How to ensure that you don’t hurt your credit score while shopping.

How to ensure that you don't hurt your credit score while shopping.

Ensure you don’t hurt your credit score while shopping

Festivals are around the corner and it is only natural for everyone to shop for themselves and their loved ones. After covid, people are now freely going out and shopping. Celebrations are in full swing and the excitement can be seen in the growth of the economy as well. However, more often than not we can go overboard with our expenses around this season. While it is great to have a credit card to have that extra financial cushion, it could work the other way if you are not cautious about how, where and what you are swiping it for. So, what are the things you should keep in mind before using a credit card for your shopping? Let’s look at the points listed below –

Be aware of your debt and finances

Know how much you can spend while comfortably managing your expenses. Be aware of your “balance sheet”. What are your regular liabilities? These could be monthly EMIs on the home loan you took or your house rent. You should also include school/college fees, electricity bills, medical expenses if any, etc. These expenses are non-negotiable and hence form an important part of your consideration. Then, there are other occasional expenses like vacations, birthday parties, etc. for which you should always set aside a budget at the beginning of the year. Be aware of your monthly fixed expenses and your regular income. As the saying goes “Never spend your money before you have earned it”. If you pay careful consideration to these points, you will know how much you will be able to repay on your credit card spending and can easily maintain good health on your credit score.

Maintain your credit score

It is very important for everyone to maintain a good credit card score. All banks and financial institutions rely on your credit score to check whether they should issue a credit card or lend a loan or not. Outstanding dues, too much spending on your credit card, too many requests for loans, regular delays in payments, and closing an account without repaying are some of the important reasons which can make your credit unworthy. Let’s look at the chart below to see what affects your credit score the most.

Remember you have to pay for the purchases made via credit card

Well, we can’t forget that. Can we? Keep in mind that every single time you swipe your credit card, you have to pay that amount back sometime later, ideally before the due date. Using your credit card to the fullest limit and not paying your dues in time can severely affect the health of your credit score. It is like your own health – you have to keep checking from time to time and make changes to be sure you are healthy. More often than not, we might splurge more than we should and once in a while, it should be fine.

But do check your credit limits and your ability to repay before you do that. It is important because all these transactions show in your credit report which is studied by banks and financial institutions when you actually need a loan. These transactions are a reflection of your account health and financial discipline and go a long way in maintaining your creditworthiness.

Disciplined approach towards checking your score regularly

Make sure you check your credit report regularly so you know if you have to work on it. A CIBILTM score of 750 or above is a good indication of a healthy score and makes you eligible for faster approvals of loans. You can maintain a healthy score by checking your report every 3-6 months. You can then take action accordingly. Let’s take a look below at what these scores mean.

Make full payments or clear all outstanding balances before you close a card with a bank.

In case you hold a lot of credit cards and are unable to manage them or are doing too many transactions just because you have credit cards, you might want to consider closing a few of them. You could do so by reaching out to your bank. But very importantly, pay all your dues before you close your account. Closing your account without paying all your outstanding amounts will show negatively on your report and will adversely affect your credit score. So, make sure you amicably close accounts without hurting your creditworthiness.

The credit score is an important instrument considered by banks and financial institutions to evaluate your creditworthiness. Hence, it’s important to maintain a good score and improve as well when it dips. How can you do that? Below listed are some easy solutions –

  • Pay your credit card bills on time – It’s very important to pay your dues in time or before to make sure it reflects well on your creditworthiness.
  • Pay your other dues like EMIs on time – Your financial discipline goes a long way in determining your credit score. How regular you are with your monthly loan payments is an important decision factor for your credit health. Pay them on time.
  • Keep your credit utilization ratio low – It is an indicator of how much you are spending and how much you can Higher expenses will definitely reduce your capacity to repay any other loan.
  • Check your credit report regularly for any errors – It can happen and it is important that you get it corrected. Certain errors in the report about non-payment of dues or defaulting on payments for a long time can show very badly on your report. Make sure you have that corrected to reflect your true credit score.
  • Don’t close accounts that reflect your financial discipline – You may keep showing certain accounts on your record where you responsibly paid all dues on time. It can help the reviewer make a positive opinion about your creditworthiness and hence achieve a better score.

Conclusion

It is important to be aware of the consequences of overutilizing your credit limit while shopping. Non-payment of your dues can lead to a bad credit score which affects your creditworthiness. Maintain financial discipline by paying your dues on time and managing your expenses by advance planning. By following all these points, you should be in a good position to enjoy shopping without worrying too much about your debt.

 

Leave a Reply

Your email address will not be published. Required fields are marked *