How to maintain your credit score this festival season

It's that time of the year again — the festival season, bringing with it joy and the potential for overspending. Amidst the excitement of the festivities, it is essential to be mindful of your spending habits to avoid post-celebration financial blues. So, here are some simple ways to keep your credit score from slipping during this time of the year.

Know the budget

Create a budget that outlines specific categories for festive spending, such as gifts, decorations, food, and entertainment.

Assign a realistic amount to each category based on your financial capacity. Breaking down your budget into detailed segments helps you track your expenses more effectively and ensures that you allocate funds wisely throughout the festive season.

It always helps if you can plan your expenses and outflows in advance.

For instance, if you follow the tradition of purchasing gold on Dhanteras, gifts for Christmas, or indulge in New Year festivities, it would be helpful to plan and keep some money aside. In the absence of planning, you might end up taking a loan for an expense for which you could have easily budgeted.

Further, prioritise essential expenses and regular spending needs above festival shopping to avoid a last-minute cash crunch.

Availing of multiple loans? Be tactical 

As far as possible, do not take a loan. It is always a good strategy to spend out of your own corpus — the money that you already have or the income that you bring home every month.

During the festival season, lenders roll out various loan offers and attractive discount schemes. If you must borrow, at least ensure that you have a mix of unsecured loans (personal loan, credit card) and secured loans (home loan, car loan) that enhance your credit score.

Above all, do not overborrow.

Your credit score is keeping an eye on you

Whether you wish to apply for a loan in the near future or are keen to avail of credit cards on better terms, having a good credit score can be very helpful as it reflects your creditworthiness, which in turn is directly linked to your financial credibility and the likelihood of defaulting. Your credit score is calculated based on your past credit history, which includes multiple factors such as credit card bill payments and managing different credit products like home loans, business loans, personal loans, or auto loans.

While managing personal finances is usually second nature, the festival season can pose a challenge. With increased spending, there's a potential impact, which may reflect on the crucial credit score.

Why is a good credit score important?

Come the festival season, and your expenditure increases as you shop for friends and family. This could mean increased spending on gifting, new items for the household, clothes, jewellery, and vacations. As a consequence, you may consider availing of a small personal loan from the many lending avenues that are easily accessible nowadays.

However, even this small-ticket loan can sometimes shape your credit score, especially if it is not repaid in a consistent manner. It is important to maintain and improve your credit score, as a good number facilitates a variety of benefits, including better terms and higher negotiating power when seeking loans, credit cards, and home loans, as well as lower borrowing costs or interest rates.

In addition, a good credit score can also help you become financially secure since it paves the way for easy and quick access to funds, especially during emergency situations. You can also avail of an array of credit card rewards and perks. Thus, it can also be said that a high credit score can empower you and facilitate greater future spending at a lower cost.

Balancing the festivities with financial responsibility is key. A good credit score not only gives peace of mind but also sets the stage for a more secure financial future.

SANJEET DAWAR -Managing Director at CRIF High Mark

Source Publication- Moneycontrol