Rewrite Your Credit History For Financial Freedom

In India, most working people start thinking about their retirement after they are well into their 30s or 40s. However, to have a financially strong retired life, ideally one needs to think and also plan) about retirement soon after taking up the first job. That way, time would be on his/her side to build a substantial retirement corpus over the long term through a disciplined investment approach. In other words, time and the power of compounding would give one financial freedom during his/her sunset years. 

So what is financial freedom? "The word freedom evokes a sense of hope, inspiration, choice and joy all at the same time, and could mean very different things to different people ," says Vishal Dhawan, founder, Plan Ahead Wealth Advisors. 

"Financial freedom is something which can give us the same sense of emotions of liberation for the money side of our life," he adds. However, according to Dhawan, you need to remember that financial freedom is not a gift, but an achievement. "We have to put in active efforts to achieve this phase of financial freedom in our lives," he says. 

To achieve this goal, Dhawan suggests a few easy-to-achieve steps. These are knowing your exact financial position, crystallizing your goals, building a road map to reach those goals, followed by concrete action according to the road map, then sticking to the plan and, lastly, reviewing the plan periodically but not too frequently .

"These steps may not give you financial freedom tomorrow but remember that, just like a journey of a thousand miles begins with a single step, your journey towards financial freedom begins when you firm up your mind about achieving the same," he says. 

A related article by Vikrant Gugnani details the steps you need to take to have a financially independent life over the long run. 

Leaving positive footprints 

Here, we give you some idea about another aspect related to your financial dealings that can have substantial bearing on your financial freedom: Your credit history (called credit footprint) and why increasingly it is becoming important in every individual's life. As the term suggests , the credit history of an individual is that person's track record of dealings with various institutions like banks, home loan and other financial services firms and also other companies where an individual may have left some monetary dues — like telecom service providers, etc — knowingly or unknowingly . Put simply, if your credit history is good, you are always in a sweet spot to easily avail of loans from a lender or get a credit card from a card-issuing institution . On the other hand, if your credit history is bad, you may have a tough time getting a loan or a credit card. According to Mohan Jayaraman, MD, Experian Credit Information Company of India, individuals need to be very careful about their credit histories. However, the reality is that not many people are careful about the same and, over the long run, this may affect the financial life of an individual. 

Taking care of your history 

According to Jayaraman, the first step is to take out a consumer report from any of the four registered credit bureaus after presenting appropriate know your client (KYC) documents like a PAN card, driving licence , Aadhaar card, or some other government-approved proof for an individual and his/her address. There are four sections in this report. The first is the demographic report in which there will be the name, age, address, etc. You should check if these things are correct, or get it corrected in case of any wrong entry. The next section is the credit summary which gives details about loans, credit cards, etc, that you have taken. 

The third section is called the credit tradeline where the status of the loans, credit cards, etc, is given. The report will also give you data about how many credit cards you hold and the status of each. It could be that you may have used a credit card many years ago but have not cancelled it, although you think it was cancelled. 

As a result, some huge dues may have piled up in that credit card account . In such a situation, you need to correct the tradeline data. 

The fourth section is about the number of enquiries the credit bureaus got about your application for loans, credit cards, etc. In other words, it gives the whole summary of the number of times you have gone to banks and other lenders for loans, credit cards, etc. 

For a smooth financial life, although the first priority is to have a disciplined and well thought-out long-term investment plan, having a good credit score, which comes from a solid credit history, is also essential, according to financial advisers. 

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