit score isn't the end of the world. Financial discipline can be initiated at any stage. Also, underwriting as a science, is multi-layered and extends beyond a single parameter.
The writer is founder & CEO Syntellect
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