New Year 2025: How can you stick to your credit resolutions without fail?

The calendar year 2024 is about to end, and we will soon welcome 2025. It is that time of the year when people make resolutions related to health, career, finance, relationships, etc. You may have also made some or all of these resolutions. In your finance resolutions, you should add a section on credit resolutions for 2025. So, what are these credit resolutions, and how will they help you improve your financial well-being? Let us discuss.

Make all EMI / credit card bill payments on time

To build and maintain a good credit score, making loan EMI and credit card monthly bill payments before or by the due date is important. Credit information companies (CICs) like CIBIL consider various factors to calculate the credit score. The timely repayments have the highest weightage in the credit score calculation.

Even a single delay in an EMI or credit card bill payment can hit your credit score in a big way. It is recommended that you automate these payments by opting for the auto-debit facility. Keep the auto-debit payment date at least five days before the due date. If the payment is made through a third party, it may take a couple of days to complete the payment process and credit the amount to your account. With the auto-debit facility, you don’t need to keep track of the individual EMIs or credit card bill payments.

If you haven’t opted for the auto-debit facility, it is recommended that you set reminders to make the credit card bill payments. Timely payments help in improving your creditworthiness. Any delayed payment not just hurts your credit score, but also impacts your chances of getting any loans and/or credit cards in the future.

Maintain a credit utilisation ratio of 30%

The credit utilisation ratio reflects the percentage of credit used from the total credit available. For example, Tina has a credit card with a credit limit of Rs. 5 lakhs. Her credit card bill for the month of November was Rs. 2 lakhs. So, her credit utilisation ratio was 40%.

A credit utilisation ratio of 30% or lower contributes positively towards increasing your credit score. So, one of your credit resolutions must be to maintain a credit utilisation ratio of less than 30%. If you are consistently exceeding the ratio above 30%, you should check how to increase the credit limit on your credit card.

From time to time, banks send credit limit enhancement (CLE) offers on credit cards to customers. The communication is sent through emails, SMS, WhatsApp, etc. You can also see your CLE offer in your net banking or the bank’s mobile App. Check if your bank has sent you any CLE. If yes, you may go ahead and accept it.

With a higher credit limit and the same monthly expenses, your credit utilisation ratio will go down. For example, the bank sends Tina a CLE from Rs. 5 lakhs to Rs. 8 lakhs on her credit card. Tina accepts the CLE. With a Rs. 8 lakh credit limit and the same Rs. 2 lakhs monthly expenses, Tina’s credit utilisation ratio will fall from the earlier 40% to 25%, which is lower than the recommended 30% limit.

If the bank has not sent you a CLE, you may share your income details with the banks. If your salary has increased recently, share the last couple of months’ salary slips with the bank and ask for a CLE.

Make one credit application at a time

In a financial emergency, an individual may make multiple personal loan applications with multiple banks to get a personal loan quickly. When you make multiple loan applications at the same time, the banks will make multiple credit inquiries and access your credit report at the same time. Multiple credit inquiries at the same time or in a short span will impact your credit score negatively.

The banks will look at multiple loan applications at the same time or in a short time span as credit-hungry behaviour and may reject your loan application. Hence, your credit resolution must be to make one personal loan application at a time. Wait for the bank to give their final decision before proceeding with a personal loan application with the next bank. The same goes with credit cards; make one application at a time and wait for the bank’s decision.

Adopt a plan to reduce debt: Pre-pay loans and credit card outstanding

If you are carrying forward the credit card outstanding, you need to understand that it is coming at a huge cost. Banks usually charge an interest rate of 3.00% to 3.75% per month or 36.00% to 45.00% per annum. Credit card outstanding, if carried forward, is one of the most expensive loans.

Hence, if you have a credit card outstanding balance, your credit resolution for the new year must be to make a plan to repay the credit card balance at the earliest. You may even make a plan to pre-pay loans to become debt-free. You can use various debt payment strategies like the avalanche method or snowball method to pre-pay loans and credit cards outstanding.

Check your credit report at least once every quarter or half-yearly

Your next credit resolution must be to check your credit report regularly, at least once every quarter or half yearly. Checking the credit report regularly will help you identify errors or wrong entries, if any. Any such entries can impact your credit score negatively. If you come across any such entries, you can take it up with the CIC/bank to rectify them.

As per RBI guidelines, CICs have to allow customers free access to their credit report once a year. Apart from this, some banks, NBFCs, fintechs, etc., allow you to access your credit report free based on specific criteria. Hence, you should check your credit report regularly and make sure it is proper.

Use credit cards for their benefits rather than for carrying forward outstanding

Credit cards, when used properly, can give you many benefits. Some of these include up to 50 days free credit period, instant discounts/cashbacks, reward points, discounts/BOGO offers on movie tickets/events, free memberships, etc. Some of these benefits may be given as joining benefits, renewal benefits, achieving milestones, achieving spend-based offers, or as part of any other offers.

However, when you carry forward the outstanding, you incur heavy interest charges and late payment fees. These charges may negate the benefits discussed above. Hence, your credit resolution must be to use credit cards for their benefits rather than carrying forward the outstanding balance.

Make informed decisions with credit resolutions and improve your financial well-being

Your credit resolutions can lay a strong foundation for your financial well-being in 2025. They can help you make informed decisions on reducing debt, making timely payments, maintaining a low credit utilisation ratio, checking the credit report regularly, etc. When you follow these credit resolutions, it will help you build and maintain a good credit score. A good credit score can help you get credit cards and loans on better terms, like a lower interest rate, discount/waiver of processing fees, etc.

Gopal Gidwani is a freelance personal finance content writer with 15+ years of experience. He can be reached at LinkedIn.