Taking loans and using credit cards is now a very common event. Almost everybody has a credit card – whether they use the credit facility or just use it for the convenience of buying.

Loans are now a part of life – a home loan and a car loan are part of every middle class home today. So most of us do borrow and do repay on time – however at times you could get behind in your payments. This could damage your ‘credit reputation’. Hence there is now a concept called ‘credit rating’ for individuals. This is not a very new concept in the world, but if of recent origin in India. Internationally it is called the FICO score – In India it is called the CIBIL score – a little unfairly – because today there are more companies providing your ‘credit score’.

Caveat: Like all BFSI products this is marketed as a convenience tool for the common man – actually banks are using it as a threatening tool to recover ILLEGAL dues. Say you applied for a credit card, but did not receive it at all. The bank sends you a notice to pay Rs. 2470 as dues. You would rightly refuse too. The bank threatens to damage your credit score if you do not pay. Oops one more BFSI ‘helping tool’….and you can now ask……

What is a Credit Score and Why Is it Important?

Lenders look at your credit score (CIBIL score), which is influenced by your past financial behavior, as a way to tell how risky (or safe) it would be to lend money to you.

Your credit score depends on a lot of factors like  the length of your credit history, how prompt and responsible you are at paying bills on time, the total debt you can have vs the total debt you actually have, what mix of credit you have, and any new lines of credit you add or have applied for adding.

Having a credit score of 700 or higher opens up far your options.You will get finer rates and cards with better reward programs. I get calls saying ‘Since  your score is xyz we wish to offer you ….this card’ – I have no clue about how they access my name, email id and cibil score.

A low credit can impact your life in many   ways. You may be denied credit by certain top notch lenders. Some lenders may lend to you with a higher margin, MOST lenders will lend to you at a rate higher than for other! Even worse, the utility providers, cable tv providers, cell phone companies, and potential landlords are less likely to want you as a customer. There are banks and banking service providers who may not want to employ you AT ALL if you have a poor score.

Hey you have no choice – it is imanperative that you raise your credit score!!

Mistake #1 : a stickler for rules, you forgot to make a payment once. Maybe you forgot. Maybe you thought your husband would have done it. Maybe….well your credit card provider will not be in a hurry to report. However, if he does report, call the banker and the rating agency. Make the payment and rectify the report. Why let a small mistake hurt you in the long run?

Mistake #2: You regularly charge everything on your card! When the bill comes, you make the minimum payment to keep the credit card company off your back. That’s smart right? after you get 45 days free credit fornee all your purchases?

Wrong! You’re completely wrong. When you have any outstanding balance — you pay interest the minute you buy and many credit cards charge around 42% p.a. interest! Grrrrrrrrrrrrrrrrrrrr!!!

You need a smart plan to come out of a credit trap. It is like being on a treadmill with no stop button! FIRST STOP USING THE CARDS WHERE YOU HAVE. Maybe lock it away in your parent’s bank locker? This makes them hard to use. You’re going to have to cut back on expenses for a time until you pay the debt down. Work debt repayments into your budget and pay as much as you can as often as you can. This is the only way to reduce your credit card debt. In fact taking a personal loan to repay credit card debt is a very good idea. It is normally MUCH cheaper. Consider talking to a Credit Rectify agency.

Mistake #3: You Maxed Out Your Credit Card

Assuming you have two credit cards. One with a credit limit of Rs. 35,000 and the other has a Rs. 55,000 limit. That means you have Rs. 90,000 worth of credit.

Another thing to consider is this: are you still holding onto your one credit card from college with a low limit? You might be maxing out your card now because your spending needs have changed since your college days. Call your credit card company to see if they can raise your limit, or apply for a different card that has a higher credit limit and better rewards.

Mistake #4: You have some disputed amount that you do not want to pay: YOU CANNOT DO ANYTHING ABOUT THIS.

Mistake#5: You have not checked your credit report. Cardinal mistake. Companies are run by morons who have no problem in s….g up clients data. Make sure that you read your report carefully.

PS: I’M AN EXCEPTION – I hope I never have to borrow…so I am indifferent…http://www.subramoney.com/2012/03/repay-credit-card-debt/