Common Credit Mistakes during Lockdown Period


The Coronavirus Pandemic is not the one that people might have expected at all. This nationwide sudden lockdown has distressed many people and businesses alike, essentially the global economy as a whole. Due to this, the people are panic-stricken and might take impulsive decisions. Also, therefore, any financial decisions that are taken during this time might have long-term implications and it is very easy for people to make impulsive decisions during these tough times. Therefore, Credit Bazaar makes a list of the following most common mistakes that one could make during this lockdown: 

Common Credit Mistakes during Lockdown Period
  • Availing the moratorium on credit card dues:

Do you have to pay your credit card dues but the incoming of your salaries have stopped due to this lockdown? This might cause a lot of difficulty for you as you might be facing issues repaying the credit card bills. One thing you can do here is trying to avail the moratorium on credit card dues. But remember, even if you do this successfully, you will just be saved from adverse reporting to credit bureaus and incurring any late payment fee. Those people who do not pay their outstanding credit card bills will accumulate huge financial charges, which might range anywhere about 23-49% p.a. Therefore, you might avail the moratorium but it could land you in a debt trap because the outstanding credit card dues will keep on piling up with hefty financial charges alongside. The only intelligent thing to do here is to repay your credit card bills by the due date and in full, always. In a situation where you are facing issues to repay the full amount of money on time, you can consider other alternatives such as personal loan, if possible, to convert the entire outstanding balance or big-ticket spends into EMIs or pay off the credit card debt. The tenure of these alternatives may range anywhere about 1 to 5 years, thus, enabling repayment in smaller parts in the form of EMIs. The interest rates that are levied on these options are way less than the financial charges that you would be required to pay on your unpaid credit card dues.

  • Maintain your credit utilization ratio over 30%:

This ratio means the proportion of total credit card limit used by you. Given that lenders normally consider a credit utilization ratio of over 30% as a sign of being credit hungry, credit bureaus too drop your credit score by a few points on breaching this mark. Therefore, to work towards building and maintaining a high credit score, make sure you contain your overall credit card spends within 30% of your total credit limit. In case you are inclined to breach 30% mark of the credit utilization ratio, consider either to request your lender to raise your credit limit or go for an additional card.

  • Withdrawing cash through credit card:

Cash withdrawals through credit card attract twin charges in the structure of cash advance fee, as high as 3.5% of the withdrawn amount, and finance charges right from the day of such withdrawal till the date of repayment. These two charges together can burn a deep hole in your pocket, especially if done frequently. Cash withdrawal through credit cards should only be your last resort. In case it becomes totally unavoidable, make sure you repay the entire amount as soon as you can to minimize the impact of the associated charges.

  • Letting your reward points expire:

Credit card issuers highlight their reward points as an USP to their card holders. Some credit cards allow these reward points to be adjusted against the outstanding bill of the card whereas others allow them for availing pre-specified products and services, like fuel, airline tickets, gift vouchers, consumer goods, and so on. However, reward points of most cards come along with a pre-determined expiry period of normally 2 to 3 years. Many credit card holders fail to keep a track of these expiry dates and thereby, lose their accumulated reward points. Always keep a close track on the terms and conditions related to your credit card’s reward point program. Ensure to redeem your reward points before their expiry.

  • Not planning expenses based on interest-free credit period:

What is interest-free period?Interest-free period means the duration between the due date of payment and date of your credit card transaction, which normally ranges anywhere between 20 to 52 days. Credit card transactions made during this particular period do not attract interest cost in the outline of finance charges as long as the repayment is made by the due date. In simple words, the card issuer finances your credit card spends for free during this interest-free period. This feature can be enormously helpful in times like this when many people are facing short-term liquidity mismatches. Try planning your credit card spends, primarily the big-ticket ones, to maximize the advantage from interest-free period. Those people who have numerous credit cards can distribute their credit card spends across their cards for availing the maximum interest-free period.

  • You are not maintaining a strict budget:

We currently don’t know how long this lockdown would go. The lockdown period in containment areas is increasing every 2 to 3 weeks. One of the best ways in which you can secure an adequate emergency fund is when you keep a strict tab on your expenses. Therefore, prioritise your spends and based on your requirements, make a proper budget. You might want to delay big-time expenditure until things come back to normal. This will be helpful in maintaining ample savings and high liquidity. Give optimum preference to spending such as EMIs, rent, utility bills, medicines, and essential groceries over other expenses such as gadgets, if they are not an emergency need. The lockdown period will help in cutting down various regular expenses such as eating out, daily commutes, movie theatres and so on. This will completely work in your favour if you are trying your hand at cost-cutting.

  • Not having an adequate emergency fund in place:

It’s superlatively important to have in place an adequate emergency fund at this particular period. While the word ‘adequate’ might stand differently for different people, it is recommended to save the least of 6 months worth of your expenses. Depending on your requirements, you might want to increase the size of your fundings. An emergency fund will always be helpful to you in the time of your need, such now when an unexpected job loss could take place, or there could be a medical emergency or any such kind of financial emergency. Thus, it will help to minimize your reliance on borrowed fundings. Additionally, keeping your finances parked in an accessible instrument that is highly liquid such as a fixed deposit account or a savings account.

  • Do not remove SIP funds immediately during the lockdown:

Did you know that mutual funds are deep in red territory during the lockdown? But if you have invested in and SIP type of fund with a confirmed track record and your particular investments are in line with your long-period financial goals, you should not discontinue such investments without giving a proper thought towards it. The investors benefit from SIPs the rupee cost averaging and are made to absord the market volatility shocks and get desired returns in the long period. Apart from this, a struggling market may permit you to secure more mutual funds at a discounted amount. If you redeem SIP investments in a panic manner leading to unfulfilled financial goals and substantial capital loss. Therefore, consider all these points for making appropriate decisions and consulting your financial consultant if you have doubt.

  • Continuing with EMI payments offline:

Though the banks are allowed to remain open during the lockdown nationwide, break the curfew and getting to them might be causing problems. The RBI, in combination with other banks, are encouraging electronic transactions for minimizing the chances of COVID-19 spread. In such a case, you might find it difficult to repay the EMIs of your loans in an offline mode. This may lead to loan defaults or late payment penalties. The best thing would be to get contact your bank for changing your payment settings to a digital medium by providing a standing instruction. If you are not able to do so, you must check whether deposition of cheques at the ATMs, or any other electronic payment mode like NEFT, UPI, and IMPS, is a feasible choice or not.

  • Avoid clicking on unknown apps/links:

You may have received various types of information about essential service providers, namely milk, vegetables, and so on. They might ask you to download an app or click a link. But before doing so, ensure that it is a genuine offer. There might be many bogus links too. Just check the known source before downloading such apps or clicking such links. If it is from an unknown source, avoid it at all costs. It could be a plot for gaining access to your phones and accessing your details namely email, bank account number, and so on. This can be really harmful to you as thefts can take place due to this.

  • Ensure that you have a secured network from you work from home:

When you work from home, make sure your private WiFi is secured with a difficult password. This is very important to do as you will be connecting your system to the intranet system of your office. Additionally, make sure you change your password on a regular basis. Moreover, lock your laptop and do log out of it when you are not using the gadget. This is vital if you have sensitive documents required for work. Protection of such documents is very important to do to avoid any misfortunate situations.

  • Exercising caution when carrying out online transactions:

When you use your credit/debit card at online stores, make sure that the app or website is a verified and known one. Make sure that the app should be verified by Apple store or Google Playstore. Also, the website link should be of secured type, which will be represented through a lock symbol. If there is a choice to use a virtual keyboard to put in the PIN, choose that in comparison of the keyboard of your desktop/laptop. Moreover, never ever share the OTP when doing online transactions. This can risk your bank balance on a huge basis. Save all SMSs and emails relating to your transactions so that you have complete proof when you need to raise a dispute over a deceitful or fraudulent transaction.

  • Using UPI in a safe manner:

Okay! We know that the UPI mobile application is the best method of transferring funds. Various merchants are accepting UPI payments are current time. If you also want to order essential items too for getting delivered to your home and a mobile swipe machine is not available with the delivery person, use the UPI app for making the payment. But you need to be very careful when you use it because UPI is linked to your bank account.

Moreover, you should make sure that you accept requests only from the verified merchants, as when you accept a UPI money request, it refers to a debit from your account. Also, do not sure the OTP or PIN numbers with anybody. Do not even share the SMSs received as verifications because when you share these, you accidently also share the details of your account number. Avoid sharing any such crucial details altogether. There might be people who claim to official representatives of your bank or a third party app, they might be scamsters and that is why, you should never disclose your passwords to them. Reputed banks will never ask for all these details from you. Remember that your bank will not ever ask you for your personal details that are related to security such as OTP, UPI PIN, or debit card details such as expiry date, CVV, and card number. Kindly do not share any such confidential data to anybody under any conditions. Also, be aware of any spam warnings given by your UPI app whenever you get a payment request from an unidentified account. Please ensure to block any such requests by clicking on the ‘Block and Report as spam’ button.

  • Investment tips:

Investment on hot stocks or investment tips is normally shared during such times of crisis when the equity market is going through extreme volatility. Avoid trading or investing on such tips. Ensure that you read up about the financials of the company and its history before making investment in it. Furthermore, avoid making investing in unfamiliar companies because the stock price is really less.

Conclusion: On a whole, while you practice social distancing, you like various others, are carrying out financial transactions online along with working from home. In such a time, it is very important to take certain precautions for the purpose of online use and safe banking. Credit Bazaar provides you complete assistance for keeping your financials safe, sitting in the confines of your home.

For any queries regarding Credit Score improvement or Loan contact Credit Bazaar CR Arcade 2nd Floor, Opposite Delta Garden, Next to Shree Mahalaxmi Restaurant, Mira Road East, Thane: 401107

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