Do you fall in the millennial category, residing in an umbworld where technology has impacted almost every phase of life? (For starters, millennials are just a term given to those born in between 1981 and 2000). For example, the present credit climate has various options to select from, all have been made possible due to technological advancement. There are various kinds of loans and credit cards for which you can apply instantaneously, and the transaction can instantly take place. Along the same lines, it may be safe to state that even credit has in a manner impacted our lives thoroughly.
So, whatsoever it is, it is a must for you to approach the Transunion CIBIL or the concerned credit bureau to know your credit score standing in advance. Maintaining a strong credit score is a must to be eligible for loan and credit card offers. Also, note that your CIBIL score calculation is done by checking your past credit behavior, your credit utilization ratio, your repayment history, etc.
Maintaining a strong credit profile best works to benefit you impressively – endowing you with better access to financial resources, assisting you with financial assets that you have always wanted to have, allowing you to assist others and so much more. If you fall in the millennial category, here are some of the crucial difficult to avoid and proven important financial tips you must use and excellently manage your credit profile.
More than 2 credit cards? Well, a lot much for comfort!
Well, ideally, you must have only one credit card. It is not that you are reading it right now and wondering why it is being said, just because you can manage your debt effectively even with several credit cards. This said, here is something for a good thought – debts on credit cards have been on the exponential rise over the past 5 years, with a major percentage of millennials getting mercilessly buried under the mounting card debt. And just guess, what? All of this began with that 1 credit card and wishing to have the next one, but unfortunately, it did not stop there, did it?
So, speaking about credit wisdom, better to learn to manage one first rather than own another one. You can have 2 even – if your income is nearly 2/5th of your total credit card limit. Citing the example, your income must be at least equivalent to Rs 80,000 if your limit is 2 lakhs on 2 cards combined.
Also Check: Transunion CIBIL Score
Combining your personal loans and credit cards
Being a millennial, you must have surely come across various articles enlightening you about how it is a wise move to take a personal loan in order to clear your credit card dues. Well, technically, it is a great idea if intend to get rid of the debt trap on the credit card. The major reason why this can effectively work out well is that the rate of interest is way lower as compared to the credit card’s finance charges. Personal loan rate of interest at nearly 12 percent per annum while credit card finance charges at 52 percent are quite a lot difference.
Also, there is something you are already well-versed with – considering you have cleared your debt on your credit card entirely and hold a personal loan with affordable monthly payments now, the whole purpose may be hampered if you begin using your credit card again.
Yes, your credit card limit is as fresh as an egg on a farm and beginning the same all over again may push you into an unnecessary debt trap.
Your DTI (debt to income ratio)
Note that your debt-to-income ratio is one of the crucial parameters that impact your score. Ideally, your month-on-month repayment must not exceed 35 percent – 40 percent of your monthly earnings. The moment this overshoots the percent of 35, you are sailing into deep trouble. A scene like this may need you to rid of one debt source at a time. Just converting your card debt into monthly EMI or availing of a debt consolidation option is a good move if you see yourself in the middle of a scenario like the same.
Use of credit
Another crucial parameter that impacts your thorough credit health is your CUR (credit utilization ratio) – the amount of credit that you use against your available credit card limit. Say you have just one card with a limit of Rs 60,000 and another with a limit of Rs 50,000. The ideal CUR would be nearly 40 percent of your available limit, almost the same as your DTI (debt to income) ratio.
Making timely payments on a monthly basis
The next tip that does not necessarily have to be stated is – making timely loan or credit card repayments. As much as it impacts your score if you miss out on a payment, this even puts a massive burden of penal fees that are very unpleasant on your shoulders.
Manage multiple credit accounts – eliminate one source of debt at a time
Suppose you have 2 credit cards, one secured loan, and another one personal loan. It is totally well, if you have not maxed your credit card limit, however, if you have, you may be in deep trouble. Let’s suppose, you have not maxed your card limit. The wisest thing you can then do is to make twice the minimum payment on your card and of course, pay your month-on-month EMIs on all your loan. If there is any amount left in your income, you can try and clear your debt on one of the cards at least. However, the point here is you must approach your repayments with the viewpoint to eliminate your debt one by one.
In case you have maxed out your cards, and have 2 or more loan accounts, you must hope your monthly income to be good. In case you have sunk too much into a debt trap, the best solution here may be debt consolidation.
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