How do I ensure that my credit history is maintained during the COVID crisis

COVID-19 crisis has thrown a truly unprecedented crisis on us. While protecting your physical health from Coronavirus is on top of your to-do list, the current uncertainties unleashed by the pandemic can also have a deep impact on your economic health. With layoffs, pay cuts, and closure of businesses, you may find it increasingly challenging to make your loan payments on time or discharge other financial liabilities.

In case you default on the payment of existing loans, your credit score will plummet. If you need to apply for a new loan to tide over these difficult times, the banks will look up your credit score. That’s why maintaining a good credit score has become even more important during times like this. Credit score, usually provided by the TransUnion Credit Information Bureau of India Limited or CIBIL, indicates the creditworthiness of the borrower and the probability of default by a borrower. That’s why it serves as the first port of call for any lender before extending financial assistance.

Here are some tips that can help you to maintain your credit score until the Coronavirus emergency prevails:

Make it a habit to read through your credit report

Start with reviewing your credit report thoroughly so that you can identify any mistakes in reporting that may adversely impact your CIBIL score. While the score is calculated based on information furnished by lending institutions to CIBIL, one cannot be complacent about the authenticity of the records as credit reporting mistakes are extremely common. So make it a point to go through the credit report thoroughly to ensure that the information is accurate.

Reach out to the creditors

It is possible that your financial situation may make it difficult to ensure loan repayments as per schedule. Instead of allowing your credit score to suffer on account of the defaults, contact your bank or financial institution at the earliest. As per the directions of RBI, banks and NBFCs will allow you to postpone the repayment of the EMIs for loans until August 31, 2020. The good news is that rescheduling the payments will not adversely impact your credit score.

Make a minimum payment for your credit cards

While the RBI has allowed moratorium on credit card dues until August 31, 2020 which exempts you from making payments without impacting the credit score, it is advisable to at least pay the minimum amount due. The interest charges will continue to apply on outstanding amounts. Post August 31, 2020, if you are unable to clear off the dues, your CIBIL score will be impacted. So if you have the cash flow, it is better to make the payments, even if it only towards minimum amount due. Always remember that late payments or defaults will adversely impact the credit score even after the COVID crisis is over.

Be mindful of your spending

Given the uncertainties, it is a wise decision to assess your existing financial commitments before you incur any new expenditure. If you have bad debts lurking in your books, use available liquidity to pay them off and improve your credit score, before making any non-essential purchases.

Conclusion

Following a few simple strategies to protect your financial health can immensely benefit your credit score, even if there is no looming crisis. So it’s time to get proactive and practice good credit habits.