We are going through an unusual and tough time. There is uncertainty all around us. The Covid-19 pandemic has impacted the livelihoods of many people. Initially, economies across the globe had been entering a pit and although they are picking up now, the pace is pretty slow. People are now looking to boost their emergency funds and maintain enough insurance coverage to combat the ongoing crisis. During a time like this, it is crucial that you keep a strict tab on your financial health and frequently check your credit report.
Here are 5 reasons why you need to keep reviewing your credit report during this pandemic:
Be it on the part of the lender or the credit bureau, an error in your credit report can damage your credit score. This is why you need to periodically review your credit report, identify the errors and have them rectified as soon as possible. A few of the common errors you may find in your credit report include:
Credit bureaus determine your credit score based on the information given to them by the lenders. Your credit score is a crucial loan eligibility parameter. Checking your credit report frequently will give you an idea about your creditworthiness which will help assess if you should submit a credit application.
Credit utilisation ratio is the proportion of the credit limit you have used against the total credit limit available to you. You must ideally maintain a CUR of 30% or below. If you breach this mark, your credit score will get affected. However, you can always opt for an additional credit card if you find your CUR over 30%. You can also request the bank to increase your credit card limit.
When you submit a credit application, the lender will reach out to the concerned credit bureau and look into your credit report. These lender-initiated enquiries are known as ‘hard enquiries’ and can lower your credit score. So, if you identify any unknown hard enquiries, make sure to contact the concerned credit bureau and solve the issue.
Submitting many credit card and loan applications within a short period of time can negatively affect your credit score. So, instead of submitting applications to the lenders directly, you can apply via an online financial platform. These platforms will also contact credit bureaus and look into your credit report. However, these enquiries are ‘soft enquiries’ and do not affect your credit score.
Lenders tend to prefer applicants who have a higher proportion of secured loans (home loan, car loan) than unsecured loans (loan against credit card, personal loan). Keep in mind that credit bureaus too will favour borrowers who have a balanced credit mix. If you have a higher proportion of unsecured credit, you can always prepay your existing unsecured loans. You can also opt for loan consolidation-replace your unsecured loans with secured loans.
Being aware of your credit score will go a long way during this difficult time. You never known when you will need to take a loan and following these steps will help you keep tab of your score and correct errors as and when they crop up. So, when you need to apply for a loan, you can do so without having to worry about your credit score.
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