Mohan Jayaraman
India is on the cusp of an exponential growth phase, driven by its favourable demographics and ambitious projects like `Make in India’ that focusses on augmenting India’s manufacturing capabilities, skill development, innovation and productivity. Given the Government’s determination to make India as competitive manufacturing destination in the world, it has spawned several programmes to improve skillsets and incubation of projects as well as to create an ideal ecosystem for start-ups and SMEs which are expected to play a major role in this grand initiative.
Such an aspirational scenario is bound to motivate millions to jump the start-up bandwagon with their long-cherished ideas, to experiment with new career opportunities and even to go on a sabbatical to improve their skills or reorient their ambitions in life.
Here, there could be a mismatch between aspirations and realities as many of these individuals could suffer a reduction or a total loss of income – for which, they may be unprepared for. And if such individuals have excess investment obligations or are the sole earning members, they would find it distressful to maintain their current lifestyle.
In such a situation, in most cases, the person does not remain credit worthy. Since the reduction in income due to redundancy could become a reality for almost everyone including absolute professionals, there are few feasible precautionary measures one must be aware of. By planning your income pattern, saving it judiciously and managing your credit records efficiently, one can safely sail through the crisis. Here are few tips:
# Inform lenders about your ‘new situation’
Primarily, you should not allow the loss of income to stop you from staying on top of your finances. If the new job is not coming your way then there is a chance that you may find it difficult to service your debt. This would seriously dent any future borrowing hence you need to get the big picture; your Credit Information Report (CIR). Then, it is imperative to inform the lenders (credit cards, loans, etc) about your situation straight away. Such a transparency would definitely add to your credibility among lenders, and not less; for them, you are a responsible borrower.
For example, in case of the home EMI (the most important in your life), lenders might take a lenient view if they are informed in advance. Most of the lenders would desist from taking any extreme action or bother you for payments but would try to find ways to help you out.
# Get a credit report; prioritise your debt obligations
While lenders would certainly appreciate your transparency and circumstances, your task is to manage your repayments for a while, prioritizing with the most important things such as your home loan. Having a copy of the Credit Information Report is helpful to systematically reach out to all the lenders and take follow up measures. The CIR speaks all about your credit repayment history and responsibility towards lenders. A regular review of the CIR helps individuals manage their finances better in case of an unforeseen event.
A CIR is also handy to understand why a lender refused a loan; though no one has an automatic right to a loan, lenders cannot reject an application without giving reasons (as bound by the Credit Information Companies (Regulation) Act, 2005). If it is regarding your credit worthiness or history, you may be able to do something about it and improve your chance of getting credit in the future. Often, they would tell you that the information on your credit information report has influenced their decision.
#Consult financial advisers, credit bureaus for help
As a follow-up measure, if you find repayment obligations harder to manage, you can always consult financial advisers or nearest credit bureaus who will also guide you to maintain a good credit score, sort out your debts and get your credit information report for free. This is important to access to quick loans in the immediate future besides sustaining a good financial history. In short, a smart management of loan repayments - despite of your reduced income – would improve your credit report. However, if you are finding it difficult to get a loan, never be tempted to call the so-called credit repair companies who can `remove the negative information for a fee’; well, this is a task better undertaken by you personally by contacting the credit information company direct or with the help of a credit counselor.
#Spend wisely
A personal crisis is a good time to review your priorities and obligations. Apart from managing the credit obligations, spending wisely is equally key to surviving the difficult times. A credit information report can help maintain a healthy relationship with lenders besides keeping track of your key payment schedules that would sustain your pre-crisis track record to a great extent.
The writer is Managing Director, Experian Credit Bureau, India
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