jackleetom 6 months ago
jackleetom #general

Insights for Credit Score, Financial Management Tips, and Challenges

Planning your finances effectively and maintaining your credit score go hand in hand. Having good financial habits can help abundantly in the long run. Read to know more.

Tips and Tricks For Effective Financial Management And Credit Score

Financial literacy is gaining awareness at all levels of society. Thanks to the wealth of information available online. People are now more inclined towards having better control over their finances and maintaining a healthy credit score. Financial management involves using your income diligently in creating wealth and cutting off unnecessary expenses. It may seem overwhelming but the following tips for credit score and financial management can help you to have a stress-free life.

Insights For Maintaining A Good Credit Score

A credit score is a number between 300 and 900. It is assessed by considering your regularity in repaying the loan EMIs, credit utilisation ratio, credit rejection and approval, and various other important factors. Here is a snapshot of what your credit score means



750-900 =Excellent

700-749 =Good

650-699 = Fair

600-649 = Doubtful

Below 600 =Bad

It is good to maintain your credit score above 650 all the time. A credit score of 750 is considered very good. All lenders will be available to lend. You will not only get the loan amount that you want but also get preferential interest rates. You can also bargain with lenders regarding the interest rates. If your credit score is below the mark, no need to worry. There are ways in which you can improve your credit score.

Repaying regularly

It is the foremost requirement to maintain a healthy credit score. Keep track of the due dates of various credit obligations and repay regularly. Plan all other payments for personal, health, or any other expense after the EMI payments.

Maintain A Good Credit Utilisation Ratio

A credit utilisation ratio is the measure of your usage of available revolving credits. An ideal credit utilisation ratio below 30%. That is, if you are exhausting your complete credit limit it means that you are credit thirsty and the lender may consider your profile as risky. Hence using 30% and below of your credit limits can boost your credit score.

Clear Existing Dues

If you are accumulating your dues, your credit score can sink to lower levels. Hence it is important to clear your old outstandings first to avoid charges of penal interest and late fees.

Avoid Applying Scrupulously

If your loan or credit card application is rejected due to a bad credit score, do not apply continuously with other lenders. Frequent rejections can harm your credit score more than anything and the number of hard enquiries also reduces your credit score.

How To Have An Effective Financial Management System?Budgeting

Preparing a budget monthly, half-yearly, and annually for both personal and business finances can help in managing the funds effectively.  All the fixed operating expenses and loan payments should be given priority in the case of cash outflows. The budgets should be constantly monitored with actuals and updated as and when required.

Planning The Debt Mix

Getting external finance in case of need is much easier nowadays. But you should exercise the options with caution. Whether it is for personal use or business use, you should be clear about the proportion of debt, investment, and savings in your funding profile. It is ideal to have debts below 30% of your total sources of funds. Consider having short-term investments that can generate a reasonable income to repay your obligations.

Find Alternative Sources Of Income

Income is where the entire financial management starts. Any individual or business can have a major source of income with which the entire lifecycle is run. However, everyone needs to utilise their idle assets or resources to generate additional income. For example, you may consider car-pooling to save on fuel costs and generate a small source of income. A business may consider renting its warehouse during downtime to generate rent. The income may be small but can help in unknown ways.

Relationship With Lenders

Having a good relationship with your lenders whether it is personal finance or business finance can help you in unknown ways. Your lender will be keen to provide additional finance in case of requirement and can provide updates in interest rates whenever there is a regulatory change.

Challenges Faced In Maintaining Good Credit Score
  • The host of promotions and marketing calls for new loans or credit cards can be very alluring. Don't fall for the loan trap. Buy or borrow only what you need. You may end up damaging your credit score by borrowing more and repaying less.
  • Debt consolidation can be an attractive resort in case of multiple loans. But understand and analyse the cost of finance you have incurred so far and the savings a debt consolidation can probably bring.
  • Closing your old unused credit cards can reduce the credit utilisation ratio.
  • Opting for too many term loans can create a significant burden on repayment capacity.
  • Having no credit history means no information to track your repayment habits. It never means a good credit score.
Challenges In Financial Management
  • Budgeting can look simple. But projecting beyond 6 months can be cumbersome and unreasonable in some instances.
  • The strength of bookkeeping and accounting plays a crucial role in effective financial management which many businesses lack.
  • Focussing on discounts, rebates, rewards, and cashbacks and missing the big picture. How liquid are these and how practically you can use them?
  • Timing the payments according to the timing of cash inflows is uncertain.
  • Many times the financial plan just lies in the paper and no ownership is taken.
  • Financial management never ends and needs to be updated with every possible change.
Key Takeaways

It is worth understanding that good financial health is equal to having good physical health. You need to have healthy habits and be consistent with them. There is no free meal and everything comes with a cost. So it is for us to decide on channelising our efforts in creating more gains than incurring enormous costs.  With proper financial management comes a healthy credit score. Start a little, start now.

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