Credit history is the way you manage your debts and loans and the discipline with which you use and repay them. This information is shared by banks with one another and is accessed by them when you apply for loans or cards the next time. They look at how you well in time did you pay your EMIs for your last loan and how disciplined a borrower you are. Information from all banks and financial institutions is pooled by ‘credit agencies’, which in addition to maintaining your history, also calculate your credit scores on various parameters linked with credit. Your negative entries would stay on your report for a minimum of six years.
You should, at all times, aim at maintaining a high credit score so that you have a good negotiating power the next time you apply for a loan and that too, from the bank of your choice.
Maintaining high credit scores and a strong credit history isn’t any rocket science. These simple things kept in mind, would let you be a good borrower -
- Avoid late payment and defaults in any ongoing loans. Any irregularity in payment cycles depicts that you are not being able to service your loans and you have borrowed more than you could repay and also that you are a risk for the bank.
- Keep your credit card limits till only the level that you would use. In case you have a credit card that you do not use, you would be taken as someone for whom the bank has earmarked money, but is not using it. Therefore you wouldn’t be worthy of giving credit. This reduces your score and damages your credit history because you are someone who did not turn out to be profitable enough for the bank.
- Be careful when taking credit cards and personal loans. Since these are unsecured loans, their default or non-utilisation would result into a lower credit score in comparison to a default in a home or a car loan.
- Avoid applying for loans often. That shows your credit hungry nature and that you are always in need of money over and above of what you earn, and that you do not know how to cut your coat according to the cloth. This typical behaviour is perceived as being that of a future defaulter. “If you are not earning enough today to make your both ends meet, how much more do you expect to earn in the near future to repay all your loans?” is the question that banks ask you here.