By Ranjit Punja
The internet is abuzz with numerous theories and studies on all aspects of millennial behaviour. Fast-paced, liberal, open-minded, reckless and inter-connected are some of the traits they are associated with. Millennials are the group of the population born between 1981-1996. This population forms the major chunk of the workforce of any organization and hence are considered very important.
Credit is a very important part of someone’s life, without which fulfilling many aspirations like buying a house, car, education, or even having an emergency fund could be difficult. There is no use of a personal loan approved 2 weeks after a medical emergency or an education loan sanctioned after the period of admission has passed. The only way by which you can get credit when you need it the most is by being creditworthy, which is measured by your credit score. Credit scores are being used in other areas such as job applications and have become a non-negotiable asset for millennials. Considering this, millennials could benefit by knowing how they could ensure a good credit score and remain creditworthy at all times.
Use your credit card wisely
A credit card is one of the easiest credit instruments to get approved for. A few months into a job, a credit card almost follows. While it is extremely convenient to use and helps you tide over short-term credit requirements, the improper use of credit cards is very dangerous. Always spend within what your income and other commitments allow you to. Adherence to credit limit is also equally important. Did you know that using up more than 30-40% of your credit limit consistently is construed to be an unhealthy credit behavior? It ends up costing your credit score.
Say no to credit card debt rollover
It is very easy to get carried away by easy usage of a credit card. You can pay only the minimum amount due at the end of a billing cycle and yet continue to use to use the card. The only thing that probably missed your attention here is that any further usage on the card is also charged interest. Credit card debt is the costliest with interest rates ranging between 30-40%. Rolling over credit card debt will not only hurt your finances but reduce your credit score.
Adhere to debt EMI dates
When you avail a loan, there is an underlying agreement which binds you to repay the loan in easy monthly instalments (EMI) on said dates. Each time you default or delay an EMI, it leaves a mark on your credit history and takes your credit score down.
Rein in your credit applications
It is common to get offers on numerous credit cards and loans, but take a moment to verify your creditworthiness, eligibility and do thorough research about the product before you sign your application. For each time you apply for credit, the lender makes an inquiry with the credit bureau against your PAN card, also called a hard enquiry. Every hard inquiry reduces your credit score.
Pay attention to your credit mix
The credit world has secured credit in the form of loans secured by an asset such as a house or a vehicle and then there are unsecured loans like credit cards or personal loans. To maintain a good credit score, there needs to be good mix of both. If you have a lot of credit cards and personal loans, your credit score will show it with a lower figure.
Minimize overspending
Spending beyond limits is often the root cause for going in for indiscriminate credit. However, as far as the millennials are concerned, a survey conducted by Credit Mantri on millennial credit and spending behavior showed that the group showed restraint. 51% of our respondents changed their smartphones only after a year or when needed and a similar number of participants also made travel plans once a year or later.
Always be in touch with your credit score
The last and most important requirement of maintaining a good credit score is you checking your credit score. It is a good practice to check your credit score once in 3-6 months. It will give you enough time to take corrective action, if needed, to improve your credit score.
Ranjit Punja is Co-founder and CEO of CreditMantri.