UNDERSTANDING CREDIT SCORE (CIBIL):
Range: 300–900 | Good: 750+ | Excellent: 800+
Factors:
35%: Payment history — never miss EMI/credit card payment
30%: Credit utilisation — keep below 30% of credit limit
15%: Length of credit history — older accounts = better
10%: Credit mix — loans + credit cards = better than only one type
10%: New credit inquiries — hard inquiries reduce score temporarily
Build credit score:
Pay all dues on time (set auto-pay)
Keep credit card utilisation low
Do not close old credit cards (reduces average age)
Check CIBIL report annually (free once/year at cibil.com)
GOOD DEBT vs BAD DEBT:
Good debt (potentially): home loan (builds asset), education loan (increases income)
Bad debt: credit card revolving balance (24–42% interest!), personal loans for consumption
Credit card: PAY IN FULL every month — never carry balance
Interest-free period: 18–55 days if paid in full
Minimum payment trap: Rs.10,000 balance at 3%/month = 11 years to repay paying minimum
EMI CALCULATION:
EMI = P × r × (1+r)^n / ((1+r)^n - 1)
Where: P = principal | r = monthly rate | n = months
Rule of thumb: every Rs.1 lakh at 10% for 10 years = EMI Rs.1,321/month
Prepay high-interest loans first (avalanche method)
Debt snowball: pay smallest balance first for psychological momentum
INSURANCE vs INVESTMENT:
Never mix: ULIPs and endowment plans give poor returns AND poor coverage
Correct approach:
Step 1: Buy pure term insurance (Rs.1 crore for ~Rs.8,000–12,000/yr if young)
Step 2: Buy health insurance separately
Step 3: Invest separately in mutual funds/PPF/NPS
CIBIL SCORE: 750+ good | 800+ excellent | payment history 35% of score
CREDIT UTILISATION: keep below 30% of total credit limit
CREDIT CARDS: PAY IN FULL monthly — never carry balance (24-42% interest)
GOOD DEBT: home/education | BAD DEBT: credit card balance, personal loan for consumption
TERM INSURANCE: separate from investments | pure term only | ~Rs.10,000/yr for 1 crore
AVALANCHE: pay highest interest first | SNOWBALL: pay smallest balance first
