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As a generation, millennials prefer every part of their life to stay in tune with their ambitions, instead of being a hindrance. Quite often bad credit scores can be just that, a hurdle and managing credit scores a tedious task.
Why should i care about credit scores?
Credit and credit scores institutionalize the idea of ”trust” in lending / borrowing through numbers and algorithms. The credit score, a three-digit number ranging from 300 to 900, is an assessment of the repayment eligibility of the loan taken out. The higher the score, the better a borrower turns to potential lenders.
Suppose you applied for an INR 25,000 loan from a fintech and got rejected. This means that the financial technology company does not trust you to repay the loan. The reason for the rejection is your low credit rating.
Basically, if you miss paying an IME (or loan installments) or delay paying credit card bills, it could lead to a bad credit score and a lower chance of getting loans approved.
Are Millennials Conscious of Their Credit Ratings?
Surprisingly, it seems that the current generation of young professionals are pretty savvy about credit scores. In India, millennials and millennials are a demographically and socially changing segment. They seem to have a certain (often enviable) recklessness towards borrowing and spending. Their attitudes towards money and investing differ from those of previous generations, often because of the safety net provided by their parents or a growing philosophy of #YOLO (you only live once).
Social media also influences their spending decisions, making them more open to borrowing flexible amounts to finance their lifestyle and needs. As credit becomes more accessible and convenient, consumerism and debt traps often go hand in hand.
Historically, the younger generation has been severely impacted economically every time there has been a crisis, and 2020 is one example. However, it is encouraging to see them become aware of their scores, even though more education in managing them is needed.
Why is someone’s score low?
There are a multitude of reasons, but some of them are more intuitively understandable than others.
Late payments: Being behind on credit card or loan payments owed can affect your credit score. Delays longer than 90 days or a write-off can dramatically affect your score and any chance of future loans.
Growing use of lines of credit: Usage measures the credit limit you use on your card lines. Consistently high use (for example, 90% or more) of your assigned credit limit can adversely affect your credit score.
Applying for too many lines of credit, like cards, payday loans: Financial institutions despise the multiple requests / requests for loans / credit products by consumers in a short period of time. This suggests that the person is a high risk borrower.
Increase in the number of open and / or closed credit lines: A large amount of unpaid debt can affect your credit score, especially if there are unsecured loans, for example, multiple credit cards with unpaid balances.
Determine the length of the credit history: If you have a long (and good) history with financial institutions, they trust you more, which is reflected in your score.
The main thing is to take only the credit you need and make the repayments on time.
Can I improve my chances of getting a loan?
Regularly check your credit report: Most importantly, make sure that all of your credit report data is accurate and up to date. Multiple addresses, delays and disputes should be actively addressed and resolved with the institutions. Also make sure that the corrections are reflected in subsequent office reports.
Use your lines of credit wisely: Your existing lines of credit can help you correct your poor credit scores, for example, transferring some expenses to a credit card and paying the bills on time could help improve your credit score in six to nine months.
Understand your repayment capacity: Regular payments like rent, housekeeping, etc. can be a big part of your monthly income, leaving a smaller part for loan repayments. Repayment capacity can often lead to loan denials.
Opt for cash-less: To develop a good credit history, start using digital payments more often. It helps build trust with new age institutions.
Improve your alternative data footprint: A new way to improve your chances of getting a loan is to keep your alternate data healthy. Lenders can assess your creditworthiness differently, by analyzing your spending and income habits to determine your ability to manage your finances. They look at proxies for other financial transactions like electricity, mobile bills, wallets and top-ups, etc., to decide your eligibility.
The next time you need a loan, remember that your credit score is an important factor. The same goes for your alternative credit score.