Don't let the summer heat beat your credit score

Swiping your credit card to take that dream vacation? Beware, says Harshala Chandorkar, Senior Vice President -- Consumer Services and Communications!

Photograph: Clint Sharp/Creative Commons

It's that time of the year when the day starts becoming longer, the scorching sun gets harsher, schools take a break and the sign of mangoes signal the onset of summer. It's also that time when parents scout for last minute travel deals to locations far-off from the summer heat. And like the rest, Mayank and Neha have been planning a short summer vacation for their 5 year old daughter Kiara.

After scouting through various travel websites Neha finally arrived at the best deal for the family, which not only gave her an attractive discount on her hotel stay but also a 15% cashback on her credit card, a deal that would save her family a substantial amount.

But Mayank was not too keen on swiping the credit card and rather preferred paying outright cash. His displeasure comes from an earlier experience just a couple of days before his bachelorhood ended! Having swiped his credit card for the trip, Mayank then forgot to pay that month's credit card bill in the entire melee of the post trip excitement and wedding thereafter, thus adversely affecting his credit score.

After deliberating and debating, Neha and Mayank finally decided to swipe the credit card to pay for the holiday. Although Mayank made sure to discuss with Neha and put down some ground rules on credit card usage so that it does not adversely impact their credit reports and CIBIL TransUnion Score.

Decide a budget and stay within that

Mayank and Neha chalked out the total budget of the holiday down to the daily meals, holiday shopping and commuting costs. It was mutually agreed to stay within this set budget to avoid undue expenses.

Avail travel insurance

The couple also sought to purchase considerable travel insurance coverage to be on the safer side in case of loss of baggage or theft during the holiday.

Set payment alerts

They activated and ensured alerts are kept for payment of all the credit card bills both on the phone or their emails before the due date. Late payments are negatively viewed by lenders because this indicates that you are having trouble servicing your existing obligations.

High utilisation of credit limit

While increased spending on the credit card will not necessarily affect one's credit score, an increase in the current balance of your credit card indicates a higher repayment burden and may negatively affect your credit score. It's always prudent to not use too much credit. Mayank and Neha mutually decided on a credit card spending cap which was way lower than the limit on their credit card.

Ensure timely payment

The couple committed to make regular and timely payments of the credit card bill in full every month. Paying off dues before the due date every month is the best way to avoid credit card debt.

Review credit report

Mayank and Neha also accessed their credit reports before jet setting on the holiday to ensure that their credit history was up to date and they both had a good credit score.

Mayank was prudent and had learnt from his past mistakes as a bachelor when he was not financially responsible. And like Mayank, many of us tend to make the same mistake, be it as a bachelor or even as a family person. Better late than never; ensure financial prudence while planning for this summer holiday to ensure that you have access to finance for all your future aspirations.