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Financial Mistakes Parents Must Avoid When Spending Big During a Child’s Summer Vacation

Summer vacations are a time all parents look forward to every year. After all, they get to spend precious time with children. But with this comes the habit of spending more, whether it is on outings, trips etc.

While there is no harm in doing so to get an enjoyable time with family, here are financial mistakes to avoid even when spending more, as these can harm your credit score during credit monitoring by bureaus.

Forgetting or delaying loan and credit card payment

Buying things on a whim or spending more than you can afford to repay can put your overall financial health in jeopardy and, in the worst case scenario, cause you to have difficulty meeting your existing financial obligations, such as making loan EMI payments and paying credit card bills on time and in full. An inconsistency in the payment of financial obligations would not only result in the imposition of penalties but would also lower your credit score by a few points.

Keep in mind that lenders would rather lend money to people who have a history of responsible repayment, and the cibil bureau gives the most weightage possible to a person’s history of repaying loans and credit cards when calculating a credit score. As a result, it is absolutely necessary to properly manage your expenditures over the holiday season and to refrain from allowing yourself to be swayed by the various holiday specials and offers.

Keeping your credit card spending above 30% of the total limit

During the holiday season, the vast majority of card issuers make unique offers and incentives available to their consumer base. Even though it’s smart to take advantage of these deals, you shouldn’t let that cause you to skimp on your overall spending with your credit card. You should make it a goal to maintain it within 30 percent of your overall credit limit, as anything that exceeds this limit is considered to be a sign that you are hungry for credit. Banks have a general tendency to slow down the lending process for individuals who frequently surpass this level, and the cibil bureau would also bring down your credit score by a few points if they found out about it during credit monitoring.

If you are getting closer to exceeding this 30 percent mark or have already exceeded it, you have the option of either requesting an increase in your credit limit from your existing card issuer or routing some of your transactions through your debit cards in order to avoid having your credit score suffer as a result.

Neglecting to check your credit report on a regular basis

During this summer time of year, you should not let your credit report slip your mind. The existence of any erroneous information on your credit report might have a negative impact on your credit score. This is because your credit score is mostly calculated based on the information that is contained in your credit report and visible during credit monitoring. Reviewing your credit report on a regular basis, preferably at least once every three months, is the only way to identify any discrepancies on your report, whether they are the result of the cibil bureau‘s or lender’s clerical error or, worst-case scenario, a suspected instance of fraudulent activity. If this were done, it would help in the prompt discovery and correction of any mistakes or errors that have been made.

Each of the four credit bureaus in our country, including the cibil bureau, will provide you with access to one free copy of your credit report once each year. You also have the option of staying current by regularly accessing online financial markets in order to retrieve your free credit reports and their free monthly updates. This is another way to keep yourself up to speed.

Making many credit applications within a short period of time

Make sure that you do not submit many applications for credit, especially within a short period of time, if you are thinking about getting a loan or a credit card over the summer holiday season. When you apply for credit from a financial institution, they will evaluate your creditworthiness through credit monitoring by obtaining a report on your credit history from one of the 4 major credit agencies. Your credit score will drop by a few points as a result of these lender-initiated credit report queries, which the credit agencies consider to be a type of “hard inquiry.” These lender-initiated credit report requests are recorded in your credit report.

Instead of making several inquiries about your credit history to different lenders, visit an online financial portal instead, especially if you are doing so in a short period of time. On the basis of your qualifying criteria, such as your income, credit score, age, job profile, and so on, these platforms can assist you in comparing and selecting the most appropriate lenders from among the available options. The inquiries into your credit report that are carried out by such platforms during credit monitoring are referred to as “soft enquiries,” and they might not have an effect on your credit score.

Agreeing to become guarantor or co-signor without adequate enquiry

When you co-sign a loan or act as a guarantor for someone else’s debt, you take on equal responsibility for ensuring that the loan is repaid on time and as agreed upon. Any kind of delay or default would have a negative impact on the credit score of the primary borrower, but it might also bring your credit score down by a few points. Therefore, you should give it a lot of thought before accepting to be a loan cosigner or guarantor. Make it a habit to conduct routine checks on the status of the payments made on any co-signed or guaranteed loans you have (s). Failure to do so can result in a reduction in your credit score by the cibil bureau, which in turn can have a negative impact on your eligibility for loans and credit cards, as well as your chances of being approved.

Red Note: 3 June 2022

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