When adversity arises, we as human beings put our rational thought process on the back burner and we are wrong. If these decisions are tied to financial matters, then the cost multiplies, snowballing beyond its control.

When the pandemic hit, the behavior was no different. Loss of jobs or wages, heavy medical expenses – borrowers have been forced to cut corners. Loan and card bills suffered, which had an impact on the credit rating.

As the green shoots emerge, now is the time to think about financial flaws and correct past mistakes so that your credit score gets a boost.

The Reserve Bank of India moratorium gave borrowers a break for the period March 1, 2020 to August 31, 2020, while ensuring that the credit reports of moratorium applicants were not affected.

However, there might be other aspects such as credit usage and monthly repayment obligations that require your attention now.

A good credit rating not only improves the chances of getting a loan, but also determines the rate at which the loan is granted. If another disaster strikes, a high credit score acts as a shield to protect you from a credit crunch.

Start with the basic step of obtaining a copy of your credit report from one of the credit bureaus. Note that every credit bureau offers the borrower a free credit report once a year.

Paying off expensive loans

To make ends meet during the pandemic, if you were looking to get loans, especially withdrawing money using credit cards, this should be your first step in rectification. Credit card money is the most expensive loan and any excess you have should be used to pay it off in the first place.

Next on your radar should be to shorten the list of loans, reducing them based on the interest rate you pay – the highest rate loan paid off first. Fewer loans mean a better focus on dealing with debt, which increases your credit score.

Continue the old loan / credit card

To shorten the list of loans, don’t consider closing old loans or credit cards first. With old loans and credit cards, there is a history of credit, which can have a positive impact on your credit score.

Restructure loans

If you are struggling to repay your loan because the pandemic left you jobless even six months later, then sit down in front of your bank and renegotiate the payment terms, interest rate or EMI amount, from so that it is easier for you to pay. Such a loan restructuring allows you to make a timely repayment on your terms, ensuring that your credit score is not affected due to a default.

Minimize the use of credit

Using up to 100% of your credit card or overdraft limit indicates your inability to manage your money. Bankers fix their gaze on what’s known as “credit usage” or the amount of free credit limit available on your cards. Instead of using up to 90 percent of your credit limit on a single credit card, it makes tremendous sense to have three cards with a 30 percent credit limit consumed. This simple but essential step helps your credit score because only a small portion of the available credit limit has been used.

Finally, treat these credit sanitation practices like hygiene. Difficult to establish, but once instilled they feel like second nature.

(The author is, MD and CEO, CRIF High Mark)