How credit card payments affect your home loans

Harshala Chandorkar of CIBIL on why you must not delay your credit card payments

Jagan Mohan, a Bangalore-based marketing consultant took pride in having got one credit card about 15 years ago. Since then he has had a love-hate relationship with the credit cards. "I used to have 4-5 credit cards at one stage. I could not manage all the payments, couple of times I felt I was billed wrongly. In some cases I missed a few payments and in some cases I purposely did not pay because I felt I was billed wrongly," he said.

The result: his score took a toll. He was rejected home in three different banks. It is important to understand that credit cards have a big impact on Credit Information Bureau of India Limited (CIBIL) score. So how does it impact the score?

 "Credit cards are unsecured form of credit. If you have been using the credit card for over a year and have been regular on payments, you have actually built a good credit history on your Credit Report and ultimately a good credit score. This will provide the lender with additional confidence on your repayment capability as you have shown a disciplined track record on an unsecured form of credit," said Harshala Chandorkar, Senior Vice-President, Consumer Relations of CIBIL in an e-mail response to creditvidya.com.

So too keep a good credit history following are the important tips:

The author is a credit expert with 10 years of experience in personal finance and consumer banking industry and another 7 years in credit bureau sector. Rajiv was instrumental in setting up India's first credit bureau, Credit Information Bureau (India) Limited (CIBIL). He has also worked with Citibank, Canara Bank, HDFC Bank, IDBI Bank and Experian in various capacities.

Regular payments of credit card bills

This is the golden rule in financial discipline. Never delay your payments. Keep track of schedule of payments of every credit card you have. If you miss a payment it shows as overdue in your CIBIL score.

Limit your credit cards

Do not have ten different credit card accounts. Other than the practical difficulty of keeping track of so many payment schedules, you may also be frowned upon by prospective lenders. This shows that you are credit hungry. It is also advisable not to apply for too many credit cards in a short span of time.

If you have made applications for credit cards, this will reflect in the 'Enquiry' section of your Credit Report and will negatively impact your credit score," said Chandorkar.

Longevity of credit card accounts

Once you have availed a credit card, it is advisable to keep it for at least 12 months before closing it," added Chandorkar. A year is good enough for you to build a longevity that lenders look for while granting you a loan. Again, do not forget the golden rule of making your payments on time during the said 12 months.

Credit utilisation

Do not use your entire credit limit. "Your credit score may get negatively impacted when your balances on credit cards are very close to the 'High Credit' reflected on your credit report.

For example, if you have used Rs 90,000 out of a credit limit of Rs 1,00,000, this may negatively impact your credit score," added Chandorkar.