Credit score, a three-digit number that is a measure of your creditworthiness, remains one of the most ignored aspects of financial health and can often have an adverse impact on your ability to borrow. Many individuals, even the more aware ones, feel the need to check their credit score only when they have to access a loan or a credit card, leaving their score unmonitored for long durations. It is advisable that you check your credit report thoroughly at least once every two or three months. This is how it will help:
Track and build your score
Like your personal health needs regular monitoring and good habits, your credit health too is dependent on responsible behaviour with credit. Checking your credit report regularly will help increase your awareness, deepen understanding and enable you to take the right actions to improve or maintain your score. At times, a lack of awareness leads to unnecessary steps like applying for multiple credit cards at the same time, which in turn has an adverse effect on your credit score and reduces your eligibility to borrow. Actively tracking your credit score, combined with the right measures, will help you monitor your progress and build your credit score to high levels over time.
Stay credit-ready for life goals, emergencies
Note that building your credit score takes time, usually several months. In case you find out your credit score is low when you need to borrow, making you intelligible for a loan, there will not be much you’d be able to do at that point in time. This can have a detrimental impact and lead to a crisis in case of a financial emergency. For life goals like buying a home, for which taking a home loan is a necessity for most of us, a poor credit score can derail your plans. But if you check your credit score at regular intervals and take measures to maintain strong credit health, accessing credit seamlessly when you need it or to achieve your life goals can be easy.
With several cases of identity theft being reported lately, it has become even more vital to monitor your report regularly. Fraudsters may use your personal data, like the Permanent Account Number (PAN), to attempt to access credit. If you have a habit of checking your credit report regularly, particularly your accounts section which lists all your active credit accounts, you can detect any fraud early and raise a dispute with a credit bureau. The process of raising a dispute may vary from one bureau to another, but a general procedure would be to log in to your account on the bureau’s website, go to the dispute resolution section and raise the dispute.
Credit reports are generated by credit bureaus based on the information provided by lender banks, non-banking financial companies (NBFCs) and credit card issuers. Sometimes, because of clerical errors, wrong information may enter your credit report, like someone else’s loan accounts reflected in yours. These errors can impact your credit score and also reduce your creditworthiness. The only way to spot such errors is to thoroughly check your credit report at regular intervals. You must ensure that all the information is accurate and, if not, you must get it corrected by raising a complaint with the bureau.
We may think just paying our credit card bills and equated monthly instalments (EMIs) on time may be enough to maintain a strong credit score. But how much of the credit available to us do we use regularly is also a factor that can impact your credit score. This is measured through Credit Utilisation Ratio or CUR. So, if you are maxing out your credit cards frequently, it may affect your credit score negatively as it reflects a lifestyle dependent on credit. Ideally, you should keep your CUR below 50%. By actively monitoring your credit score, you can check if a high CUR is impacting your score. To lower your CUR, you have the option to either use less credit or request your credit card issuer to increase the credit limit. Alternatively, you can also apply for a new credit card to increase the overall credit limit available to you.
