Harshala Chandorkar | Updated On: April 15, 2015 15:16 (IST) | NDTV Profit
(Harshala Chandorkar is senior vice president-consumer services and communications at CIBIL)

Jairam Shetty, a general manager with a leading FMCG company, had been planning his retirement for a while. Having saved a sizeable amount for his post-retirement plans, Mr Shetty along with his wife Asha was looking at investing in a holiday home in Palakkad in Kerala.

A highly disciplined man, Mr Shetty ensured that his finances were in order and his bills paid on time. He only used his corporate credit card for official expenses and almost never used his personal credit card. He did, however, give his daughter, a business school student residing at a hostel in Pune, an add-on card for having access to finance in case of emergency.

Being the disciplined man that he was, Mr Shetty made it a point to regularly pay all his utility bills, loan EMIs and corporate credit card bills every month before the due date. However, as his daughter did not use the add-on credit card during the first few months of her stay at the hostel, Mr Shetty assumed that his daughter may not use this card and did not bother to keep a tab on its bills.

As time flew, Mr Shetty forgot about the add-on card given to his daughter and was all set to purchase his new holiday home in Palakkad. As a practice, he accessed his CIBIL report and CIBIL TransUnion score to check his financial health and credit history before applying for a loan for this holiday home. Having acquired his report, he realised that his CIBIL TransUnion score had dipped below 700 due to non-payment of dues accrued in the last couple of months on his credit card. On reviewing his credit report diligently, Mr Shetty realised that these missed payments were on the add-on credit card he had given to his daughter a year ago.

A man well-versed with banking and financial nitty-gritties, Mr Shetty knew that he would now have to forestall his holiday home buying plans till his credit score improved and he was able to get a loan.But the first thing he did after this revelation was to talk to his daughter and explain to her the critical need of using credit cards wisely and paying credit card and loan dues on time. Mr Shetty also organised a guest lecture on CIBIL TransUnion score and the need for financial discipline for a prosperous future at his daughter’s B-school by one of his banker friends.

It is imperative to know that the usage and payment pattern of an add-on credit card given to spouse or children is captured in the principal card holder’s credit report and will affect his/her CIBIL TransUnion score directly. An add-on card is an additional card which you can apply for against your primary credit card and will have all the features applicable on your primary credit card. If you are going to give an add-on card to the dependent members in your family, you need to make sure that they use the credit card facilities prudently and ensure timely payments of the credit card dues. Therefore, it is very important for the primary credit card holder to educate the users of add-on credit cards about using them wisely.

Remember that an add-on card mostly does not get a separate credit limit, it shares the credit limit on the principal holder’s credit card. Hence, if the dependent spends Rs. 20,000 on his/her add-on card, your collective limit comes down by Rs 20,000.

Here are some basic guidelines on managing add-on credit cards for ensuring a healthy credit report and score:

• Educate the dependent members of your family on the responsibility and the terms and conditions of the add-on credit card before giving it to them
• Mutually decide and agree to a monthly spending cap on the add on credit card
• Monitor the spending on the add-on credit card and ensure that it is always within the agreed cap
• Set all credit transaction alerts to one mobile number/email address so that you have a clear understanding of the usage of all your add-on credit cards
• Review your CIBIL report and CIBIL TransUnion score regularly to keep a track of all your credit obligations and your credit score

Mr Shetty, however, was wise that he checked his CIBIL TransUnion score in advance and did not have to face the embarrassment of loan rejection. Having been the disciplined man himself, he managed to gradually build back his CIBIL TransUnion score and get the loan for his holiday home.

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