Answer to Question #311909 in Marketing for saif

Question

. One of your clients wants to apply for a Home Loan in the next 12 to 18 months. Few months back the client had lost his job during the COVID-19 pandemic and delayed his credit card payments. The client is worried that this may impact his credit score maintained by Credit Bureaus. Suggest a roadmap to your client to improve his credit score

Answer 1

The COVID-19 pandemic has been affecting all aspects of life since its start in January 2020 and since then it has hurt human life and the economy.

With the cash flow being heavily affected in the form of layoffs and salary cuts, the demand for new credit has been on the rise and majorly in the form of unsecured loans. However, to avail of these loans, having a good credit score is of utmost importance, especially during a crisis.

The credit score of a person showcases his or her creditworthiness to the bank. If you have taken a loan or a credit card from a bank, paying back the loan in EMIs or paying your credit card dues on time and in full has a positive impact on your credit score. However, any default missed payments can have a negative impact on the score.

Some of the ways in which one can improve his or her credit score are;

Keep a regular check on your credit score:

During a time when income can fluctuate due to salary cuts or layoffs or even cuts in increments, it is important to know where your credit score stands regularly. Given that your expenses will be reduced, keeping a check on your score can help avoid major discrepancies, if any.

Paying off credit card debt:

Paying your credit card balances whenever possible is of utmost importance during a crisis. If ignored, the debt increases and so does the interest accrued on the balance which may difficult to repay later. Any kind of late payment can affect your credit score.

Opt for the moratorium only if necessary:

Given that the interest accrued during the moratorium period will have to be paid, it is advised to opt for the moratorium only if there is an emergency such as a halt in regular income or if there is a shortage of funds to meet essential requirements.

Avoid withdrawing cash from a credit card:

Even though it is an option, it is advised not to resort to credit card withdrawals during this crisis as this comes with many additional charges which include cash advance fees, additional finance charges along with late payment fees as well. It also affects your credit score to an extent as repayment of the advance amount comes with a separate and higher interest rate.

Keep the credit utilization ratio below 30%:

Banks prefer lending to borrowers who maintain a credit utilization ratio of below 30% of their credit limit.

As the COVID-19 pandemic is almost, the financial crisis along with the health crisis has been termed the worse in many years. The financial health of many has been hampered to a great extent along with any economic goals they had planned during the year. Repaying existing debt and maintaining the stability of your finances will be the key to coming out of this crisis without any adverse effect on your financial health.