While availability of finance has become easier, there is another aspect to this as well. Today, your credit history is well recorded through various credit bureaus and is available to any financier you approach for funds. A bad credit history cannot be pushed under the carpet or concealed. It has therefore become necessary to maintain a clean credit track record. How does one do that?
The answer lies in borrowing intelligently and more importantly, responsibly. What does responsible borrowing mean? Let’s look at the qualities of a responsible borrower:
- He/she only borrows if there is a need to borrow – There may be situations where financiers chase you with great offers to meet their sales targets. If you get tempted and borrow more than what you need, you could end up misutilising the excess funds and land in trouble.
- He/she only borrows up to the repaying capacity – getting over-leveraged is dangerous and even if there is a small dip in business, you could end up defaulting.
- He/she keeps track of loans and the repayment/EMI dates. It is not obligatory for banks/NBFCs to remind you about your EMI due dates. If you miss it, you alone are responsible.
- He/she never gets tempted to take too many credit cards. Having too many credit cards may result in not tracking due dates properly and may result in default, reducing your credit score.
- In case of any anticipated difficulty in repaying a loan, he/she approaches the lender BEFOREHAND and discussed the problem openly and honestly. Most banks/NBFCs will help such a borrower if they feel he/she has a genuine problem. There is no point in trying to hide/use false excuses.
- He/she would always ensure timely payment of taxes and maintain proper books of account. Any penal action taken by tax/other authorities may result in disruption of timely loan repayment and worse, in loss of trust with the lenders.
- Another very important point to be kept in mind is the type of loan to take – one must ensure the repayment pattern of the loan more or less is in line with your cash flows. For example to take a one year loan to buy a factory which will become profitable in three years is extremely dangerous – you simply won’t have the cash to repay the loan within one year. Ideally, one should take a 4-5 year loan for such purpose.