Carrying over from where I left off in my previous column about the six months loan moratorium announced by the RBI wherein monthly loan instalments could be deferred by borrowers whose financials were stressed, counter productively leading to increase in interest cost along with increase in tenure of loans. One important aspect relating to this is to look for the impact of availing loan moratorium on your credit score which determines your credit worthiness with financial institutions such as banks.
Applied for loan moratorium? Inform credit bureaus
Every time you miss an equated monthly instalment (EMI) or a credit card payment or even if you pay the minimum balance, your credit score gets impacted adversely. But if you have opted for a loan moratorium, ideally, your credit score should not get affected. But check for errors here. When you apply for loan moratorium, your bank reports it to the credit bureau. That does not mean you can relax, it’s your responsibility to apply for a credit report and verify whether credit scores are intact or impacted. There may be errors in the data received by credit bureaus from banks. In such situation, you need to rectify any inaccuracy in the credit report by taking it up with your bank. Similarly, if you have two loans running with your bank and you have opted for a moratorium on only one? Check if your bank has enrolled you for the correct loan. Any mistake here can also impact your credit score.
Don’t just stop paying EMIs without taking the moratorium
As I mentioned in my earlier column loan moratorium is not automatically given to you. You must opt for it. Credit experts say that some borrowers have stopped paying EMIs assuming that the moratorium was automatic. A few others have also moved savings from one bank account to another as the electronic clearing service (ECS) mandate may automatically debit the amount. In this set-up, loan repayment has failed from the linked bank account and impacted the credit score of the borrowers. After a couple of months, your loan account will become a non-performing asset for the lender and it will start reflecting on your credit score, making it difficult for you to take loans elsewhere. Unpaid credit card bills, multiple past defaults and a bad credit score may make you ineligible for the moratorium. Don’t take anything for granted. If you still wish to apply for a moratorium, check. If the bank refuses, you will need to continue paying your bills.
Beware of digital frauds
Be careful of mobile apps that appear to promise you easy cash. A survey by YouGov and ACI Worldwide reveals that around 31 per cent of the 1000-plus respondents have been victims of card or digital payments fraud in April. For 52 per cent of the respondents, fake apps and websites were the biggest threats while making digital payments. The disruption caused by the COVID-19 pandemic provides another opportunity for fraudsters to dupe unsuspecting consumers. Many of these apps require bank account details, card details and pin to validate users. With this confidential information, fraudsters can access your personal banking details and trick you. As a result, your credit score can be compromised. Check your credit report at regular intervals and make sure that all the credit lines are reported correctly. In case of any discrepancy on fraudulent activity raise a complaint with your bank immediately and register a first information report (FIR) with the cyber-crime branch of the police.
Do not rely too heavily on credit
Many customers may have multiple credit cards. In this pandemic, they are tempted to use the credit available as they may be cash-strapped due to job-losses or salary cuts. In swiping your credit card for regular purchases and not repaying the due amount, you will incur interest charges, they will perceive you as being credit hungry. This can have a negative impact on your credit score. Rely on your savings/emergency corpus instead.
In times of such drastic economic slowdown it is particularly important to give due attention to your credit score. It is a measure of your financial integrity built steadily over an extended period taking your financial (borrowing) activities into account. As I have been writing time and again any slipup in your score is bound to impact your borrowing credentials adversely. So, if you have not bothered to check your credit score up until now, wake up and check it. You will know where you stand in the eyes of your lender. Nothing changes your life more, other than god and love, than moving your credit score southwards!
