Credit Score Essentials for NRIs: Building and Maintaining Financial Wellness

As a Non-Resident Indian (NRI), maintaining a good credit score is essential for a multitude of financial advantages. A robust credit history can open doors to various opportunities, such as securing loans, obtaining credit cards, and enjoying favourable terms on your financial transactions.

Understanding Credit Score:

A credit score is a numerical representation of your creditworthiness, typically ranging from 300 to 900. The higher your score, the more reliable and creditworthy you are considered. Just as you would hesitate to lend money to a stranger without assurance of repayment, financial institutions require confidence in borrowers’ creditworthiness. A credit score helps in this determination, utilising financial data to evaluate an individual’s creditworthiness.

Benefits of Maintaining a Good Credit Score as an NRI:

Maintaining a good credit score as an NRI offers several advantages, including:

1. Improved Loan Approval: You are more likely to secure loans, such as home loans, with a higher credit score.

2. Faster Credit Card Approvals: Credit card applications are processed more swiftly when you have a strong credit history.

3. Better Loan Terms: A high credit score gives you greater negotiating power, leading to favourable loan terms like lower interest rates.

4. Enhanced Credit Limits: With a good credit score, you can access credit cards with higher limits and more attractive features.

Who Calculates the Credit Score?

Credit scores are determined by major credit bureaus, including Transunion CIBIL, Experian, Equifax, and CRIF High Mark. It’s important to note that your credit score may vary between these bureaus due to differences in their scoring models and reporting by financial institutions.

Factors Affecting Credit Score:

Credit scores are calculated based on four primary factors, each assigned a specific weightage:

1. Repayment History: Timely repayments on loans and credit card dues are fundamental to a good credit score. Even a single late payment can significantly impact your score.

2. Age of Credit: The length of your credit history plays a crucial role. An older credit card with consistent payments contributes positively to your score.

3. Credit Mix: Maintaining a healthy mix of secured (e.g., home loans) and unsecured (e.g., personal loans, credit cards) credit is important. A higher proportion of secured loans can boost your credit score.

4. Credit Utilisation Ratio (CUR): A lower credit utilisation ratio, which measures your credit card balances relative to your credit limit, has a positive impact on your credit score.

5.The number of credit inquiries: Each time you apply for a credit card, loan, or to refinance an existing loan, the lender will examine your credit. It means your credit score is harmed by excessive borrowing.

How Can NRIs Improve Their Credit Scores?

NRIs may improve their credit score by –

● Make sure you maintain a few credit accounts

● Keeping up with your credit accounts by making on-time payments and appropriate use

● Maintaining Proper Ratio between Secured and Unsecured Credit

Maintaining a Good Credit Score:

To maintain a high credit score, consider the following strategies:

1. Keep CUR in Check: Experts recommend maintaining your Credit Utilisation Ratio (CUR) within 30%. Request a higher credit limit on your existing credit cards or explore alternatives if you frequently exceed this ratio.

2. Limit Credit Inquiries: Avoid applying for loans or credit cards too frequently, as each inquiry can negatively affect your score.

3. Be Cautious About Guarantees: While friends and family may ask you to be a guarantor for loans, be selective and ensure that they are creditworthy. Guaranteeing a loan for a risky party can harm your credit score.

4. Regularly Monitor Your Credit Score: Check your credit score regularly to stay informed about your current credit standing and address any discrepancies promptly.

5. Keep Inactive Credit Cards Active: Consider using your credit cards issued in India, even if sparingly, to maintain an extended credit history and demonstrate prompt payment behaviour.