COVID has been disastrous for Individuals who work for businesses heavily involved in sectors like travel, tourism and entertainment. They have felt the impact most directly with loss of bonus and other incentive pay often followed by temporary or permanent job loss. As the economic contraction turns into a longer-term economic recession, one can expect high unemployment figures to continue, along with lower salaries as more job seekers compete for fewer available jobs.
This is bound to have an impact on one’s levels of debt, especially on credit cards. If you have available credit on your credit cards, and you need money, you may want to use your credit card limit and make minimum amount due payments (rather than pay the card dues off in full). But credit cards typically charge very high interest rates. This increase your outflow and also increases your card limit utilization ratio. This can decrease your CIBIL score.
The credit utilization ratio plays a significant role in determining one’s credit score. The ratio of the outstanding balances to the total available credit is influential in credit score calculation. When the old credit cards were closed the credit limits were no longer factored in this ratio. So debt as a percentage of available credit increased drastically which in turn damages the credit score.
While it’s natural for some people to fall back on credit cards, especially during a crisis like the one we’re in now, if at all possible, try to put them aside. This is the time to dip into your contingency fund, if you have one. If you have saved money for other things such as for a holiday or a new device, it might be worth dipping into these savings now rather than relying on credit. Remember, credit is debt that has to be paid back!
How can ASKCRED help?
AskCred is designed to be India’s premier credit helpline which will help users to navigate the financial maze of loans, credit cards, debt traps, budgeting, credit scores and a lot more. How much of my card limit should I use? What can I do if I am paying only my minimum amount due? How much interest do I pay on my credit card? What do I do if I am unable to pay my credit card dues? Will availing the moratorium increase my interest burden? How much contingency fund should I maintain? Trusted financial advisors are tough to find. The team at AskCred comprises professionals combining more than 200 years of cumulative work experience across diverse sectors such as lending, credit scoring models and asset reconstruction. The effort has been to provide users with a seamless, unbiased, low cost, trustworthy experience while helping them to get accurate and customized knowledge on diverse topics in the complex jargon filled world of retail personal credit.