Thursday, 7 April 2016

Similarities between stock investments and credit scores



One would think one who has the investor mindset, does not really need to bother about credit scores, but that is a myth. Whether or not you are an investor or not, it is imperative for everyone to make a continual attempt at manage good credit score, for the simple reason that usage of credit at some point of time in your life is inevitable. 

You may find yourself seeking out small personal loans, checking out your options of buying your dream car with a car loan calculator or least of all comparing offers from various credit card companies for a credit card that you think will work best for you. Without a good CIBIL score, it is nearly impossible to get access to cheap and timely credit when you may need it the most. 

It is therefore a must for you to try and increase your credit score at all times. In fact, if you are starting out as an investor, it may serve you well to know that investing in stocks and maintaining a good credit score, requires almost similar levels of due diligence, skill set and discipline. Here are some similarities that we have listed out for you to check out for yourself. 

Start early
If you are interested in investing in stocks, it is always considered financially prudent to start out as early as possible. The younger you are, the higher is your risk appetite. In other words, you have a larger tolerance for potential losses. The higher the risks you can take, the higher are your chances of earning higher returns as well that ultimately goes a long way in wealth creation. Similarly, when it comes to maintaining a good credit score, you should begin with good credit card right from the time you start using a credit card. Good credit behavior sets you out on the right path and surges you ahead on your quest to better CIBIL score at a later date.  

Educate yourself
When it comes to investing in stocks, the one thing that is absolutely necessary to do is due diligence and adequate research. You need to follow the capital markets, follow the macro economic trends, track the proceedings of the companies whose stocks you are interested in investing in and their market value and performance. What we are trying to say is your research must be completely thorough and you should educate yourself about every possible nuance of investing before you actually start the process of investing. Thorough knowledge and good research are the key ingredients when it comes to recipe for success in the stock markets. 

Similarly, when it comes to maintaining a high CIBIL score, you cannot undermine the importance of self-education. Credit scores are a relatively new concept in India and not too many people know enough about its importance. Thankfully though credit bureaus, credit health companies as well as lenders themselves have taken it upon themselves to educate the public at large about the need to maintain a high CIBIL score in order to access timely credit. As a result, there is a lot of information going around about credit scores and their importance. It is therefore very important for you to educate yourself about credit scores as much as you can and maintain good credit behaviour. This will help you keep your credit scores high and open up doors when you need credit. 

Diversification
Any investment advice begins with the simple premise that you do not intend to keep all your eggs in one basket. The key to good investment is diversification. The more you diversify among various asset classes, the lesser is your risk and the higher are your chances of potential returns. Similarly, if you intend to improve your credit score, you should ensure that you do not have too many unsecured loans such as personal loans and credit cards. This increases your risks and also brings your credit scores down. It is thus always advisable to maintain a good mix of credit such as secured and unsecured loans and service them well on time. This will help you to improve CIBIL score in the long run. 

Periodic review
The thing about investments is that you cannot invest once and simply forget about it. You need to take periodic reviews to find out whether your investments are on track and are in sync with your financial goals. If not, you need to do what it takes to remove the laggards and back the performers. The same principal is applicable to your credit scores. You cannot sit tight presuming all is right with your CIBIL score. It is considered financially prudent to carry out periodic reviews of your credit scores by checking you credit scores and credit report. This is to ensure that no errors or discrepancies have crept into it. If you are keeping a hawk eye on your CIBIL score and CIBIL report your financial health will be in perfect order and you can be assured that you will get access to credit whenever you need it. 

Thus as you can see, both investing in stocks and maintaining high credit scores require the same amount of financial discipline. Just as you take care of your physical health by eating the right foods and exercising enough, so you should with your finances as well. You financial health is as important as your physical health and it is up to you to do the needful.

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