The credit crossroads in a woman’s life

Women are vulnerable at some points in their life and likely to slip on loan repayments then. Mohan Jayaraman, Managing Director, Experian Credit Information Company of India, explains what women should do to avoid pitfalls and build a good credit history.

What are some of the life situations that can impact a woman’s credit score?

The situations depend on the life stage of a woman and we call these Credit Crossroads. For example, younger women may look to pursue higher studies or enrol in professional courses, funding them through loans. For these women, often this becomes their first step towards availing credit; it is hence imperative to manage this loan carefully.

Marriage is another milestone during or after which loans may be taken. When a woman takes a joint loan or stands as a guarantor, the complete account information, including current balance and date of last payment, will appear on her credit report. Any missed payment by the husband will be reflected in the wife’s credit report too. Hence women should be very vigilant of how they utilise credit.

When becoming a new mother, women may de-prioritise their financial obligations such as loan EMIs or credit card payments. Any missed payment can affect a woman’s credit score and it is important to either set reminders for such payments or entrust the responsibility to someone.

Women may also go through life phases where they may choose to have a reduction in income. With less money coming in, one may not be able to pay all the bills and budgeting is important to maintain credit worthiness.

Also, couples at the crossroads of separation have many financial matters to sort and manage. While it is imperative to be aware of one’s individual financial profile, it is equally prudent to understand the implications in cases where a woman has obligations either as a joint applicant or a guarantor. In the event of separation, a woman should dissolve all joint cards and accounts, establish credit independence and re-create her individual credit history.

What are three things women can do to be credit worthy?

First, they must look to build a good credit score. There are specific elements, called ‘Credit Score Factors’ from the credit report, namely one’s total number and type of debt accounts opened, number of late payments/derogatory marks, total credit enquiries and the age of these accounts — which shape the credit score. Some of these factors are weighted more heavily than others; so it is important to understand and evaluate all these factors.

Two, they must improve their credit history by making payments on time. Lenders look for a consistent history in the payment of bills, credit cards or loan payments. A pattern of late or missed payments can make a woman less creditworthy in most lenders’ eyes. Three, have a mixed portfolio of credit. Lenders like to see a mix of different types of credit availed, including mortgages, car loans, credit cards, school loans, and personal loans.

What can women do to maintain their credit score?

Women must build a credit footprint that will let the banking system evaluate their creditworthiness. First, you must keep up with payments and clear all outstanding credit card dues. Two, close unused accounts if they are no longer required, because lenders take into account the credit limits available and not just what one currently owes. Three, you must space out credit applications because lenders will likely check and leave a credit search footprint on your credit report each time you apply. Making several applications close together could be seen as a sign of financial stress.

It is also prudent to review credit reports on a regular basis to ensure that it is up-to-date. Examining the credit report could also alert one on a possible fraud such as identity theft.

What advice would you give women who do not have a credit score?

There are multiple means for women to build a credit history. A simple way is to start is with a FD-linked credit card, which can help build a credit track record. These cards can be used as a transactional tool to settle dues immediately.

Credit information companies have also introduced a ‘new to credit’ score for customers (including women) who have no credit footprint on the bureau. This score is usually a rank based on the performance of statistically similar customers. For example, at Experian, this “new to credit” scorecard has 6 grades starting from “1 to 6”, grade “1” representing high risk and “6” representing low risk. These customers, however, will not have the usual credit score that ranges between 300 and 900 in India.

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